by John Frith | Aug 8, 2017 | Blog
By Elliot Eisenberg, Ph.D.
August 2017
Since the beginning of the 2016 presidential election cycle, President Trump has repeatedly argued that trade deficits with other nations are indicative of unfair trade. His contention is that if we just negotiate better trade deals, deficits would disappear, and economic growth and employment would improve. Regrettably, this view is simplistic; usually deeper economic forces are at work, making trade deficit reduction more difficult. That said, pushing nations with chronically large trade surpluses to reduce them would be good because large trade surpluses are economically destabilizing.
A trade deficit is always the result of a nation consuming more than it produces; that gap, or savings deficit, is what produces a trade deficit. By contrast, a trade surplus means a nation saves money by consuming less than it produces. As a result, while protectionism can alter those with whom we run trade deficits and surpluses, it cannot alter the size of our overall trade deficit.
Think about it: you run a trade surplus with your employer, but a trade deficit with Costco, Target, and your mortgage company. If Target is unfair to you, you can reduce your trade deficit there by buying less, but you would likely increase your deficit at Walmart. The only way to reduce your deficit with retailers is to buy less stuff, meaning that you save more!
A country in recession is likely to run a trade surplus as the population pulls back on spending, allowing exports to rise, which is equivalent to saving more. Conversely, a nation enjoying an economic boom would normally run a deficit because domestic spending would be very high, causing exports to decline and savings to fall. In the United States, we run chronic trade deficits because we consistently consume more than we produce, but the size of the deficit varies depending on domestic economic conditions. To rid ourselves of our annual trade deficits would require reduced consumption, which means consistently saving more, and absent substantial tax reform, that is unlikely.
This is how trade normally works. However, some countries with strong economies run chronic trade surpluses, which requires cheating. Normally, such a country would see its currency rise, pushing down exports as they become costlier in foreign countries. However, between 2000 and 2013, China spent trillions of dollars artificially depressing its currency. That reduced imports, boosted exports, forced savings to rise, and resulted in large trade surpluses. This financial repression should be fought and here’s how: if a nation deliberately intervenes to depress its currency, the U.S. should intervene and strengthen that nation’s currency by selling dollars and buying the currency of the offending nation with the proceeds. Once offenders know what we will do, they will likely stop, preventing nations from running chronic surpluses. Instead, those nations will probably increase their consumption and save less, and, consequently, see their trade surplus wither. In the process, other nations will export more and see employment gains.
Trade surpluses that result from cheating not only deprive workers in other nations of employment in export industries, but also destabilize the global economy. By manipulating their currency, the Chinese destroyed jobs here in the U.S. (and Europe) and weakened our economy. As a result, when the Great Recession hit, it was worse than it would otherwise have been, and the recovery was weaker because we could not increase exports as much as we should have been able to.
In short, trade deficits normally result from too little savings. Because the amount saved by an economy changes over the business cycle, deficits and surpluses usually wax and wane and are thus reasonably self-correcting. It is only when a nation cheats and runs a chronic surplus that we should be alarmed, and in those cases, we should fight back. Doing so will discourage cheating and make the global economy more resilient.
Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net. His daily 70-word economics and policy blog can be seen at www.econ70.com. You can subscribe and have the blog delivered directly to your email by visiting the website or by texting the word “BOWTIE” to 22828.
by John Frith | Aug 2, 2017 | Blog
By Dennis Albiani and Faith Lane
California Advocates
On July 21st, the Legislature adjourned for a month- long summer recess. When lawmakers return in late August, they will have four weeks of session remaining this year to act on the hundreds of bills still pending — plenty of time to play ball.
There have been a number of key victories for the Family Business Association and the business community so far this year. Perhaps the top two wins were putting on hold SB 762 (Wiener), the proposed death tax bill, and halting SB 562 (Lara and Atkins), the single-payer legislation that would have cost employers an estimated additional 15 percent in payroll taxes to pay for the $400 billion per year legislation.
A united employer coalition also stifled attempts to impose millions of dollars in significant tax increases on California employers. One example was SB 567 (Lara), which would have taken away several advantages for family businesses to transfer property to heirs and other family members. Like SB 762, the bill is on hold but still alive.
Even in light of these successful hits, there are plenty of wild pitches. Legislation attacking California employers continues to advance towards Governor Brown’s desk. Businesses have been the middleman this year in political fights between the Legislature and the Trump administration. AB 450 (Chiu) and SB 49 (De León) are two key examples that demonstrate California’s efforts to place employers in a no-win situation between complying with federal and/or state laws.
AB 450 would prohibit employers from cooperating with federal immigration enforcement unless there is a valid warrant. Additionally, it has numerous posting and notification requirements. If AB 450 is enacted, employers that are otherwise fully compliant with state and federal laws could be charged up to $10,000 for complying with federal authorities if any immigration enforcement occurs at the workplace. Likewise, under SB 49 businesses would be subject to private rights of action and writs of mandate arising out of new, more- stringent California standards and requirements that are in reaction to any loosening of environmental regulations by the U.S. Environmental Protection Agency and other federal agencies.
Another bill to follow closely in the final weeks is SB 63 (Jackson), which would create the New Parent Leave Act. This would mandate up to 12 weeks of job-protected maternity and paternity leave for workers who work for companies with as few as 20 employees. This benefit would be on top of leave that California already requires, for a total of seven months of protected leave. Although the additional mandated leave is unpaid, it is not without significant costs to employers who are burdened with costs such as overtime pay for other employees covering the workload, or costs associated with temporary workers, in addition to maintaining medical benefits for the employee on leave.
FBA will remain at the forefront of efforts to defend against hostile, unfavorable legislation and regulations, and will continue to lead in advocacy for the creation of jobs and success of family-owned business in California. Play Ball!
by John Frith | Apr 24, 2017 | Blog
Faced with a strong and growing FBA-led coalition opposed to his bill to reinstate California’s estate tax, Sen. Scott Wiener, D-San Francisco, has decided to make his SB 726 a two-year bill, meaning it will not be heard by legislative committees this year.
The Senate Governance and Finance Committee had been scheduled to take up the bill in late April, but it was pulled from the committee’s agenda at Wiener’s request.
FBA lobbyists assembled a coalition of nearly 50 business and farming organizations that recently sent a letter to Sen. Wiener outlining the many problems in the bill. FBA Vice Chair Ken Monroe also authored an op-ed that ran in Wiener’s hometown newspaper, the San Francisco Chronicle.
“We are pleased that Sen. Wiener has delayed action on his legislation, and will continue working with our coalition partners to persuade him to drop the bill altogether,” said FBA Executive Director Robert Rivinius. “Family businesses are the bedrock of California’s economy and our communities, and imposing a California-only 40 percent death tax would be a crippling blow to many family businesses and would cause many of them to relocate to more business-friendly states.”
SB 726 would ask voters to overturn ballot initiatives approved in 1982 to do away with the state’s estate tax. While Sen. Wiener says the measure would only be pursued if the federal government abolishes its 40 percent death tax, nothing in the legislation states that. The tax would generate about $4.5 billion a year for state government.
Rivinius also warned that the fight is not yet over and FBA must continue to lead the fight against the proposal.
“The best coalition is the largest one possible, and in our case that means having FBA members in every legislative district in California. Please join FBA today to help us continue the fight to defeat this dangerous bill.
by John Frith | Sep 21, 2016 | Blog
The Family Business Association of California (FBA) represents family businesses at the legislature and in the courts to help overcome regulatory and economic obstacles and ensure they maintain freedom to operate with as little government intervention as possible.
We are a proactive voice for family businesses in California and identify opportunities for and threats against family businesses, thereby providing a voice for solving the problems they face.
We are active in the California Assembly and Senate on a daily basis, where we support or oppose legislation based on the effect it would have on family businesses. The following are just a few of the many legislative goals we have mapped out for action.
Change of Ownership – The most important aspect of a family business is that it passes from generation to generation. Family business owners dream of the day when they can pass on what they’ve built on to their heirs. But that change in ownership could, depending on the circumstances and size of the business, trigger government reassessments and lead to increased tax burdens for family businesses.
AB 1040 was introduced during the 2015-2016 session of the Legislature. Had this bill passed, it would have broadened the definition of a “single transaction” transfer, potentially resulting in more family businesses being hit with real estate reassessments and a higher tax burden due to a transfer of ownership. Through the efforts of our organization and our many allies, AB 1040 was defeated, preserving the ability for family businesses to pass ownership on to their heirs without being subjected to undue hardship.
Fighting Unnecessary Regulations – SB 878, also known as the Fair Scheduling Act , would have required grocers, retailers and restaurants to adopt convoluted guidelines in order to change the schedules of hourly workers. Failure to follow these guidelines would have enabled any affected employee to sue, in addition to requiring businesses to compensate employees for shifts not worked or pay them a higher rate for new shifts. This would have been problematic for a number of reasons:
- The bill would have reduced the freedom business owners and management have over their own operations
- It could have potentially invited legal battles that many family businesses would struggle to finance or settle
- Complex regulatory changes that affect routine operations often put an unfair burden on family businesses, especially if they have limited resources to handle those required changes
FBA and our business partners defeated SB 878, ensuring these damaging restrictions won’t be forced on unsuspecting family business owners.
Other Legislation
FBA also was involved in killing a split-roll real estate tax effort that would have cost California businesses $9 billion per year and tax reform that would have placed a sales tax on services. FBA won on two legislative efforts to help reduce meritless ADA lawsuits, reforms to employee tracking requirements, and formation of a group to find solutions to cargo theft. Although it was a tough year overall, without the voice of California’s family owned businesses at the Capitol, it would have been worse.
Please contact FBA to learn more about becoming a member of our Association
