"Senate Takes First Step on Repeal of Estate Tax"
Richard W. Stevenson
New York Times, July 11, 2000, page A14
This article reports on the progress of legislation in the Senate which would repeal the estate tax. In the last paragraph, the article asserts that "the issue has become politically potent as the 76 million members of the baby boom generation, their wealth swollen by the strong economy and stock market, has begun estate planning."
It is unlikely that the 76 million baby boomers are a major force behind the repeal of the estate tax for two reasons. First, the average age of baby boomers is still only 45. Many have just begun planning for retirement. Most probably have not begun making plans for passing on their inheritance just yet.
Second, very few of the baby boomers will have to worry at all about the estate tax, in spite of the strong economy and booming stock market. A couple that survives to 2006 will be able to pass $2 million dollars onto their children completely tax-free. This is in addition to $10,000 per child per year that can be passed on tax free. This means that an estate planning couple that expects to live for 30 more years and has two children can pass $2.6 million onto their heirs without paying any estate tax whatsoever. Far less than 1 percent of baby boomers have more assets than this.
See also Outstanding Stories of the Week.
"The Senate Rejects a Suspension Of the Federal Tax on Gasoline"
Lizette Alvarez
New York Times, July 14, 2000, page A1
This article reports on the Senate's defeat of a measure that would have temporarily suspended the federal tax on gasoline until after the November election. At one point the article refers to "cries from voters for relief from record-high gasoline prices."
Actually, adjusted for inflation, gasoline prices are very low compared to their levels of the past 40 years. It is only compared to the extraordinarily low levels of the prior two years that current prices appear high.
"Bill on Pension Rules Moves Forward in House"
Richard W. Stevenson
New York Times, July 14, 2000, page A18
This article reports on the approval by the House Ways and Means Committee of a bill that would raise the amount that can be contributed to a 401(k) from the current ceiling of $10,500 per year to $15,000 per year. The article did not note that very few workers currently contribute the maximum allowable amount to their accounts. Only a very small minority of highly paid workers would be able to benefit from this change in the tax code.
The article also refers to regulatory changes in the bill. The proposed regulatory changes would reduce the link under current law between pensions provided to higher-paid executives and lower-level workers. This will make easier for companies to provide generous pensions to high-paid executives without giving the same benefits to other workers. It would have useful if the article had provided more information about the distributional impact of the proposed changes in this bill.
"Asian Oddity: Economies Up, Markets Down"
Wayne Arnold
New York Times, July 8, 2000, page B1
This article discusses the recent declines in several East Asian stock markets. It incorrectly asserts that stock markets should be expected to move in the same direction as the economy.
The article begins by noting that "Southeast Asia's economies are growing again. Its stock markets are getting smaller. If that contrast sounds odd, it is." While there is always a large psychological component to stock prices, in principle stocks reflect the future value of corporate earnings. This can decline even as an economy grows if there is a shift from profit to wages.
Such shifts are not uncommon. For example, from 1969 to 1979 the United States economy grew by 37.4 percent. The real value of the S&P 500 fell by 46 percent over this period. By contrast, the economy grew by 34.9 percent from 1979 to 1989. The real value of the S.& P. 500 grew by 87 percent over this period. While there was a redistribution of income away from corporate profits in the '70s, there was a redistribution towards corporate profits in the '80s. These shifts partly explain the disparity between the path of the stock market and the economy.
"Profits May Not Be Enough to Offset Fed's Drag"
Jonathan Fuerbringer
New York Times, July 11, 2000, page C1
This article examines the near-term prospects for future stock prices. It notes that stock prices have been fairly flat even though earnings growth has been strong . It contrasts this situation with the prior four years, when earnings growth was not as strong, but the S.& P. 500 gained more than 20 percent each year.
This contrast should not be a surprise. Stocks cannot consistently rise more rapidly than corporate earnings. A period in which stock prices have grown significantly more rapidly than earnings is likely to be followed by a period in which stock prices grow less rapidly than earnings.
It is also worth noting that the measure of earnings used in the article is very different from the one used in national income accounts. The article reports that in the first quarter of 2000, corporate profits were 23.6 percent higher than in the first quarter of 1999. Much of this increase was due to inflation: Since prices had risen over the course of the year, firms were selling items in their inventories for higher prices. It is misleading to treat these gains as true profits, since the replacements to the inventories will cost more. When the impact of inflation is corrected (the inventory valuation adjustment in the national income accounts), after-tax corporate profits were just 5.6 percent higher in the first quarter of 2000 than the first quarter of 1999.
"A Binge on Music at State U."
Matt Richtel
New York Times, July 9, 2000, Section 3 page 7
This article presents a reporter's account of his discussions with college students at Berkeley over the ethics of downloading music off of the Internet. According to the article, the reporter asked several of these students whether he could take some of their personal possessions, such as their shoes or their toaster. While the reporter apparently believed that he was demonstrating some point with these questions, he is primarily demonstrating his failure to recognize the issue posed by copyright protection.
The consumption of digitally recorded music available over the Internet is non-exclusive. This means that any individual's decision to download music does not affect any other person's ability to consume the same music. By contrast, if this reporter were to actually take a student's shoes or toaster, that student would no longer be able to use these items.
The question posed by the development of digital technologies and the Internet is finding the best way to support the production of recorded music, videos or other non-exclusive goods. Copyrights are one way to support this work, but there is no reason to believe that a form of property developed in the 16th Century is still the most efficient method for producing this material in the Internet age. There are many other ways in which such work could be supported--for example, through a system of individual tax credits. Unfortunately, this article fails to even recognize the nature of the problem.
"Senators Threaten to Force Music Licensing on the Web"
James V. Grimaldi
Washington Post, July 12, 2000, page E3
This article reports on hearings of the Senate Judiciary Committee on the transfer of copyrighted music over the Internet. At one point, the article reports that Senator Diane Feinstein berated a witness for "innovating a technology 'which entirely defeats the purpose of copyright protection.'"
Usually politicians view it as their responsibility to adapt laws to changing technology. It is rare for a political figure to vehemently argue a Luddite position for turning back technology, as Senator Feinstein has apparently done in this instance. This fact deserved more attention than it was given in the article.
More about the Internet.
"Despite Benefits, Democrats' Estate Tax Plan Gets Little Notice"
David Cay Johnston
New York Times, July 13, 2000, page C1
This article discusses a Democratic proposal for scaling back the estate tax, which would exempt up to $10 million of assets of a family held farm or business. Under this proposal, less than one in a thousand estates would be subject to any tax whatsoever. While the Democratic proposal would provide complete relief for the vast majority of the people currently subject to the tax, the article points out that the two main groups lobbying for repeal of the tax, the National Federation of Independent Business and the American Farm Bureau, have not even informed their members of the Democratic alternative to complete repeal.
"As Devastating Epidemics Increase, Nations Take on Drug Companies"
Donald G. McNeil Jr.
New York Times, July 9, 2000, Section 1 page 8
This article examines the battles that developing nations have waged against the pharmaceutical industry and the U.S. government over the enforcement of patent protection on life-saving drugs in developing nations. While most drugs are relatively cheap to produce, if corporations can benefit from the monopoly provided by patent protection, they can charge prices that make many drugs unaffordable to people in developing nations.
"For ALS Patients, a Drug With a Clouded Future"
Robert O'Harrow Jr.
Washington Post, July 10, 2000, page A1
This article examines the history of the development and the marketing of the drug Myotrophin as a treatment for ALS, a fatal neurological disease. The article reports on how Cephalon Inc., the company that manufactures the drug, pushed the product through the Food and Drug Administration's approval process even though there were questions about its safety and effectiveness.
Dean Baker is an economist and the co-director of the Center for Economics and Policy Research (CEPR). His latest book (co-authored with Mark Weisbrot) is Social Security: The Phony Crisis (University of Chicago Press). ERR is a joint project of FAIR and CEPR.
ERR is edited by Jim Naureckas.
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