カテゴリー: Masatoshi Katagiri

True pathology in the US, where COVID -19 infection is the largest in the world (Continued)―Inadequate health security system and the severity of economic disparity at the base―

　Let us take a closer look at the US income gap. In a recent paper “Declining worker power versus rising monopoly power”, A. Stansbury and L.H. Summers argue that the decline in worker power―as private sector unionization and union power fell, the real value of the minimum wage declined, shareholder activism increased, and ‘ruthless’ management tactics became widespread―redistributed income from workers to capital owners, leading to a fall in the labor share, rising corporate valuations and measured markups, ・・・.
　According to the US Bureau of Labor Statistics, the labor share of employees (wages and salaries divided by the value added) dropped from 58.1% in 1970 to 55.7% in 1990. In the 2000s, it has dropped significantly from 57.1% in 2000 to 52.8% in 2015.
　According to The Distribution of Household Income and Federal Taxes, 2013, edited by the Congressional Budget Office (CBO), while the share of labor income in the income source of all households was 77.4% in 1979, 72.5% in 2013, that’s share of the top 1 % group was 33.1% in 1979, 36% in 2013, which was quite low. The above-mentioned decline in the labor share over a long period of time, apart from the top 1 % group, stagnated the real wages of other income groups, specially middle income and low income groups, and widened the income gap.
　On the other hand, looking at the capital share (ratio of capital income to total private income before taxation and pre-government transfer) in the US Bureau of Economic Analysis, it rose from less than 40% in the early 1980s to more than 46% in the middle of the 2010s.
　According to the CBO data above, the share of capital-related income of the top 1 % income group is very high, in the 60% range, unlike the average household income of about 20%.
　The main sources of capital -related income are capital income, capital gains, and business income. In particular, the share of business income rose from 10.8% in 1979 to 23.2% in 2013. This is because the Reagan tax reform in 1986 lowered the maximum personal income tax rate below the maximum corporation tax rate. So many C(Ordinary）corporations that had paid corporate tax passed corporate income to shareholders by the conversion to S (small business)corporations or partnerships or other pass-through entities.
　In other words, the profits of S corporations, partnerships, and other pass-through entities are fully distributed to shareholders every year, so business income has increased. Here, we can see a part of the US equity capitalism.

(Author: Masatoshi Katagiri)

This essay is the English version of No. 159, July 28, 2020 on the Japanese website.

True pathology in the US, where COVID-19 infection is the largest in the world―Inadequate medical security system and the severity of economic disparity at the base―

　No other developed country has the structural flaws in its social system exposed to daylight due to the spread of the new coronavirus. According to the statistics of Johns Hopkins University, as of July 7, the number of infected people in the world was 11.626 million, of which the number of infected people in the United States was 2.939 million, accounting for 25% of the world’s total and the world’s most infected. The main reason for this is that the Trump administration was reluctant to set up a virus inspection system and take measures against infectious diseases, has fallen behind even after taking measures. But that is not the only cause. There are two underlying structural problems in the US, inadequate medical security and widening economic disparity since the 1970s.
　In the US, there is no universal medical insurance system like other developed countries and private medical insurance system is common. The only public medical insurance system is Medicare for seniors over 65 and Medicaid for low-income earners. During the Obama administration, people were obliged to join private medical insurance. But now about 29 million uninsured people do not have private medical insurance because the Trump administration abolished its obligation. Many of these people are poor and do not have private medical insurance.
　Even if you have private medical insurance provided by the company, you will face into an uninsured if you are completely fired due to coronavirus effects. As a matter of course, compared to Whites, Hispanics and Blacks, who are relatively low income and uninsured without access to tests and medical care, have more diabetes and heart disease than Whites, and are at higher risk of coronavirus infection and death.
　Let us focus on the economic disparity. Comparing the Gini coefficients of disposable income after government transfer and taxation of households in the five developed countries in 2017, it is 0.390 in US, 0.359 in UK, 0.339 in Japan, 0.289 in Germany, and 0.242 in France. US income disparity is the largest. And comparing the ratio of the population with less 50% of the median disposable income to the total population as the poverty rate, the US is 17.8%, the UK is 11.9%, France is 8.1%. The poverty rate in the US is very high. The seriousness of these economic disparities, combined with the inadequate medical security system, has made the US the world’s largest coronavirus-infected country.

(Author: Masatoshi Katagiri)

This essay is the English version of No. 157, July 21, 2020 on the Japanese website.

Free Higher Education and Placing Regional Private University under Public Management (Continued)

　Furthermore, according to the referenced materials in the beginning paragraph, the number of university students at undergraduate and graduate schools is about 2.91 million in 2018, about 2.14 million (74%) of which are private university students. The number of universities is 782, 603 (77%) of which are private universities. Overwhelmingly private universities support higher education in Japan. However, according to the data: “The Publicization of Regional Private University!” aggregated by Obunsha Education Information Center, 257 out of 577 private universities (44.5%) could not make their quota because of the shortage of applicants in 2016.
　Smaller freshwater colleges with an annual enrollment limit of less than 800 account for 72% of the total private universities and colleges. Some point out that about 300 universities and colleges, smaller freshwater colleges will face managemental and financial difficulties as the 18-year-old population decreases in the future. (Economist, special edition: University　Disappearance, July 24, 2018 issue.)
　As described above, smaller freshwater colleges will surely face managemental difficulties when students move from local areas to metropolitan areas by free higher education measures.
　What is drawing attention as a proactive support measure is to convert smaller freshwater private colleges to public universities and colleges. The number of converted colleges is increasing. So far there are10 smaller freshwater private colleges converted.
In the document: “The View on Higher Education Policy” and another document : “Current Status and Issues of Financial Support for Higher Education with a Focus on Private Universities and Colleges”, the Japan Association of Private Universities and Colleges (JAPUC) pointed out that free higher education may fix tuition and scholarship disparities, and widen the disparities.
　JAPUC called on the government to increase current expense subsidies, but it is unlikely to do so, even if you expect a lot, because the country has a debt exceeding 1000 trillion yen. Then it seems unavoidable to convert smaller freshwater private colleges to public universities and colleges. But according to Obunsha’s Data as described above, most of financial resources to convert smaller freshwater private colleges to public universities and colleges are treated by local allocation tax. After all, it is a burden on the country. Anyway, we are entering an unavoidable era to question the way of the country’s and household’s financial burdens to support national, public, private universities, and to consolidate universities and colleges.

(Author: Masatoshi Katagiri)

This essay is the English version of No. 17, May 22, 2019 on the Japanese website.

Free Higher Education and Placing Regional Private University under Public Management

　According to the reference materials: “Future Vision for Higher Education”, officially announced by Ministry of Education in 2018 and “Announcement of Report on School Basic Survey(final value) in the 30th Year of the Heisei Period”, the 18-year-old population will shrink from 2.05 million in peak 1992 to 1.18 million in 2018, and to 1.03 million in 2030. In contrast, university entrance rate increased from 24.8% in 1989 to 53.3% in 2018, and percentage of students proceeding to higher education (including university, college, and technical college) reached 81.5% in 2018, both of which were the highest records.
　The number of universities increased from 499 in 1989 to 782 in 2018. There is no doubt that university admission quota increase has affected the rising of university entrance rate. But the development of higher education confronts the hard reality that the 18-year-old population will further decrease in the future.
　The burden of higher educational expenses in Japan depends on household budget, unlike Nordic countries. According to the reference materials: “Percentage of Students Proceeding to Higher Education by Income Class”, submitted to the Financial System Subcommittee by Ministry of Finance, income inequality reflects inequality in university entrance ratio or in percentage of students proceeding to higher education.
　The government announced free higher education and educational burden reduction policy as part of social security reform for all generations in the report: “New Economic Policy Package”, and planned to enforce such policies in April 2020, using the consumption tax hike to 10% as a financial source.
　According to the Free Higher Education Law enacted on May 10, 2019, the government must reduce tuition and enrollment, and pay benefit scholarships that do not require repayment. Students from resident-tax exempt households and low income (i.e. annual income of less than 3.8 million yen) households are eligible for the scholarships.
From the viewpoint of equal educational opportunity, these measures can be evaluated, but there are concerns that concentration of students in metropolitan areas and acceleration of excess students outflow from local areas will happen. (The Daiwa-Soken Report: “Where Are the Students Flowing out by Free Higher Education” on April 5, 2019.)

(Author: Masatoshi Katagiri)

This essay is the English version of No. 13, May 15, 2019 on the Japanese website.

President Trump’s Promises and Truth from the Perspective of Tax Policy (Continued)

　During the 2016 presidential election, President Trump advocated large-scale tax cuts which was Republican traditional policy, aiming to encourage economic growth and increase employment. He promised to reduce corporate tax rate from 35% to 15%, and simplify personal income rates into three tax rates, and review the estate tax etc.
Trump Administration and Republican Party passed the Tax Cuts and Jobs Act at the end of December 2017 and implemented it from January 1, 2018.
　It was large tax cuts of about ＄1.5 trillion in 10 years since 1986 Reagan’s Tax Cuts.
　The point of the tax law is as follows.
(1) corporate tax rate reduction from 35% to 20%
(2) elimination of taxation when returning overseas income, and one-time taxation of overseas assets
(3) reduction of maximum income tax
(4) reduction of estate tax
(5) repeal of the penalty on health insurance non-members
　What is the economic effect of the tax cut?
　Trump Administration took a bullish view that real GDP growth rate was 3.1% in 2018 and would continue to exceed 3% by 2020. But nonpartisan Congressional Budget Office predicts that real economic growth rate will drop to 2% in 2019-23, and to 1.7% in 2024-29. (The Budget and Economic Outlook:2019-2029)
　Trump Administration asserted that tax cuts and deregulation would encourage economic growth and tax revenue increase, then improve budget balance, and pay off debt in 8 years of his term. But corporate tax revenue fell 22% and 2018 budget deficit was＄77.9 billion, an increase of 17% over the previous fiscal year. The Congressional Budget Office predicts that the budget deficit will be ＄896 billion in FY 2018, over ＄1 trillion in FY 2022, 1 trillion 310 billion in FY 2029. CBO also predicts that government debt will increase from ＄15.8 trillion in 2018 to ＄24.6 trillion in FY 2026.
　In addition, Trump Administration asserted that the Tax Cuts and Jobs Act was for the middle class and smaller businesses. But according to the Tax Policy Center Report : “Most of Tax Reduction Benefits Go to the Wealthy”, even if the Tax Cuts and Jobs Act was fully implemented, 99.2% of tax reduction benefits go to top 5% household (wealthy) and the third quintile (middle class) decreases tax benefits by 2.1%.
　Trump Administration’s reduction policy will have poor or undesired results in the long-term even if it has some short-term effects. That is the truth.

(Author: Masatoshi Katagiri)

This essay is the English version of No. 30, June 26, 2019 on the Japanese website.

President Trump’s Promises and Truth from the Perspective of Tax Policy

　It’s rare that people stick with campaign promises as much as Donald Trump. He thought that fulfilling his promises to make America first was the best way to gain the confidence of voters and acted that way. How well are his main campaign promises for 2016 Presidential Election?
　Regarding trade policy, he had promised to withdraw from NAFTA. After taking office, he renegotiated with Mexico and Canada, and reached a new agreement with these countries in favor of the United States. The agreement is moving towards ratification. And he withdrew U.S. from TPP aiming for zero tariff in order to use tariffs to negotiate bilateral trade in favor of the United States. He also promised to reduce the trade deficit with China by increasing tariffs. U.S. imposed the first to fourth punitive duties on China which triggered counterattack punitive duties by China. As a result, it is developing into the U.S.-China trade war.
　Regarding environmental policy, he promised and decided to withdraw from the Paris Agreement which is the international framework for global warming countermeasures.
　Regarding energy policy, he promised the deregulation of resource development and indeed signed the presidential decree Promoting Energy Independent and Economic Growth.
　Regarding undocumented immigrant’s policy, he promised to build a wall along the border with Mexico. But he could not secure the budget for that because of the opposition of House Democrats. He was forced to declare a state of emergency and get money for the wall building out of defense budget.
　Regarding health care policy, he promised to completely abolish 2010 Patient and Affordable Care Act (Obamacare). But he could only abolish the penalty on health insurance non-members.
　While he may look good in trying to keep his promises as mentioned above, he is criticized from home and abroad with undesirable consequences because his promises themselves go against the times, and his trying to promote them ignoes international rules and democracy.

(Author: Masatoshi Katagiri)

This essay is the English version of No. 24, June 12, 2019 on the Japanese website.