Moneybox
A blog about business and economics.

April 26 2016 5:44 PM

Apple Just Reported Its First Quarterly Sales Decline in 13 Years. 13 Years!

Apple watchers are always looking for signs of decline in Cupertino, and there have already been some contenders for that decisive turning point in the company’s fortunes. But on Tuesday, the company offered a pretty solid one. Reporting its second-quarter earnings for the year, Apple revealed that it fell short of most analyst expectations and saw a decline in year-over-year quarterly revenue for the first time since 2003—from $58 billion a year ago, to $50.6 billion now.

Apple did top estimates of iPhone shipments, moving 51.19 million during the quarter even though analysts only expected 50 million. But this still represented a decline from the 61.17 million shipped in the second quarter of 2015. The company's stock was down more than 7 percent in after-hours trading.

Although Apple CEO Tim Cook told CNBC that the company's executives “feel good” about the Chinese market, revenue for "Greater China"—mainland China, Taiwan, and Hong Kong—was down 26 percent to $12.49 billion compared with $16.82 billion a year ago. Revenue was down everywhere year over year except in Japan. Unit sales also declined for most products, including the iPad and Macs.

Without a star product to succeed the iPhone, it was inevitable that Apple's winning streak would eventually falter. The company has been relying on growth markets like China for the past few quarters to continue setting year-over-year records. But for now at least, the word record is off the table for Apple.

April 25 2016 9:04 PM

Everybody Loves Beyoncé’s New Album. But Can It Single-Handedly Save Her Husband’s Business?

Beyonce’s infidelity-themed new album, Lemonade, may not be doing wonders for her husband’s image, but it sure looks like a coup for his business. Tidal, the streaming platform Jay Z relaunched last year to an embarrassingly indifferent public reception, has rocketed up the iTunes app charts—it’s now in second place overall, and top among music apps.

This has been a major part of Tidal’s plan all along. It promised to win over subscribers by offering exclusive music and videos from some of the world’s biggest stars, many of whom either own equity stakes in the service or are part of Jay Z’s personal circle. Up until now, the strategy hasn't worked particularly well. But Lemonade could tell us if it's at least salvageable.

This is the third time in recent months that interest in Tidal has surged following an exclusive release. Downloads spiked after Rihanna debuted her latest, Anti, on the service in late January, and again following the February release of Kanye West's The Life of Pablo, which was available only through Tidal for about six weeks. The two albums brought a flood of new subscribers to Tidal—by the end of March, the company claimed about 3 million paying users, up about 2.5 million for the year. But that still left it far behind rivals Apple Music, with its 11 million paying users, and industry-leader Spotify, which has about 30 million paying customers around the world. And remember: Spotify, which pays slightly less of its revenue to rights holders than Tidal, still isn’t profitable, so far as anybody knows.

Worse yet, the bursts of attention Tidal enjoyed after Anti and The Life of Pablo quickly faded. After reaching No. 16 on the app charts following its Rihanna exclusive, the app swung back down to No. 553, according to the tracker-tool App Annie. It hit No. 1 during peak Pablo, then tumbled within a couple months to No. 661.

Spotify, in comparison, is consistently one of the top 18 to 25 apps downloaded in the United States. It hasn’t had to rely on conquering the news cycle to grow.

Could Tidal’s Bey-fueled boomlet be different? Possibly. For one, Beyoncé is a bigger commercial force than either Kanye or Rihanna these days, so Lemonade may be a bigger audience draw. Meanwhile, one problem for Tidal, so far, is that its biggest exclusives haven’t really been that exclusive. Anti migrated to Spotify and Apple Music a week after its release. And while Kanye notoriously vowed that The Life of Pablo would “never, never be on Apple” or go on sale, neither turned out to be true. If you weren't an obsessive fan anxious to hear either album the second it dropped, Tidal wasn’t offering anything you couldn’t get without a little patience.

Lemonade might be different. While the album was already on sale through iTunes by this morning, Beyoncé’s camp has said it will stream exclusively through Tidal “in perpetuity.” If that’s true, it might prove to music fans that there are at least a few albums that you can only stream through Jay Z’s platform.

In reality, though, there probably aren’t going to be a lot of albums like Lemonade. Along with the likes of Taylor Swift and Adele, Beyoncé is one of a few artists with so devoted a fan base that keeping her music off of the most popular streaming services might drive up her album sales. But most performers who withheld their music from Spotify and Apple Music would probably end up leaving huge stacks of money on the table. Despite its reputation for paying a pittance to artists, the 100 most-streamed acts on Spotify are still on pace to earn millions this year. And while some performers might feel personally comfortable giving up that revenue because they have an equity stake in Tidal, the labels who own their recording aren’t likely to share those sentiments. Even Jay Z, who does control his masters, hasn’t been willing to pull all of his albums from rival services—just a few of the best ones (Reasonable Doubt and the Blueprint trilogy, for the record). If Shawn Carter himself can’t bring himself to resist Apple and Spotify’s money, how many others will?

So there's a lot riding on Lemonade. If Beyoncé can’t get her husband’s enterprise to escape velocity at this point, it’s hard to imagine who could.

April 22 2016 5:37 PM

Yes, Bernie’s Plan to Make College Free Would Be a Gift to Rich Kids. That Doesn’t Make It a Bad Idea.

Nobody would ever accuse Bernie Sanders of trying to coddle the rich. But some certainly think his plan to abolish tuition at public colleges would end up wasting a whole lot of money on them. Hillary Clinton, for her part, likes to say she’s “not in favor of making college free for Donald Trump's kids.”1 This week, meanwhile, a new report from Brookings confirms that getting rid of tuition entirely at state schools would disproportionately benefit upper-income students.

Does that really mean abolishing tuition at State U. is a terrible idea? Not necessarily. The fact that free college would benefit everyone from Trump to the people who clean his towers might actually be an argument in its favor.

While the Sanders campaign has questioned its findings, there really shouldn’t be anything surprising or controversial about the new Brookings report, which was written by Urban Institute Senior Fellow Matthew Chingos. In general, wealthier students go to somewhat more expensive schools—say, University of Michigan instead of Wayne State or Lansing Community College—and are less likely to get generous financial aid. By default, any policy that eliminated tuition entirely would probably save more money for your typical upper-middle-class freshman than a striving poor kid who might have gotten a free ride anyway. Chingos ultimately finds that dependent students from the wealthiest quarter of American families would reap 18 percent of the total savings from nixing tuition, even though they make up just 11 percent of public college undergrads. Independent students—who aren’t officially supported by their parents, and who by all indications seem to skew poorer than traditional undergrads—would get just a third of the benefits, even though they make up about half of public collegegoers.

free_college_1

What’s so wrong with giving rich kids a break if school is free for everybody? Some progressives will argue that every dollar spent subsidizing tuition for all the frat boys parking BMWs at the University of Alabama could instead be spent on grants to cover living expenses for lower-income students. That’s a big trade-off, since things like rent, food, and books are often the most important drivers of debt for working-class undergrads, who, once again, frequently get generous discounts on tuition. Chingos notes that, even without having to pay for course credits, students from the bottom quarter of families would collectively still face billions in nontuition expenses.

And, of course, there might also be more important places to spend the government’s resources outside of higher education. Would you rather the federal government help kids from D.C.’s tony suburbs go the University of Virginia, free of charge? Or would you rather that cash go to, say, Section 8 housing assistance? Sure, Sanders wants to fund his free college plan with a tax on Wall Street trading, which would largely hit upper-income households. But does that mean giving money back to them is a wise use of those funds?

Again, the Sanders campaign has tried to write all this off. According to the Wall Street Journal, it called the Brookings analysis “deeply flawed, saying that under its own analysis, 70% of the benefits would go to those making less than $100,000 a year.” This is a fairly weak retort, since Chingos’ report says almost exactly the same thing. Sanders’ policy director, Warren Gunnels, also told the Journal that under the candidate’s plan, students would be able to use federal aid, such as Pell grants, in order to cover their living expenses, since tuition would no longer be a concern. But last I checked, Sanders’ team had completely botched the budget math needed to make that idea work. Of course, arithmetic can be fixed, but it would add to the program’s cost.

So quibbling over statistics isn’t very convincing here. Instead, it might be better for Sanders to simply own the fact that his proposal would help the rich, and frame it as a concession to political necessity. It’s a lot easier to get affluent Americans to support big new public spending efforts if they stand to benefit from it, as well. Likewise, upper-middle-class voters are ferocious about protecting their favorite government programs from cuts. The typical examples of this you hear are Social Security and Medicare. But recall last year when President Obama suggested scaling back 529 college savings plans: The uproar was so bad that White House almost immediately had to walk back the idea. The lesson: parents who earn low to mid-six figures aren't a bad voting bloc to have on your team.

If you’re a progressive, it might be nice to have that kind of public buy-in on free college, too. Therefore, you could argue that the best way to win support for refunding our public universities, and then keep them funded, is to spread the benefits to students who don’t strictly need the help. That may or may not be the right policy move if it means there won’t be enough money left over to help poorer students cover their rent while studying. But, on a purely theoretical level, giving rich kids a free education isn’t necessarily a horrible or wasteful idea.

1 Which is a little off-key, since they've all gone to the University of Pennsylvania (for Wharton, in particular) and Georgetown. But, you know, it's rhetorically effective enough.

April 22 2016 5:01 PM

Uber Settled With the Drivers Suing It. Is the Fight Over Their Employment Status Over?

This post originally appeared on Inc

Uber for some time has been locked in battle in multiple states and on multiple fronts over the classification of its drivers. Should they be full-on employees, with benefits—or independent contractors, free to make their own hours, but sans stability or the whole host of perks that comes with being a full-time employee?

We've seen similar battles take down other startups in the on-demand ecosystem, much of which is built on inexpensive contract labor. Remember Homejoy? It shuttered after an employee-classification lawsuit in California. (Homejoy claimed that making all those independent contractors real employees was simply too costly.)

Late Thursday evening, Uber reached a settlement in two of the lawsuits over how to categorize its drivers. The class-action lawsuits were those from California and Massachusetts, and ended with a settlement filed in the U.S. District Court in the Northern District of California. In it, Uber is allowed to continue to classify its drivers as independent contractors—and the company agreed to pay as much as $100 million to the roughly 385,000 drivers represented in the cases. (That's about $250 per driver—not a huge win on anyone's part.)

Uber was valued at $62.5 billion during its last funding round late last year. That means it's the most valuable private tech company in the world.

Included in the settlement were a few necessary changes Uber agreed to make in its business practices. They include being more transparent about how and why drivers are barred from using the Uber platform.

In a blog post Thursday, Uber's co-founder and chief executive, Travis Kalanick, wrote:

That said, as Uber has grown—over 450,000 drivers use the app each month here in the U.S.—we haven't always done a good job working with drivers. For example, we don't have a policy explaining when and how we bar drivers from using the app, or a process to appeal these decisions. At our size that's not good enough. It's time to change.

Uber also agreed to create driver associations in both Massachusetts and California. Also, in the blog post, Kalanick noted that there's one area in which riders may notice a quality difference: Uber has agreed not to cut off drivers who decline trips. 

As part of this settlement, Uber has agreed not to deactivate drivers who regularly decline trips when they are logged into the app. If too many drivers decline the rides we send their way, it undermines the reliability of the service for riders. But we understand that drivers need breaks, and sometimes things come up—maybe a kid has gotten sick at school. When drivers aren't available, we'd just ask they turn off the app. And where drivers do have low acceptance rates—perhaps because they are multitasking at home we will alert them to the issue. If things don't pick up, we may log them out of the app for a limited period of time.

And here's where Uber's decisions get really interesting. It is certainly making a small concession to drivers by saying Uber will be more flexible about how many cancellations a driver can have in a period of time. But saying that drivers can be temporarily or permanently taken off the Uber platform for having high cancellation rates suggests control—i.e., the power a company may have over employees, not independent contractors, who by nature value freedom.  

"Ultimately, this is a deterrent to drivers actually refusing to accept trips," Rachel Bien, an employment lawyer at Outten & Golden who has litigated similar cases, told the New York Times. "If it's the kind of business that needs a driver to be at a certain place at a certain time regularly, it's not a business that's suitable for independent contractors, who should have the freedom to choose which jobs they want to do and when they want to do them."

The attorney representing the drivers in the lawsuit, Shannon Liss-Riordan, noted in a statement that the case is "settled—not decided." The significant payment of money by Uber should "stand as a stern warning to companies who play fast and loose with classifying their work force as independent contractors," she said. The settlement does nothing to prevent a court from, in the future, deeming Uber drivers as employees, Liss-Riordan said.

The agreement is still subject to final approval by Judge Edward M. Chen. The next step, if approved, is for Uber to pay $84 million to the plaintiffs in the case. (Uber has also agreed to pay an additional $16 million should the company go public and have its valuation increase by one-and-a-half times.) Uber still is facing lawsuits over this same issue in Arizona, Florida, and Pennsylvania. 

April 21 2016 1:59 PM

Facebook’s Latest Algorithm Tweak Could Be Good News for Serious Journalism

Ever hear anyone complain that their Facebook feed is too cluttered with in-depth, nuanced stories that take time to read and digest?

Neither has Facebook, apparently.

On Thursday, the company announced a tweak to its news feed algorithm that could give serious journalism and other compelling content a more prominent place on the world’s most influential news platform. Specifically, the algorithm will now predict how long you’re likely to spend reading a given article once you’ve clicked on it, and take that into account in its rankings. The move is part of a long-term push by Facebook to prioritize what it deems “quality content” over catchy headlines and cheap clickbait.

Facebook announced the change in a blog post titled, “More Articles You Want to Spend Time Viewing.” From the post:

We’re learning that the time people choose to spend reading or watching content they clicked on from News Feed is an important signal that the story was interesting to them. We are adding another factor to News Feed ranking so that we will now predict how long you spend looking at an article in the Facebook mobile browser or an Instant Article after you have clicked through from News Feed. This update to ranking will take into account how likely you are to click on an article and then spend time reading it.

Importantly, Facebook says it will measure time spent “within a threshold,” so that it doesn’t “accidentally treat longer articles preferentially.” In other words, the goal here isn’t to fill people’s feeds with stories that take 30 minutes to read. Rather, it’s to prioritize stories that the average reader looks at for at least a minute or two over those that many people quickly skim and then close.

This is a point that’s likely to get lost in the initial media coverage of the change, which will almost certainly feature lots of people either claiming a big victory for longform journalism or mounting righteous defenses of the virtues of brevity. As anyone who has spent time looking at publishing analytics could tell you, the operative constraint on the time the average reader spends on a story is not the story’s length; it’s how many people quit reading partway through. (Congratulations to those who have made it even this far—and thank you!)

That said, length matters too, and the extent to which this change boosts longer articles over shorter ones will depend on just where Facebook sets those thresholds. That will likely depend in part on Facebook’s own internal surveys of how the change is working, both in terms of its effect on objective engagement metrics and users’ qualitative responses to the company’s surveys.

For a few years now, I’ve been closely covering Facebook’s attempts to build a better news feed by taking into account ever more varieties of data. The latest tweak builds on one that I wrote about two years ago, in which Facebook began tracking and downgrading stories that people closed almost immediately after opening them. (Facebook interpreted this as a sign that the story blatantly failed to deliver what its clicky headline had promised.) Now it’s addressing the flip side of that coin, which is to upgrade stories that people seem to be really enjoying once they’ve clicked.

It’s all part of Facebook’s never-ending battle with the inevitable loopholes in its own algorithm—which, as I’ve explained, will never be perfect, but at best can inch gradually closer to reflecting what the company thinks its users really want to see.

April 20 2016 5:38 PM

Why Conservatives Have Learned Nothing From Kansas’ Disastrous Tax Cuts

In 2012, Kansas Gov. Sam Brownback attempted to turn his state into a showcase for hardcore conservative policy thinking by passing a package of tax cuts so berserk that, even at the time, some of his fellow Republicans worried it was a tad ill-advised. And so it was. As many expected, the reductions have been a calamity for the state's fiscal health. Kansas has found itself chronically short of funds, forcing legislators to slash spending on things like education and help for the poor. The state's credit rating has been downgraded, and for all the trouble, its job growth has been absolutely anemic.

Brownback conveniently blames all this on the harsh winds of the global economy, which have battered local industries like aircraft manufacturing and agriculture. But with yet another budget crisis looming, many of his conservative allies are in open revolt. The vast majority of people not named Sam Brownback seem to agree that this was all a harebrained idea.

Just don't expect Republicans to draw many lessons from the misadventure.

The problem isn't merely that modern conservatism has proved physiologically impervious to data or fact, though that's certainly part of it. Anti-tax avenger Grover Norquist loved Brownback's tax cuts when they passed, and his ardor for them doesn't appear to have abated with time. As befits a man of faith, supply-side mullah Art Laffer, who advised Brownback, is still convinced that the cuts will one day bring new prosperity to Kansas.

But even the conservative movement's more critical minds have found reasons to dismiss Kansas' troubles as a freak error rather than to accept them as a fundamental indictment of an economic ideology that insists that lowering tax rates is the one true route to growth. This is because, even by the standards of steroidal tax-slashing plans, Brownback's was really poorly designed. In particular, it contained an unprecedented break that exempted profits from pass-through businesses from income taxes, a basically unjustifiable measure that has significantly contributed to the gutting of Kansas’ budget.  

A brief explanation: Companies organized as pass-through entities, such as partnerships, LLCs, or S-corporations, don't pay corporate taxes. Instead, their profits get handed over to their owners, who then pay personal income taxes on the earnings. Brownback exempted those profits from state taxes under the theory that it would help spur more small-business growth. 

The problem is that many large and successful businesses are also organized as pass-through entities. And, as the right-leaning Tax Foundation gently warned in 2012, there was nothing to stop other big companies from restructuring themselves to avoid taxes. That seems to have happened in a big way: About 70 percent more businesses have taken advantage of the loophole than expected, which has helped cripple the state's budget projections.

In the years since 2012, the Tax Foundation has become more savage in its assessment of the pass-through carve-out, as they call it, referring to it as a failed gimmick. During recent testimony before Kansas state legislators, one of the think tank's economists argued that the whole debacle was “doing damage to the state tax reform conversation nationally”—which is to say, the Sunflower State's problems were scaring people off from tax cuts.

So, if you ask a conservative what's the matter with Kansas, you'll get one of two answers. Some, of course, will say nothing's the matter. More sophisticated Republicans will tell you Brownback simply picked the wrong tax to slash. Don’t expect much soul-searching.

April 19 2016 5:45 AM

The Justin Trudeau Quantum-Computing Story Is What Happens When Social Media Shapes Reality

Canadian Prime Minister Justin Trudeau conquered the internet last Friday when a video of him answering a reporter’s question about quantum computing went viral. But that victory may have come a little too easily. 

The optics could not have been more perfect for a young head of government* whose intellect is often overshadowed by his head of hair. Holding a press conference after he toured a theoretical physics institute, Trudeau stood in front of a blackboard full of intimidating equations as a reporter jokingly asked him to explain quantum computing—and he proceeded to do just that. “Very simply, normal computers work by … ,” he began, before the crowd’s laughter drowned him out. “No, no, no, don’t interrupt me,” he broke in, with the sort of patient smile one flashes when called at the card table while holding the nut flush. “When you walk out of here, you will know more.”

Trudeau proceeded to deliver a brief yet authoritative-sounding riff on the difference between bits and qubits that seemed plausible enough to draw cheers from the audience and smiles and nods from the scientists flanking him. And it was all captured in a video ready-made for liking and sharing.

The media did not need to be told what to do with this video. The Facebook-optimized headlines practically wrote themselves. And so the Internet of Takes whirred into action, each outlet driven like one of John Herrman’s eerie automaton GIFs to crank out its own variant on the narrative that would inevitably engulf social media and rain viral traffic on all involved:

As is customary when partaking in such social-media feeding frenzies, each blogger added to the story a dash of his or her own speculation, thereby nominally differentiating it from rivals’ offerings, and from the bare facts at hand. The video proved that the handsome PM was “more than a pretty face,” one observed. “Everyone should be able to explain quantum computing like Justin Trudeau,” another opined. The Verge take, ironically, began with the line, “As a journalist, I’ve learned never to assume anything.” (Next lesson: Never say never.) Yes, Slate partook too, and I’ll admit that I may be biased when I say I found my colleague’s post suitably breezy and charming in a way most others were not. (“Passable” is certainly a more accurate assessment of the quality of Trudeau’s explanation than “perfect” or “brilliant,” as Konstantin Kakaes points out at the Washington Post.)

In any case, it wasn’t just the Blogs. CNN, Reuters, CBC News, and others posted their own versions of the video, their headlines all hewing to the prevailing framing.

You can probably guess where this is going. Over the weekend, even as latecomers continued to dine on the story’s rapidly decaying scraps, a somewhat different picture began to emerge. A Canadian blogger pointed out that Trudeau himself had suggested to reporters at the event that they lob him a question about quantum computing so that he could knock it out of the park with the newfound knowledge he had gleaned on his tour. And so Monday brought the countertake parade—smaller and less pompous, if no less righteous—led by Gawker with the headline, “Justin Trudeau’s Quantum Computing Explanation Was Likely Staged for Publicity.”

But few of us in the media today are immune to the forces that incentivize timeliness and catchiness over subtlety, and even Gawker’s valuable corrective ended up meriting a corrective of its own. Author J.K. Trotter soon updated his post with comments from Trudeau’s press secretary, who maintained (rather convincingly, I think) that nothing in the episode was “staged”—at least, not in the sinister way that the word implies. Rather, Trudeau had joked that he was looking forward to someone asking him about quantum computing; a reporter at the press conference jokingly complied, without really expecting a response (he quickly moved on to his real question before Trudeau could answer); Trudeau responded anyway, because he really did want to show off his knowledge.

Trotter deserves credit, regardless, for following up and getting a fuller picture of what transpired. He did what those who initially jumped on the story did not, which was to contact the principals for context and comment.

But my point here is not to criticize any particular writer or publication. The too-tidy Trudeau narrative was not the deliberate work of any bad actor or fabricator. Rather, it was the inevitable product of today’s inexorable social-media machine, in which shareable content fuels the traffic-referral engines that pay online media’s bills.

What’s remarkable is just how readily and unwittingly we bend reality to that machine’s imperatives. The laws of shareable content dictated that the interviewer be “sarcastic,” that the hunky prime minister be tired of not being taken seriously, that his answer be the Perfect Shutdown Response. We in online media have internalized these dictates to such an extent that we no longer even realize we’re applying them. (“As a journalist, I’ve learned never to assume anything.”) The Trudeau story is a perfect, gleaming artifact of a system in which truth is that which gets the most Facebook shares.

Not that journalistic truth has ever been altogether innocent of media economics. For Hearst, it was that which sold the most newspapers; for investigative journalists, it might be that which wins Pulitzers; for the nightly news, it’s what bleeds. False and faulty narratives today just move faster, farther, and with what seems like a little less human agency along the way. 

*Correction, April 19, 2016: This post originally misidentified Trudeau as head of state. In Canada, the head of state is the monarch, Queen Elizabeth II. The prime minister is the head of government.

April 18 2016 7:28 PM

Why Bernie Sanders’ Crazy High Tax Rates Aren’t Really That Crazy

Bernie Sanders wants to raise your taxes. If you're working class, he wants to hike them a little in order to pay for his single-payer health care program. If you're wealthy, or a corporation, or a person who frequently buys and sells stocks, he wants to hike them a lot in order to finance the rest of his vision for a social democratic America.

Sanders, of course, says there's plenty of precedent for soaking the rich in U.S. history. He points out that marginal rates topped out at greater than 90 percent during the Eisenhower administration and that his would be lower—“I’m not as socialist compared to Eisenhower,” he joked last year. Conservatives, in turn, have argued that the high tax rates we remember from the 1950s and '60s were basically an illusion—that the wealthy paid far less than advertised thanks to generous deductions and low rates on investment income.  

So, who's right? Have we ever seen anything along the lines of what Sanders has proposed?

In short, yes—yes, we have.

First, what kind of tax rates are we really talking about? The Tax Policy Center has concluded that, under the Sanders plan, the highest earning 0.1 percent of Americans would fork over about 63.7 percent of their income to the IRS. The top 1 percent would pay a rate of roughly 55.4 percent, while the top 95th to 99th percentiles would owe about 33.8 percent.

sanders_tpc

And, conservative protests to the contrary, those figures aren't far from the actual rates that prevailed during the postwar era, or even later. The tax code might have been shot through with more holes than a mesh cylinder, but Thomas Piketty and Emmanuel Saez have found that when all was said and done, the top 0.1 percent still paid an average rate of about 64 percent in 1970, right in line with what Sanders has called for. The average rate for one-percenters peaked near 48 percent in 1968, a bit below the mark Sanders envisions, but not too far off. The 95th to 99th percentiles, meanwhile, paid around 31 percent through much of the '90s.  

sanders_rates

To be clear, both the Tax Policy Center analysis and the historical figures from Piketty and Saez include more than just personal taxes Americans file each April on income and investments. They also factor in things like the estate tax, which obviously doesn't hit every family every year, as well as the burden of corporate taxes, which more or less falls indirectly on shareholders. It's not necessarily intuitive, but in the end it's a more accurate way of discussing the total tax burden faced by Americans.

There are some big differences between the Sanders plan and the midcentury tax regime. For instance, back in the 1960s, 0.1-percenters got hit hard by the corporate and estate tax. Sanders, it seems, would put more emphasis on direct income taxes, including capital gains—which makes more sense in a world where corporations and the rich have become adept at using tax havens but might create slightly different economic incentives.

The major takeaway, though, is that when it comes to tax rates, Sanders really isn't talking about much we haven't seen before.

April 18 2016 12:09 PM

Hillary Clinton Finally Explains What It Would Take for Her to Support a $15 Minimum Wage

Let it be known: Hillary Clinton now supports a federal $15 minimum wage, but with conditions.

Clinton, who has taken heat from progressive activists for declining to support a simple, $15 pay floor,  tied herself in knots attempting to explain her position on the issue during last week's Democratic debate. First, she told the crowd that if Congress sent her a bill raising the federal minimum to $15 an hour, she would “of course” sign it. But then the candidate suggested she'd prefer a compromise approach, similar to a bill recently passed in New York state. Finally, her campaign blasted out a press release stating that Clinton “supports a $12 federal minimum wage,” but would encourage some states and cities to go higher—her known position going into the evening.

Again, all of this weaving about contrasted rather poorly with Bernie Sanders' easily understood position, which is that the U.S. should have a $15 minimum wage. Period.

This weekend, on ABC's This Week with George Stephanopoulos, Clinton took another shot at clarity. She was more successful:

You know, George, I know everybody wants to make this some kind of big contrast. Well, it isn't. You know, Bernie Sanders came out and said the legislation passed in New York was a model for the nation.
And you know what model is?
That model is a phased in minimum wage increase to get to $15 in the city and surrounding areas, to get to $12, $12.50 upstate, but to be constantly evaluating the economic conditions so that there is no unintended consequence of lost jobs.
That has been my position. And that is exactly what New York just voted for. And for federal legislation, if it has the same kind of understanding about how we have to phase this in, how we have to evaluate it as we go, if the Congress passes that, of course I would sign it.

Let us set aside the question of whether this really has been Clinton's position all along (if so, it'd be news to me). New York's law is a fascinating compromise between labor activists who have pressed for a higher minimum and politicians who worried that poorer and rural regions upstate might not be able to handle the same wage scale as Brooklyn or Manhattan. It guarantees a $15 minimum in the five boroughs and their nearby suburbs. But it would only raise the minimum to $12.50 for non-fast-food workers upstate by 2020. After that, “state officials will analyze the economic effects of the increases before scheduling any more,” as the New York Times has explained it.

In short, New York state's $15 minimum is not a guaranteed statewide $15 minimum. And that's the model Clinton wants to follow.

And it's a smart approach. The United States is big country with vastly different regional labor markets. It's somewhat unclear whether wealthy, coastal cities are prepared to deal with vastly higher wage scales. But it's even less obvious that Louisiana or Arkansas would cope well with an increase to $15. Given that we're talking about a policy change that would affect more than 40 percent of all American workers—meaning it involves both higher potential risks and rewards than your typical, more modest minimum wage hike—some caution seems due.

April 18 2016 11:08 AM

One Reason Tax Returns Are So Complicated? Because H&R Block and Other Preparers Like It That Way.

“Your life is busy, growing,” goes an ad touting H&R Block’s most recent offering, Block Advisors.* “That means tax complexity.” What the commercial doesn’t say? That H&R Block is determined to keep it that way. So are companies like Intuit and Jackson Hewitt.

It’s not the fault of the Internal Revenue Service, it turns out, that the typical tax filer will spend about 13 hours and between $200 and $300 preparing and filing his or her annual returns, which are due Monday at midnight. It’s not the IRS that makes us so miserable that we’re more likely to die in a car accident the day our taxes are due. Tax day has become uncommonly time-consuming and miserable, and we can assign much of the blame to the lobbying muscle of the tax-prep industry, which has used its clout to stymie efforts to simplify our taxes.

How might we have had it instead? As Liz Day pointed out at ProPublica a few years back, countries including Denmark, Sweden, and Spain mail citizens prefilled forms, with salary and bank info that’s been provided to the government by employers and financial-services institutions. That could have been us! Why it’s not is a perfect illustration of how money buys power in Washington, mowing over common-sense reforms, not to mention the actual law itself.   

In 1998, Congress ordered the Internal Revenue Service to implement by 2008 a “return-free” system for people with easy filings, likely something similar to what’s now common in other countries. Even before the legislation passed, the tax-prep industry went on the offensive. If the IRS doesn’t “stay out of our backyard,” a high-ranking H&R Block executive threatened, “we will take it up in Congress,” Accounting Today reported in 1998. He meant it. Since then, H&R Block and its peers have spent millions lobbying Congress—$28 million between 1998 and 2013—in what’s been a very successful effort to keep our taxes tangled. 

Instead of a return-free system, the IRS has signed multiple agreements with tax-prep giants that bar it from putting together such a plan itself. In exchange, the tax-prep companies have provided the muscle for a free online service for low-income filers that only about 3 percent of those eligible use, according to a report issued by Sen. Elizabeth Warren last week.

The tax-prep companies have billions of reasons to fight a simplified tax filing system. Market researcher IBIS World says the consumer tax preparation services are a $10.3 billion market, while tax preparation software is another $2.1 billion market. According to the National Retail Federation Tax Returns Survey, 38.2 percent of tax filers will use some kind of software to prepare their returns this year. 

And what sort of expertise are you getting when you turn to a tax-prep chain? Not as great as you think. In 2014, the Government Accountability Office studied the issue, hiring mystery shoppers to play the role of would-be taxpayers seeking assistance filing a return from one of the big tax-prep chains. Misinformation was rife. More than one preparer informed a “waitress,” for example, that she did not need to declare tips to the federal government. Almost 90 percent of the returns prepared for the GAO’s testers contained mistakes.

One reason why: Many tax preparers aren’t certified accountants. Only four states—New York, California, Oregon, and Maryland—even require tax preparers to pass an exam and take part in continuing education. When the IRS attempted to mandate similar strictures, courts dinged its regulations, saying the agency had exceeded its authority.

Meanwhile, tax-prep companies keep devising new ways for people to fork over money. Take a product called refund anticipation checks offered by most big box tax preparers. Customers—usually the unbanked or the broke, the sort of people eligible for an earned income tax credit who need every last penny—pay a fee of about $30 or $35 to the tax preparer, who opens a temporary bank account for them. In return, the company agrees to take the money for their services out of the refund check. This sum seems small enough. But the customer is paying for the privilege of enjoying a no-questions-asked short-term loan to pay their preparer. After all, the federal government usually gets refunds back to people within a month. The New America Foundation, calculating the numbers based on a $189 tax-prep fee, came to the conclusion that this represented a short-term interest rate of 414 percent. This is lucrative stuff. The Consumer Federation of America and the National Consumer Law Center estimated the tax prep companies earned $630 million in fees from refund anticipation checks in 2014, and another $195 million in fees for such things as “technology” and “transmission.”

All this adds up. According to the Progressive Policy Institute, the average recipient of the earned income tax credit loses about $400 of his or her refunds to the preparers who helped complete and submit his or her taxes. For some, that’s almost 25 percent of what they received back from the federal government.

507814528-turbotax-products-sit-on-display-at-costco-on-january
TurboTax products sit on display at Costco on Jan. 28 in Foster City, California.

Kimberly White/Getty Images for TurboTax

Right now, Warren is stepping up. Last week, the Massachusetts Democrat introduced a bill that would turn the tax world upside down, mandating the government send us returns with our basic information. We could then go online to the IRS’s website and add in itemized deductions like medical expenses and mortgage deductions. Bernie Sanders is among the bill’s co-sponsors, and Hillary Clinton has also signaled her support.

Don’t get too excited. It’s not like others haven’t attempted similar legislation. In the previous session of Congress, for instance, Sen. Jeanne Shaheen and Reps. Bill Foster, Lloyd Doggett, and Mike Quigley all pushed similar plans. You might notice you’re still filling out the same tax return as usual.  

Moreover, much like the battles over improving retirement advice and toughening up regs on payday loans, this isn’t a case of Democrats against Republicans. Over the years, Dems including California Rep. Zoe Lofgren (in partnership with Rep. Eric Cantor) have introduced bills that would have explicitly or implicitly forbidden the IRS to proceed with government-prepared returns. 

Finally, the right-wing anti-tax establishment opposes the simplified, stress-free tax return. Grover Norquist, the founder of Americans for Tax Reform, believes a simple tax return will lead Americans to ultimately be more accepting of their annual tax bill and less likely to support efforts to reduce the tab. “We want people to be aware of what they are paying and how much it costs. The idea that one of the benefits is to reduce the psychic cost of tax filing reminds me of the argument for the guillotine, which was that it was more humane,” he said in 2005.

Actually, Norquist might be on to something. Almost half of us view the IRS unfavorably, according to the Pew Research Center. Crowds thrill to Ted Cruz’s campaign promise to abolish the Internal Revenue Service. We hate paying our tax bill so much that Gallup reports 57 percent of us think our federal taxes are too high—and that’s a fantastic finding, since approximately 45 percent of us pay no federal taxes at all.

In the meantime, the tax-prep industry continues on. According to market researcher Fluent, half of us who use a tax-preparation software like Intuit’s market leader TurboTax do it because it’s “cost-effective.” If only we knew what it was really costing us.

*Correction, April 18, 2016: This post originally misquoted the H&R Block ad for Block Advisors. It begins, “Your life is busy,” not “You life is busy.”  

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