The jobless rate last month edged down to 4.1%, the lowest reading since December 2000. That low rate, however, reflects that fewer Americans were working or seeking work during the month. The labor-force participation rate slipped to 62.7% from 63.1% in September. The prior month’s reading was the highest in years—and the participation rate slipped in October back to a level recorded this spring.
U.S. employers added 261,000 jobs to payrolls in September—the best pace of monthly pace of hiring in more than a year. Employment rose sharply in food services and drinking places, mostly offsetting a decline in September that largely reflected the impact of hurricanes Irma and Harvey, the Labor Department said. Hiring last month also improved in business services, manufacturing and health care.
Average hourly earnings slipped by a penny to $26.53 in October. It was disappointing showing for wages, which had appeared to break out the prior month. From a year earlier, hourly pay rose a lackluster 2.4% in October. Many economists are waiting to see wages rise at a faster pace given the historically low unemployment rate.
Payroll growth was significantly stronger than previously estimated in recent months. Upward revisions showed 90,000 more jobs were added to payrolls in August and September than previously reported. September hiring was revised to a gain of 18,000 from an initial estimate of down 33,000. That keeps intact the longest stretch of consistent job creation on Labor Department record.
A broad measure of unemployment and underemployment known as the U-6, which includes people stuck in part-time jobs and others, was 7.9% in October. That was the lowest monthly reading since 2006.The rate has been declining this year in concert with the narrower unemployment rate, known to government statisticians as the U-3.
The Wall Street Journal weighs in on the surprise surcharge that the Republicans presented in their tax plan — and subsequently defended when it was discovered. I have reposted it below in its entirety, because it is excellent:
You know Republicans are intellectually confused when they send out press releases defending a top marginal income-tax rate of nearly 50%. Yet that’s what they were up to this weekend as they tried to justify their bubble bracket tax rate of 45.6% after our criticism on Saturday.
We called it a stealth tax rate because it’s buried in the fine print of the Ways and Means proposal. It also isn’t part of the tax simplification story Republicans are selling by publicly claiming the House reform shrinks the individual code to four rates from seven. But caught out by our reporting, they are now denying that the fifth rate is stealthy while defending it as good policy.
The 45.6% is a bubble rate because it applies to tax-filing couples who make between $1.2 million and $1.6 million (above $1 million for single filers). The surcharge is intended to claw back any benefit these filers get from the new 12% income bracket that applies to income of less than $90,000 for couples ($45,000 for single filers).
Add that to the 3.8% ObamaCare surcharge that Republicans are keeping as part of tax reform, and these taxpayers would now have a top marginal rate of 49.4%. Add state and local taxes, which would no longer be deductible against federal taxes (a policy we support), and these mostly Republican voters would in many states pay a marginal rate (on the next dollar of income) close to 60% and an effective rate (total share of income) higher than they do now. Keep in mind this is Republican tax policy.
It’s no surprise, then, that Republicans are resorting to Democratic arguments that this is no big deal because these taxpayers can afford it. They’re also claiming this is kosher because the 1986 Reagan reform also had a bubble rate of 33% in addition to a top rate of 28%. But a bubble rate of 33% is a lot lower than 50%, which was the top rate before Reagan’s 1986 reform.
And as we wrote at the time (“Gephardt Soap Bubble,” Sept. 25, 1989), Reagan’s bubble rate was also a mistake. It greased the skids for raising the top marginal rate to 31% from 28% as part of George H.W. Bush’s tax increase in 1990. Democrats argued then that the wealthiest shouldn’t pay a lower marginal rate than the merely affluent, and the bipartisan deal was the 31% top rate for everyone.
If the Kevin Brady-Paul Ryan 45.6% bubble bracket becomes law, this will soon become the new top rate for everybody—perhaps when Nancy Pelosi is Speaker after 2018.
The other Republican defense is that this bubble surcharge raises some $50 billion over 10 years to pay for pro-growth tax cuts elsewhere. But these rate increases never raise what they claim because people change their behavior. The political truth is that the estimated surcharge revenue is really going to finance the huge increase in the family tax credit that costs $640 billion over 10 years. This family credit will also be refundable over time, which means it will be paid as a welfare check to people who don’t pay taxes.
In other words, Republicans are embracing higher tax rates a la Democrats to redistribute the money to non-taxpayers a la Democrats. Remind us again why college-educated suburbanites who are successful in business or the professions and are unenthralled with Donald Trump should vote Republican?
The best solution would be for Ways and Means to clean up this surcharge mess when it marks up the bill this week. Failing that, we need a cleanup in aisle two, which is the Senate Finance Committee.
Politico is reporting that there is a surcharge in the new Republican tax plan for high income earners. As described,
“Thanks to a quirky proposed surcharge, Americans who earn more than $1 million in taxable income would trigger an extra 6 percent tax on the next $200,000 they earn—a complicated change that effectively creates a new, unannounced tax bracket of 45.6 percent.”
But in the new plan, House Republicans want to claw back some of that benefit for individuals who earn more than $1 million, or couples earning more than $1.2 million.
Here’s how it would work: After the first $1 million in taxable income, the government would impose a 6 percent surcharge on every dollar earned, until it made up for the tax benefits that the rich receive from the low tax rate on that first $45,000. That surcharge remains until the government has clawed back the full $12,420, which would occur at about $1.2 million in taxable income. At that point, the surcharge disappears and the top tax rate drops back to 39.6 percent. This type of tax is sometimes called a “bubble tax,” because the marginal tax rate effectively bubbles up for a brief period before falling back to a lower level.”
Besides the obvious frustration that the GOP plan did not restore the Bush tax cuts and roll back the highest bracket permanently to 35% , having yet another surcharge on the wealthy is inexcusable. The Republicans can do better, and yet they succumb to the class warfare rhetoric that the rich must “pay their fair share.” Hopefully this will be eliminated in the final bill that gets voted on.
The House Republican tax reform plan has been released. Here are the highlights:
The top individual rate for high-income earners will stay at 39.6%
The corporate rate will be cut to 20%
Tax brackets will go from seven to four: the rates will be: 12, 25, 35 and 39.6%
The standard deduction will increase for single filers to $12,000 and joint filers to $24,000 , so that those filers below those thresholds will pay no income tax.
The child tax credit will increase from $1,000 to $1,600 per qualifying child. There will also be a new family credit (considered an expansion of the child tax credit) that provides a $300 credit for each parent to help with everyday expenses.
The mortgage interest deduction remains fully intact for currently existing mortgages. In contrast, those purchasing a home in the future will only be allowed to deduct interest paid on the first $500,000 of the total cost of their mortgage.
Retirement incentives for 401(k)s and IRAs remain unchanged.
The estate tax will be fully repealed but not for six years. Between now and then, In the interim, the estate tax exemption will double.
A deduction for state and local property taxes will be capped at $10,000.
Once the House Ways and Means committee begins to gather feedback , changes will inevitably be made with a hopeful time frame of Thanksgiving for a final bill and vote.
The stated intent of the new proposed Tax Reform Package is to grow the economy while providing tax cuts and simplification for the middle class. Forget the fact that as the most progressive tax system in the World, our lower and middle classes already carry a substantially smaller tax burden than in any other country. Just note that the principal middle class tax cuts being proposed is simple political theater and do little or nothing to simplify the tax law, grow the economy, or help the taxpayer.
The lawmakers have proposed nearly doubling the standard deduction from $12,700 to $24,000 for married couples and from $6,350 to $12,000 for single filers. On paper, that sounds good. It provides a tax reduction for those who do not itemize their deductions, though it is neutral for those who will continue to itemize. It has no benefit for economic growth – it just reduces taxes owed.
The tax proposal goes on to get rid of personal exemptions. Currently, taxpayers can claim a personal deduction of $4,050 each taxpayer and dependent. The exemption functions just like the standard deduction in that it reduces the taxpayer’s taxable income for the year. Eliminating the exemption would cause a net tax increase to most taxpayers, but the tax writers seem to be trying to offset this by increasing the child tax credit. This credit has the same effect as the exemptions had – that is, to reduce the tax for individuals, with more benefit going to those households with more dependents, and with no additional contribution to the economic growth of the economy. But since credits are always more complicated than deductions in its operation, this swap of credits for exemptions is a change for the worse.
It should be noted that one reason Congress is pushing for the tax credit instead of exemptions is that the credit can be “refundable”. That means that even if a taxpayer has no tax to pay, the credit would be sent to him in a refund. As such, this is not part of our tax structure – it is simply welfare Government spending wrongly dressed up as a tax reduction.
Thus, these changes really don’t simplify the tax code; it merely shifts formulas and amounts around. In fact, since credits are more difficult to implement than deductions, this actually adds complexity to the Tax Code. A far better solution would be to eliminate the Child Tax Credit, and use the standard deduction and exemptions to reduce the tax burden (using exemptions to the extent that you would like to confer a benefit to larger families).
Stay up-to-date with the latest IRS bulletins below: