Brandeis University and Harvard University
Efforts to help Puerto Rico recover from Hurricane Maria brought attention to the Jones Act, which prevents foreign-owned or operated vessels from shipping between ports in the United States, limiting competition in that type of transportation.
- The Merchant Marine Act of 1920, often referred to as the Jones Act, requires shipping between U.S. ports to occur on ships that carry the U.S. flag, are built in the United States, and are owned by U.S. citizens. The act also requires crew on these ships to be comprised of at least 75 percent U.S. citizens or permanent residents.
- The original rationale for this act was to support the American merchant marine fleet, an issue of concern after World War I. The Jones Act’s main purpose subsequently shifted towards supporting employment and work conditions for American shipbuilders and seamen.
- The Jones Act raises the cost of transporting goods between American ports. For example, the cost of shipping crude oil from Texas to refineries in the East Coast is significantly more expensive per barrel than shipping crude to much more distant locations (see chart). In 2012, the Federal Reserve Bank of New York found that shipping cost for a twenty-foot container from the mainland United States to Puerto Rico was $3,063, but only $1,503 for the same container from the mainland United States to the neighboring Dominican Republic.
The Jones Act provides a particular example of how restrictions on trade benefit a very small group of producers at the expense of a vastly larger group of consumers. There is political support for these types of restrictions because the benefits are concentrated while the costs are much more diffuse; in this case, the beneficiaries are the owners and workers in the U.S. shipbuilding and industries while the costs are borne by consumers of shipping services, especially those in places like Alaska, Hawaii and Puerto Rico that disproportionately depend upon those services. The costs of this act become particularly apparent at times of acute crisis, but its ongoing costs endure in more normal times and generate a structural impediment for places like Puerto Rico, as well as an overall burden on U.S. consumers.
The latest data on wealth show broad-based positive gains for American households over the last few years. But, they also highlight the growing concentration of wealth at the top, and the difficulties many families face when it comes to saving and building wealth.
- Families in nearly all income and socioeconomic groups saw increases in wealth (assets minus liabilities) between 2013 and 2016. But many households have not yet made up for the losses they suffered during the Great Recession. The wealth of the typical household was $97,300 in 2016, up 16 percent from its value in 2013, but, on net, down 30 percent from its value in 2007 in inflation-adjusted terms (see chart).
- The wealth of nonwhite and Hispanic families grew more in percentage terms than that of white families between 2013 and 2016 — but started from a much lower base. In 2016, the typical nonwhite family's wealth was $17,600 and $20,700 for the typical Hispanic family, compared with $171,000 for the typical white family. Such low levels of wealth imply that many of these families have a limited buffer against job loss or unexpected spending needs and are on track to have a very limited ability to supplement their income in retirement.
- One of the reasons many households struggle to build wealth is that they have difficulty saving. Only 55 percent of households in the 2016 Survey of Consumer Finances reported saving over the preceding year (up from 53 percent in 2013). For households in the lower half of the income distribution, only 43 percent reported saving.
Although the 2016 Survey of Consumer Finances revealed broad-based good news about how the financial situation of U.S. households evolved between 2013 and 2016, there is also cause for concern. After adjusting for inflation, the wealth of the typical household remains materially behind where it was in the first decade of the 2000s and a large share of households seem to be having difficulty saving. Policies that encourage more firms to offer well-designed workplace retirement saving plans such as tax breaks for setting up such plans could help make it easier for households to build wealth. It is also important to preserve institutions that help households protect any savings that they have such as the Department of Labor’s Fiduciary Duty Rule and the Consumer Financial Protection Bureau.
Texas A & M University
Giving by individuals accounts for nearly three-quarters of charitable giving in the United States, over $280 billion in 2016. The U.S. tax code currently encourages charitable giving by individuals who itemize their expenses. Recent tax reform proposals differ widely on how to treat charitable giving.
- The charitable giving deduction is capped at 50 percent of adjusted gross income and is only available to households that itemize deductions. About 30 percent of households do so and tend to be higher-income, but they represent about 80 percent of giving by individuals.
- The deduction has been in the eye of reformers. Some have proposed expanding the availability of the deduction to all households, irrespective of whether they itemize. Others would cap or even eliminate the deduction. Others still recommend a tax credit rather than a deduction, in which all tax filing units receive the same benefit from making a donation regardless of their tax bracket.
- The version of the Trump administration’s tax proposal circulating as of this date would leave the charitable deduction in place. However, the plan would double the value of the standard deduction, which would reduce the number of households itemizing their returns (eliminating eligibility for the charitable giving tax deduction). In addition, the administration is proposing reductions to marginal tax rates, which would also reduce the value of tax incentives for charitable donations.
- Estimates from the economics literature vary, but suggest that charitable giving is quite responsive to tax incentives.
Tax policy is extremely complex and any changes involve numerous factors that will affect individuals’ giving patterns and government revenues; overall estimates differ dramatically depending on the specifics of the proposal. As a general rule, though, reductions in tax incentives will reduce donations.
International Macroeconomics and Exchange Rates
International Macroeconomics and Exchange Rates
Robert M. La Follette School, University of Wisconsin-Madison
Global imbalances have risen in the wake of the global recession that began in 2008. While their current size remains below those in the middle of the last decade, they remain a source of concern.
- In the international exchange between countries at any given point some countries are importing more than they are exporting and vice versa and, concurrently, some are net lenders while others are net borrowers. These external imbalances — both deficits and surpluses — can be appropriate and desirable. But when the value of the global imbalance becomes large, or is based on circumstances that are not sustainable, it can entail risks to the global economy.
- Many economists have argued that global imbalances that became too large were a contributing factor in the Great Recession and the Global Financial Crisis that accompanied it. Global imbalances grew markedly in the years prior to the Great Recession, reaching almost 3 percent of world GDP in 2006-7 (see chart.) Imbalances decreased in the immediate wake of the Great Recession but have since rebounded, albeit not to the same extent.
- Persistent current account surpluses from countries such as Germany, China, and Korea in the face of a persistent and increasing current account deficit in the United States contribute to increasing political tensions over trade policies.
- The current account balance is primarily a macroeconomic phenomenon and, accordingly, policies that adjust macroeconomic conditions are the most effective tools for tackling undesirable global imbalances. Recent estimates indicate that on average, a one percentage point increase in the government budget deficit raises the current account deficit by up to a half of a percentage point. Hence, a projected increase in U.S. government deficits implies a widening of the United States current account deficit.
Since current account surpluses and deficits are primarily driven by saving and investment decisions, attempts to reduce the United States' trade deficit by way of protectionist trade measures, such as anti-dumping tariffs and countervailing duties, and withdrawals from free trade agreements, are unlikely to be effective. Instead, they will redistribute the trade balances between our different trading partners. On the other hand, fiscal policy measures – such as the large tax cuts on the order of $2.2 trillion over ten years currently envisaged by the Trump Administration and the Republican led Congress – are very likely to drastically increase budget deficits and hence current account deficits.
Deaths involving prescription or illicit opioids have taken more than 300,000 lives since the late 1990s in the United States. During the same period, death rates among non-Hispanic white, middle-aged Americans have increased dramatically, reversing decades of increasing U.S. longevity, and diverging from continued improvements in European countries. While these two trends are closely related in some ways, the opioid epidemic by itself does not fully explain the increases in death rates of Americans at their most productive ages.
- Economists Anne Case and Angus Deaton have grouped together opioid overdoses with deaths by suicide and alcoholic liver disease to create a broader measure of “deaths of despair,” and these continue to rise at an alarming rate for Americans 25-64 (see chart). Although they have been hard hit, the opioid epidemic is not limited to white, Trump-voting men. Both women and men of White, non-Hispanic origin experienced similar rises in opioid-related mortality between 1998 and 2015. Rural and urban areas are both affected. While blacks appeared protected early on, they have experienced rising mortality due to deaths of despair during the 2010-15 years.
- Other sources of illness among older middle-aged people such as heart disease, stroke and lung disease are also on the rise.
- One factor common to rising death rates from diverse causes is lower levels of education; those with a high school degree or less are affected most. This is significant because less educated Americans have exited the labor force in historic numbers and, among those still employed, wages are stagnant or falling.
The current crisis of rising mortality and opioid overdose are part of a widespread deterioration in working conditions that spans (middle) ages, race, and gender, as well as multiple distinct causes of death. The fact that the group most affected by all causes of rising mortality is also more likely to face stagnant employment and wage prospects suggests broader forces contribute to these rising deaths. Close scrutiny of labor market policies does not deny the importance of getting illegal and legal opioid use under control, nor does it guarantee that other factors leading to poor cardiovascular and pulmonary health will be improved by labor market policies. But expanding labor market opportunities for the cohort of people most affected by rising mortality rates is a great place to start.