Posts tagged with "taxes"

Opinion: Will tariffs really raise consumer prices?

 
President Trump recently raised tariffs on $200 billion worth of Chinese exports and threatened to impose import duties on all Chinese goods coming into the United States.  Will American prices rise substantially as a result? This is a loaded question, because contrary to popular belief, tariffs don’t always raise prices.
 
One alarming study from The Trade Partnership, a think tank, estimates that an average American family of four may have to pay an extra $767. And if all Chinese exports are taxed, the cost could rise to more than $2,000.
 
However, the effects of tariffs on prices are not as straightforward as they may appear at first glance. Indeed, until the pioneering contribution by the late Lloyd Metzler, a University of Chicago professor, the question was not even explored. It was taken for granted that tariffs automatically raise the prices of imported goods. But Metzler’s article, known in the literature on international economics as the Metzler Paradox, changed this view once and for all. Let us analyze the problem without hysteria.
 
Tariffs have two effects on prices: one tending to raise them, the other tending to lower them. The overall impact depends on which effect is stronger.
 
It all comes down to supply and demand for goods in China. The United States is a large importer of Chinese products, so tariffs will cause a huge decline in American demand for Chinese goods because of the initial rise in prices. But as demand falls substantially, the prices of exportable goods inside China will also decline substantially. 
       
Assuming that transportation costs are minimal, as they are nowadays, the American price of a Chinese product is determined as follows: American Price = Chinese Price(1 + t), where “t” is the rate of tariff. From this formula, it is clear that there are two countervailing effects on the U.S. price of Chinese goods. A rise in the tariff rate initially tends to raise it, whereas the resultant fall in the Chinese price tends to lower it. The final effect depends on whether the Chinese price declines more or less than the rate of tariff.
 
As a simple example, suppose Walmart imports a shirt from China for $20, and then faces a 25 percent tariff on that import. If China’s price is constant, then the same shirt will now cost $24. But the Chinese price cannot stay constant. Since the United States imports a vast number of Chinese shirts, the demand for Chinese shirts will fall sharply, and that will lower the Chinese price. Say this price declines to $18, then a 25 percent tariff will raise its U.S. cost by one fourth to $22.50, which is still higher than its free-trade cost of $20.
 
At a Chinese price of $16, the tariff-inclusive price will be the same as the free-trade price. But if the Chinese price were to fall below $16, the cost to Walmart will be less than $20. Thus, it all depends on the forces of supply and demand inside China. 
 
The extent of the Chinese price decrease depends on the cost of producing a shirt. If this cost is low, then the price decrease can be large in the wake of declining demand, because a producer can still make some profit. Since Chinese wages are much lower than American wages, the Chinese cost of producing a shirt is likely to be very low, in which case the Chinese shirt price can fall substantially. If that happens, American prices of goods imported from China could actually decline.
 
Indeed, this may explain why thus far the U.S. tariffs that were imposed on Chinese exports in September 2018 have not been inflationary. In fact, even the Federal Reserve has been surprised by the recent cooling of core inflation and, as a result, pledged not to raise interest rates any further.
 
So the American consumer has nothing to worry about, especially when the consumer can easily switch to imports from other countries.
 
Large trade deficits with China have decimated American manufacturing and wages. U.S. industries need a revival, and tariffs are indispensable toward this purpose. In 1800, at the start of the American republic, barely 5 percent of the U.S. labor force was employed in manufacturing; today, according to the Economic Report of the President, 2019, the share is about 8 percent — vastly below the 30 percent figure that prevailed in the 1960s. 
We are very close to where we were in 1800, and clearly, the manufacturing sector still needs a lot of support.
 
Note that under Abraham Lincoln tariffs were as high as 60 percent. As a result, following the Civil War, American manufacturing became the envy of the world. By 1900 the United States was among the nations with the highest living standard. Even though tariffs were high, prices fell or remained stable for several years. 
 
Such price behavior helped raise the overall standard of living. When a 60 percent tariff rate could not harm the American consumer, how can a mere 25 percent? Free trade has been the holy grail of international economics for decades, but historically, the fastest growth in the American living standard has occurred under the umbrella of tariffs.
 
Ravi Batra is a professor of international economics at Southern Methodist University, Dallas, Texas. He is the author of The Myth of Free Trade. His latest book is End Unemployment Now: How to Eliminate Joblessness, Debt, and Poverty Despite Congress.

THE ECONOMIST x OPEN FUTURE

The Economist, a leading source of analysis on international business and world affairs, today announced “Open Future”, an editorially driven initiative (www.economist.com/openfuture) which aims to remake the case for The Economist’s founding principles of classical British liberalism which are being challenged from all sides in the current political climate of populism and authoritarianism.

“Although the world has changed dramatically since James Wilson founded The Economist to fight against the Corn Laws, the liberalism we have championed since 1843 is as important and relevant as ever,” said Zanny Minton Beddoes, editor-in-chief, The Economist.  “Yet the core tenets of that liberalism—faith in free markets and open societies—face greater resistance today than they have for many years. From globalization to free speech, basic elements of the liberal credo are assailed from right and left.”

Content for Open Future will be developed and organised around five themes: Open Society (diversity, and individual rights versus group rights); Open Borders (migration); Open Markets (trade, markets, taxes and welfare reform); Open Ideas (free speech); and Open Progress (the impact and regulation of technology). In addition to content from The Economist editorial staff, the Open Future hub will feature commentary from outside contributors, including from those with dissenting points of view.

The initiative launches with a debate between Larry Summers and Evan Smith about no-platforming and free speech at universities. Mr Summers is the Charles W. Eliot University Professor and President Emeritus at Harvard University. He served as Secretary of the Treasury for President Clinton and as the Director of the National Economic Council for President Barack Obama. Evan Smith is a Research Fellow in history at Flinders University in Adelaide, Australia and is writing a book on the history of no-platforming.

A special report on the future of liberalism written by editor-in-chief Zanny Minton Beddoes will appear in the newspaper’s 175th anniversary edition dated September 15th. And on that Saturday, the newspaper will host the Open Future Festival, to be held simultaneously in Hong Kong, London and New York. There will also be an Open Future essay contest for young people; surveys and other data visualizations; podcasts; social-media programs and new video from Economist Films.

DISCOVER SOUTH AFRICA x TAX REFUND

It is that time of the year again, when Americans start preparing their tax returns, but there’s good news as most taxpayers can expect to receive an average refund of $2,895 according to the IRS. This year, South African Tourism is once again launching its Tax Refund campaign to encourage savvy travelers and adventure seekers to make the most of their refund with an out-of-this-world trip to South Africa. Partnering with the top US travel trade partners South African Tourism unveils six new exciting packages priced between $1,700-$3,200 to reflect the average tax refund. The packages offer a variety of experiences focusing on romance, adventure and culture throughout South Africa.

 

Today’s favorable exchange rate also guarantees US travelers’ hard-earned refund money goes further than ever in South Africa. South African Tourism is also excited to collaborate with TurboTax® this season on a blog post inspired by South Africa’s 10 most Instagrammable locations which will be live onwww.blog.turbotax.intuit.com/.

 

Whether a history buff, art and culture enthusiast, foodie, adventurer or nature lover, South Africa has something to offer every discerning traveler looking for an affordable vacation. This year’s exclusive deals include:

 

 

  • Gate 1 – 8 Day South Africa Tour with Game Drives & Flights — 8 days and 6 nights
Enjoy the best of Cape Town by exploring Table Mountain and then visit either the Winelands or Cape Peninsula. After a few days in the “Mother City,” head on to Johannesburg to transfer to the safari portion of your trip. You’ll be able to spot all kinds of wildlife while enjoying South Africa’s natural beauty. From US$1699/ Per Person Sharing (includes US $260pp savings with promo code SATD260).
This week, you’ll take a deep dive into exploring Cape Town’s gorgeous sites and vibrant culture. Whether biking through Cape Point, whale watching from the golden shores, or hiking Table Mountain, you’re sure to fall in love with Cape Town. From US $1,999* Per Person Sharing.
  • Great Safaris – Zululand Express Safari — 6 days and 4 nights
Explore the beautiful coastal town of Durban to see a different side of South Africa. Here, you’ll experience the historical melting pot of Indian and African cultures or spend a day relaxing on the beach. Afterwards, you’ll transfer to Thanda Safari Private Game Reserve to partake in game drives and learn about the Zulu tribe members that originally lived there. From US $2,195 Per Person Sharing.
  • Indus Travel – Super South Africa & Dubai — 13 Days and 9 nights
Guests can explore the vibrant city of Johannesburg and a guided tour to the Soweto Township, a cultural melting pot with a wealth of heritage sites that will fascinate any visitor. Visit Kruger National Park before continuing on to Stellenbosch in the heart of the Cape Winelands. Then Visit Cape Town, regularly voted one of the most beautiful cities in the world. From US$2,799* Per Person Sharing.
Enjoy scenic beauty, culture and world class restaurants in Cape Town. Marvel at spectacular views of the Atlantic seaboard from the top of Table Mountain. Explore the Cape Peninsula, on a full-day tour that offers dramatic scenery and endearing penguins. From US $2,999* Per Person Sharing.
Experience the perfect mix of safari and city with this trip to South Africa. After 3 nights of game drives in malaria-free Pilanesberg Game Reserve, couples can retreat to the beach suburb of Cape Town to relax. From US $3,199* Per Person Sharing.

 

 

“South Africa is blessed with breathtaking natural scenery, world-class safari experiences, and adrenaline pumping adventure activities; and with celebrations around the Nelson Mandela Centenary planned throughout 2018, now is the ideal time to visit,” said Bangu Masisi, President of South African Tourism, Americas. “These packages from our partners showcase the variety of exciting travel experiences that are made possible by using your tax refund”. To book these packages or view additional South Africa travel deals, please visit southafrica.net/deals. For more information on South Africa’s rich and diverse offerings visit www.southafrica.net, follow @SouthAfrica on Twitter and @VisitSouthAfrica on Instagram and Facebook.

 

 

California Citizens in Support of New Petition

CALA is a nonpartisan grassroots movement of concerned citizens and businesses who are fighting against lawsuit abuse in California. CALA serves as a watchdog to challenge abuses within our civil justice system, and engages the public and the media to deliver the message that lawsuit abuse is alive and well in California – and that all Californians are paying the price. CALA members and supporters represent a broad and diverse cross section of Californians. They own small retail stores and hotels, manufacturing firms, real estate brokerages, trucking companies, and more. However, the bulk of CALA’s supporters are several thousand consumers concerned about the impacts of lawsuit abuse.

As set forth more fully below, the citizens of California face significant risks as a result of the decision of the Sixth District Court of Appeal (the “Decision”), including potential health risks from wholesale abatement of even intact lead-based paint, and a reduction in property values of all pre-1981 properties. In addition, California’s businesses and economy will suffer from the reductions in tax revenue. For these reasons, CALA urges this Court to review the Decision.

The court’s abatement plan creates unnecessary risks to the public.There is no pressing public safety issue that warrants judicial usurping of a successful legislative program. In fact, the enforcement of local building regulations and the State’s current program to minimize lead exposure have drastically reduced the number of children with elevated blood lead levels. The court’s unprecedented abatement plan, which orders the abatement of even intact lead paint, puts the health of California’s children at risk. The court’s plan would actually expose children to more lead dust, not less, as studies by the U.S. Department of Housing and Urban Development (“HUD”) show. The vast majority of states around the country – and HUD- favor keeping lead paint covered rather than removing it. Currently, HUD will not pay to abate windows with intact lead paint.

 The Decision will lower property values. The Decision, which labels more than 3 million homes in ten jurisdictions as public nuisances, will cause property values across California to plummet. Property owners are required to disclose the existence of a nuisance when selling a property. In addition, the trial court requires that any properties that do not participate in the abatement plan, “should be deferred for actionable lead hazard control until the property owner vacates or sells the property.” Homeowners may not be able to take out a second loan or home equity line of credit. Sellers may be forced to lower the sale price if the home appraises lower than a buyer’s offer. This phenomenon will not be restricted to the 10 jurisdictions. Under existing law, pre-1978 properties in California are presumed to contain lead-based paint. (17 Cal. Code Regs. 35043.) The trial court expanded that presumption to pre-1981 homes and held that lead-based paint — even in an intact condition on certain friction surfaces – poses an imminent risk of harm and is a nuisance. Although this ruling applies only to the 10 jurisdictions, it has placed the legal status of intact lead paint throughout the State in question, and buyers across the State will be wary of purchasing pre-1981 properties.

California’s economy will suffer from the lost property tax revenue. California lost property tax revenue from depressed home values will undoubtedly cause critical public services to be cut. The Decision is likely to impair local governments’ ability to provide education, public safety, and other services residents demand and need. K-12 spending per pupil in California is tied to the Proposition 98 funding guarantee, and

would fall dramatically should The Decision be upheld. This would force school districts in the state to cut programs such as music, physical education, and art, reduce class offerings, and lay off staff. These cuts are likely to disproportionately affect lower-income communities just when the average blood lead levels of minorities and the poor are coming in line with the average blood lead levels of the general population.

The Decision rewards slumlords at the expense of responsible property owners.

The Decision places property owners with 10 or more housing code violations at the front of the line to get their properties inspected and abated. This will create a situation in which law-abiding citizens who have maintained their properties will have to endure crashes in property values and wait in line while the bad actors get rewarded for willfully failing to maintain their properties.

For the reasons set forth above, CALA urges this Court to review the case in order to restore order and predictability for California’s property owners and tenants, and to put law making on the critical issues of housing and public health back in the hands of the legislature.

ABA × Congress

ABA urges Congress to apply pass-through tax reductions to professional service businesses on nondiscriminatory basis

American Bar Association President Hilarie Bass sent a letter today to House and Senate conferees for H.R. 1, the “Tax Cuts and Jobs Act,” urging them to adopt the Senate’s version of “pass-through” business tax relief.

The ABA’s letter also urged the conferees to apply the tax relief to all pass-through entities — including law firms and all other types of professional service businesses — on an equal and nondiscriminatory basis.

The full letter can be found here.

Go to www.abalegalfactcheck.com for the ABA’s new feature that cites case and statutory law and other legal precedents to distinguish legal fact from fiction.

With more than 400,000 members, the American Bar Association is one of the largest voluntary professional membership organizations in the world. As the national voice of the legal profession, the ABA works to improve the administration of justice, promotes programs that assist lawyers and judges in their work, accredits law schools, provides continuing legal education, and works to build public understanding around the world of the importance of the rule of law. View our privacy statement online. Follow the latest ABA news at www.americanbar.org/news and on Twitter @ABANews.