Saturday, December 28, 2019

How 2 Years of Tax Cuts Have Supported Our Strong Economy

The tax bill cut taxes for the vast majority of Americans—nine out of every 10 people saw a tax cut or no change in what they paid.

Most Americans received their tax cut through lower employer withholding and thus bigger paychecks.

Businesses have added jobs for 110 straight months, the longest streak on record, and there are more jobs available than people looking for them.

This month marks the two-year anniversary of the Tax Cuts and Jobs Act, the most sweeping update to the U.S. tax code in more than 30 years.

The reforms simplified the process of paying taxes, lowered rates on individuals and businesses, and updated the business tax code so that American corporations and the people they employ can be globally competitive again.

The tax cuts included a long list of reforms that are worth reviewing. 

For individuals, the tax cuts reduced federal income tax rates, increased the standard deduction, doubled the child tax credit, repealed the personal and dependent exemptions, and capped the deductions for state and local taxes, among many other reforms. These expire at the end of 2025.

For businesses, the law permanently lowered the corporate tax rate to 21%, down from a global high of 35%, and temporarily allowed businesses to fully deduct most new U.S. investments.

The tax bill cut taxes for the vast majority of Americans—nine out of every 10 people saw a tax cut or no change in what they paid.

Using IRS data, The Heritage Foundation found that average households in every congressional district were projected to benefit from a tax cut in 2018. Most Americans received their tax cut through lower employer withholding and thus bigger paychecks.

The average American was projected to get a $1,400 tax cut in 2018 and $2,900 for a family of four.

We don’t have to guess anymore about the effects of the tax cuts. After actually filing their taxes with the IRS, Americans saw their average effective tax rates decline by 13% (or about 1.5 percentage points). Despite claims to the contrary, every income group benefited from the tax cut.

There were also significant time-savings and simplification. Not every part of the tax code was streamlined, but for most individual taxpayers, taxpaying is now more straightforward.

In 2017, 30% of households itemized their taxes, a more complicated process of documenting and calculating a list of discrete write-offs, such as the mortgage interest and charitable deductions.

In the first year of the tax cut, itemizers dropped from 30% to 10%, showing that millions of Americans opted for the single, simpler standard deduction. Under the new system the number of people who were able to do their own taxes increased by 4.4%. 

American workers and businesses have been doing better almost every year since the Great Recession. But the past several years have been different. Things aren’t just a bit better—we’ve been setting records.

Unemployment is at a 50-year low of 3.5%. Businesses have added jobs for 110 straight months, the longest streak on record, and there are more jobs available than people looking for them.

Wages have also been increasing. Average wage growth over the past year was 3.1% in the most recent government data. Non-supervisory and production worker wages grew even faster, at 3.7%. Before 2018, wage growth hadn’t reached 3% since 2009.

The lowest wage earners in the U.S. have been experiencing some of the largest wage gains. The 10th percentile wage earner (people making about $12 an hour) have benefited from a 7% wage increase from the third quarter of 2018 through the same in 2019, in the most recent quarterly data. That’s more than twice the gain in average wages and roughly equivalent to a $1,500 raise for someone earning less than $25,000 a year.

Minorities are also seeing larger than average gains. Lower-wage black workers have seen wage growth of 8.5%, and similar low-wage black women workers saw gains larger than 10%. Similar trends can be seen for low-wage Asian workers, Hispanic women, and people without a high school degree. 

Between the tax cuts and wage gains, The Heritage Foundation calculated that over the decade following the tax cuts, the typical American household will reap an additional $26,000 in take-home pay or $45,000 for a family of four. That’s more than enough to buy a new car or put a down payment on a house.

The American people seem to be internalizing all the good news. Job satisfaction and consumer confidence are high. Thanks to the strong economy, Americans who aren’t happy at their current work are voluntarily leaving their jobs for better opportunities at close to record rates. And Americans are saving more too, using the good economic times to prepare for their future. 

What About Investment?
The main way the tax cuts are expected to contribute to furthering the good economic trends is through increased business investment, which leads to more jobs, better technology, and eventually productivity gains. Each of these things helps boost wages.

Historically, reforms that lower business tax rates and allow more investment write-offs lead to increased business activity. Thus, economists expected economy-wide investment to increase following the reforms, and that’s exactly what happened.

It wasn’t until uncertainty regarding trade and tariffs in the following year dragged investment back down below pre-tax reform projections. The trade war seems to be hiding the tremendous successes of the 2017 tax cuts.

Immediately following the reforms, business fixed investment, new business applications, and other indicators, such as business confidence, all surpassed expectations. For example, immediately after the tax cuts were signed into law, business investment increase by 39% among the 130 in the S&P 500.

In such a turbulent policy environment, assessing the long-term success of tax reform will take time as new investment and increased productivity do not happen instantaneously.

The challenge for lawmakers will be to keep taxes low in the coming years so that the full economic benefits of the 2017 tax cuts can be enjoyed by generations to come.



Crisis looms in antibiotics as drug makers go bankrupt

It takes around a billion dollars for a drug to get through the FDA.  Easing the regulations there would obviously make new drugs  more available.  Giving medical specialists authority to prescribe any drug -- with or without FDA approval -- would be a big step forward

NEW YORK — At a time when germs are growing more resistant to common antibiotics, many companies that are developing new versions of the drugs are hemorrhaging money and going out of business, gravely undermining efforts to contain the spread of deadly, drug-resistant bacteria.

Antibiotic startups Achaogen and Aradigm have gone belly up in recent months, pharmaceutical behemoths Novartis and Allergan have abandoned the sector, and many of the remaining American antibiotic companies are teetering toward insolvency. One of the biggest developers of antibiotics, Melinta Therapeutics, recently warned regulators it was running out of cash.

Experts say the grim financial outlook for the few companies still committed to antibiotic research is driving away investors and threatening to strangle the development of new lifesaving drugs at a time when they are urgently needed.

“This is a crisis that should alarm everyone,” said Dr. Helen Boucher, an infectious disease specialist at Tufts Medical Center and a member of the Presidential Advisory Council on Combating Antibiotic-Resistant Bacteria.

The problem is straightforward: The companies that have invested billions to develop the drugs have not found a way to make money selling them. Most antibiotics are prescribed for just days or weeks — unlike medicines for chronic conditions like diabetes or rheumatoid arthritis that have been blockbusters — and many hospitals have been unwilling to pay high prices for the new therapies. Political gridlock in Congress has thwarted efforts to address the problem.

The challenges facing antibiotic-makers come at time when many of the drugs designed to vanquish infections are becoming ineffective against bacteria and fungi, as overuse of the decades-old drugs has spurred them to develop defenses against the medicines.

Drug-resistant infections now kill 35,000 people in the United States each year and sicken 2.8 million, according to a report from the Centers for Disease Control and Prevention released last month. Without new therapies, the United Nations says, the global death toll could soar to 10 million by 2050.

The newest antibiotics have proved to be effective at tackling some of the most stubborn and deadly germs, including anthrax, bacterial pneumonia, E. coli, and multidrug-resistant skin infections.

The experience of the biotech company Achaogen is a case in point. It spent 15 years and $1 billion to win Food and Drug Administration approval for Zemdri, a drug for hard-to-treat urinary tract infections. In July, the World Health Organization added Zemdri to its list of essential new medicines.

But by then, there was no one at Achaogen to celebrate.

This past spring, with its stock price hovering near zero and executives unable to raise the hundreds of millions of dollars needed to market the drug and do additional clinical studies, the company sold off lab equipment and fired its remaining scientists. In April, the company declared bankruptcy.

Public health experts say the crisis calls for government intervention. Among the ideas that have wide backing are increased reimbursements for new antibiotics, federal funding to stockpile drugs effective against resistant germs, and financial incentives that would offer much needed aid to startups and lure back the pharmaceutical giants. Despite bipartisan support, legislation aimed at addressing the problem has languished in Congress.

“If this doesn’t get fixed in the next six to 12 months, the last of the Mohicans will go broke and investors won’t return to the market for another decade or two,” said Chen Yu, a health care venture capitalist who has invested in the field.

The industry faces another challenge: After years of being bombarded with warnings against profligate use of antibiotics, doctors have become reluctant to prescribe the newest medications, limiting the ability of companies to recoup the investment spent to discover the compounds and win regulatory approval. And in their drive to save money, many hospital pharmacies will dispense cheaper generics even when a newer drug is far superior.

“You’d never tell a cancer patient, ‘Why don’t you try a 1950s drug first and if doesn’t work, we’ll move on to one from the 1980s,’ ” said Kevin Outterson, the executive director of CARB-X, a government-funded nonprofit that provides grants to companies working on antimicrobial resistance. “We do this with antibiotics, and it’s really having an adverse effect on patients and the marketplace.”

Many of the new drugs are not cheap, at least when compared to older generics that can cost a few dollars a pill. A typical course of Xerava, a newly approved antibiotic that targets multidrug-resistant infections, can cost as much as $2,000.

“Unlike expensive new cancer drugs that extend survival by three to six months, antibiotics like ours truly save a patient’s life,” said Larry Edwards, chief executive of the company that makes Xerava, Tetraphase Pharmaceuticals. “It’s frustrating.”

Tetraphase, based in Watertown, Mass., has struggled to get hospitals to embrace Xerava, which took more than a decade to discover and bring to market, even though the drug can vanquish resistant germs MRSA and CRE, a bacteria that kills 13,000 people a year.

Tetraphase’s stock price has been hovering around $2, down from nearly $40 a year ago. To trim costs, Edwards recently shuttered the company’s labs, laid off some 40 scientists, and scuttled plans to move forward on three other antibiotics.

For Melinta Therapeutics based in Morristown, N.J., the future is even grimmer. Last month, the company’s stock price dropped 45 percent after executives issued a warning about the company’s long-term prospects. Melinta makes four antibiotics, including Baxdela, which recently received FDA approval to treat the kind of drug-resistant pneumonia that often kills hospitalized patients. Jennifer Sanfilippo, Melinta’s interim chief executive, said she was hoping a sale or merger would buy the company more time to raise awareness about the antibiotics’ value among hospital pharmacists and increase sales.

Coming up with new compounds is no easy feat. Only two new classes of antibiotics have been introduced in the last 20 years — most new drugs are variations on existing ones — and the diminishing financial returns have driven most companies from the market. In the 1980s, there were 18 major pharmaceutical companies developing antibiotics; today there are three.

“The science is hard, really hard,” said Dr. David Shlaes, a former vice president at Wyeth Pharmaceuticals and a board member of the Global Antibiotic Research and Development Partnership, a nonprofit advocacy organization. “And reducing the number of people who work on it by abandoning antibiotic R&D is not going to get us anywhere.”

Some of the sector’s biggest players have coalesced around a raft of interventions and incentives that would treat antibiotics as a global good. They include extending the exclusivity for new antibiotics to give companies more time to earn back their investments and creating a program to buy and store critical antibiotics much the way the federal government stockpiles emergency medication for possible pandemics.

The DISARM Act, a bill introduced in Congress earlier this year, would direct Medicare to reimburse hospitals for new and critically important antibiotics. The bill has bipartisan support but has yet to advance.



For more blog postings from me, see  TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCHPOLITICAL CORRECTNESS WATCH, AUSTRALIAN POLITICS, and Paralipomena (Occasionally updated), A Coral reef compendium and an IQ compendium. (Both updated as news items come in).  GUN WATCH is now mainly put together by Dean Weingarten. I also put up occasional updates on my Personal blog and each day I gather together my most substantial current writings on THE PSYCHOLOGIST.

Email me  here (Hotmail address). My Home Pages are here (Academic) or  here  (Personal).  My annual picture page is here 


No comments: