Subject: Time for payroll tax reform; jobs update; is Wall Street safer? (AEI Economics Ledger) If you have trouble reading this message, click here to view it as a web page.

Time for payroll tax reform

GOP should stop avoiding payroll tax reform. James Capretta: “For too long, Republicans have focused their tax reform energies on just the individual and corporate income tax systems, on the assumption that payroll taxes cannot be changed because of their connection to financing the major social insurance programs. But the largest tax most families face is the payroll tax, not the income tax.”

Jobs update

Thoughts on the latest jobs report. Michael Strain: “June was a great month for the labor market. It may be seen as the month when the labor market kicked it into a higher gear -- I’m cautiously optimistic. But we still have serious jobs problems. For the medium- and long-term health of the US economy -- to say nothing of the short-term -- we need to reincorporate folks who have left the labor market.”

The US job market is not healthy. Jim Pethokoukis: “It’s not enough for an economy to generate jobs. There should also be a good amount of turnover in the labor market. Workers need to move around to find the best fit for themselves, not to mention higher pay from taking a new gig. A stay-put workforce is bad news.”

Texas has added 1 million jobs since 2007 versus only 24,900 jobs in California. Mark Perry: “What’s different about Texas and California that would explain why one state (Texas) has added more than one million net new jobs since 2007, while the other (California) has created almost no new net jobs over the last six and-a-half years? Let’s start by pointing out that one of those states -- Texas -- is pro-energy (i.e. fossil fuel energy), it’s a right-to-work state, it has no state income tax, its electricity prices are significantly lower because it doesn’t have a renewable energy mandate, and its regulatory burden on businesses is much lighter.”

Global financial risks and crises

Our next financial crisis, scheduled for 2019. Alex Pollock: “As Former Treasury Secretary Tim Geithner writes in ‘Stress Test,’ his recent memoir: ‘Experts always have clever reasons why the boom they are enjoying will avoid the disastrous patterns of the past -- until it doesn't.’ He predicts: ‘There will be a next crisis, despite all we did.’ Right. But when? On the historical average, 2009 + 10 = 2019. Five more years is plenty of time for forgetting.”

Rocky road ahead when interest rates rise. Desmond Lachman: “A problem with Ms. Yellen's approach is that rather than using interest rate policy as a means to remove the proverbial punchbowl before the financial market party really gets going, her forward guidance that interest rates will be kept low for a protracted period of time and will not be used to deflate bubbles gives the markets a green light to keep on partying.”

The problem with the Fed’s stress tests. Paul Kupiec: “A stress test-based approach to setting bank capital has two gigantic measurement problems. First, the macroeconomic scenario must actually anticipate the next financial crisis. Next, it must estimate an institution’s loss. Both are easier said than done.”

Don’t downplay economic risks from the Middle East. Desmond Lachman: “Among the more serious risks that both the market and the Fed seem to be downplaying relate to the longer-run security of Middle East oil supplies. This is all the more surprising considering the tectonic changes that appear to be occurring in the Middle East.”

About Piketty

Mr. Piketty's big book of Marxiness. Jonah Goldberg: “There is a reason the most passionate foes of income inequality tend to be very affluent but not super rich, intellectuals like Paul Krugman and other journalists eager to set the threshold for confiscatory tax rates just beyond their own income levels. But this sort of class war -- the chattering classes versus the upper classes -- is only part of the equation. Power plays a huge part as well. A full-throated endorsement of classic leftist radicalism would set a torch to Piketty’s own tower of privilege.”

Piketty’s political hunch. George Priest: “Piketty’s statistics have been severely criticized: in the Wall Street Journal by my colleague on the AEI Council of Academic Advisers, Martin Feldstein; more recently in the Financial Times and the Economist.These numbers will be worked out. In the many reviews of the book, however, there has been no careful analysis of Piketty’s conceptual structure, important for those attempting to understand the book.”

In other news

NEW BOOK -- Entrepreneurship for Human Flourishing

Trade implications of the 2014 farm bill. Vincent Smith: “The shifts in US domestic farm subsidy programs, which remain intentionally and disproportionately targeted towards wealthy farm households, have the potential to create substantive problems for the United States in its trade relations with other countries.”

Mark your calendar 7.15 AEI EVENT: Can committees create financial stability? 7.17 Weekly jobless claims released 7.22 AEI EVENT: Who governs the Internet? A conversation on securing the multistakeholder process 7.24 AEI EVENT: Is it time to end the Export-Import Bank? 7.24 AEI EVENT: Expanding opportunity in America: A conversation with House Budget Committee Chairman Paul Ryan Keep up with AEIecon Get up-to-the-minute updates on Twitter @AEIecon. Read more from the American Enterprise Institute economic policy team at www.aei.org/economics. Contact Abby at abby.mccloskey@aei.org if you have questions for the economics team. Sign up for a weekly copy of the LEDGER here. If you were forwarded this message, click here to subscribe to AEI newsletters. Click here to unsubscribe or manage your subscriptions.

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