The Green New Deal is a bad deal

Elliot Eisenberg, Ph.D. | March 1

While advocates of the Green New Deal (GND) suggest it will solve a multitude of problems by combating global warming and creating millions of well-paid jobs, the reality is that the GND is a profoundly expensive plan that takes leave of all economic principles. Within only its climate change portion, the GND ignores entirely the fact that CO2 emissions are a global — not local — problem; it fails to reduce carbon emissions most cost-effectively; and suggests nonsensical ways of paying for the program.

The Green New Deal is a bad deal

Elliot Eisenberg

The biggest problem with the GND is that it targets only U.S. emissions, while extreme weather and rising sea levels come from global ones. Today, the U.S. contributes 15% of global carbon-dioxide emissions, China contributes 30%, and India 7%. Under existing policies and goals, in twenty years, the US share will fall to 12%, China’s will drop to 27% and India’s to14%. Thus, even if the GND reduces U.S. emissions to zero, we will benefit little unless other nations do the same. One way around this problem would be to invest in innovations that other nations can easily adopt. For example, pressing to invent low-cost solutions that reduce carbon emissions in manufacturing and agriculture and then sharing them globally, as Germany has done with solar panels, would make a huge global dent in CO2 emissions.

A second problem is that the GND only focuses on removing certain sources of carbon dioxide by trying to achieve 100% renewable energy in a decade. The cost to do this would top $4 trillion — well over a full year of tax revenue. This works out to $110/metric ton of carbon dioxide avoided. The cost of weatherizing every building in the US to “maximum energy efficiency” is projected to cost $400 billion or $285/metric ton. If this sounds expensive, it is! President Obama’s economists put the harm of a ton of CO2 at $50. In New England, you can pay a power producer $6 to reduce CO2 emissions by a ton, $15 in California, and $25 in the European Union, based on emission permit prices in these jurisdictions. What is needed is market mechanisms that incentivize carbon reduction at the lowest possible price regardless of the source.

Finally, defenders of the GND propose paying for this ill-advised plan by taxing the rich and having the Federal Reserve finance it. While the Fed could buy GND bonds, it can do so only if it helps it reach its own congressionally mandated goals. While the Fed would return any interest earned on its holdings of GND bonds to the Treasury, it would have to sell an offsetting amount of Treasury bonds in the first place — otherwise it would compromise its control of interest rates. What if the Fed just printed money and used those funds to buy GND bonds, as was the case with Quantitative Easing? If the economy were in a recession, rates would be low, but they would also be low if the bonds were sold to investors, so the savings would be slight. And if the Fed bought the bonds in a healthy economy, when rates are above zero, like they are currently, it would have to pay interest on the reserves it issues to banks, offsetting the income earned on the bonds as it does now.

In summary, the GND suffers from several serious flaws. It imposes huge upfront costs on our economy, yet only slightly reduces the negative impacts of domestic carbon-dioxide emissions. In addition, it substantially overpays for the CO2 reductions it accomplishes by needlessly prioritizing certain CO2 emissions over others. Lastly, having the Fed buy GND bonds essentially works only in a recession, otherwise necessary offsetting maneuvers largely, if not completely, negate the interest savings.

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.

FBA sponsors landmark bill that would define a California Family Business

Senate Richard Pan, D-Sacramento, has agreed to carry legislation sponsored by FBA that will provide a definition for family businesses in California.

SB 483 will be amended to assist state and local governments in identifying family businesses that meet the requirements. This bill will define California family-owned businesses as:

  • companies domiciled in California
  • in operation for 10 years or more
  • and owned and controlled by related persons or a partnership of related persons that have passed the business through a generation or have a plan for future generational succession.
FBA sponsors landmark bill that would define a California Family Business

Sen. Richard Pan

This standardized definition of “family owned business” will provide one definition of family businesses across codes and policies.

Family-owned businesses have unique characteristics that distinguish them from other businesses; however, there is currently no standardized definition of a family-owned business. Having a standard definition across state and local jurisdictions will allow policy makers the opportunity to reference one definition across jurisdictions and codes as policies are considered.

During the last legislative session, for example, tax policy was considered in legislation that inadvertently removed the “surviving widow exemption” that excludes these intra-family property transfers from reassessment.

In response, the entire definition of a family business had to be amended into the proposal. The absence of a uniform definition creates difficulty in determining the exact measure of their contribution and leaves policy makers without accurate data when implementing specific policy issues such as tax and estate succession.

Senator Pan will be amending the legislation soon with FBA’s proposed definition that is substantially similar to AB 1260 (Medina) from 2014 that passed both houses of the Legislature unanimously but was vetoed by former Governor Jerry Brown. With the new Governor and administration, FBA has initiated conversations with the hope Governor Gavin Newsom will approve the measure if it makes it to his desk.

FBA signs on to letter supporting federal death tax repeal

At a time when more and more progressives are seeking to reinstate higher estate tax levels — and significantly raise taxes for many family business owners — FBA is proud to be one of more than 150 associations and trade groups that are backing legislation to fully repeal the 40 percent estate tax.

On February 20. the Family Business Coalition, of which FBA is a member, sent a letter to Sen. John Thune, R-S.D., and Rep. Jason Smith R-Mo., who have introduced the Death Tax Repeal Act.

The letter points out that repealing the death tax would spur job creation and grow the economy — and is supported by two-thirds of the American people. The letter also notes that the tax is unfair and contributes just a small portion to federal revenues.

“The negative effects of the estate tax make permanent repeal the only solution for family businesses and farms. Your legislation will help America’s family businesses create jobs, expand operations, and grow the economy. We thank you for your leadership on this important issue,” the letter concludes. You can read the entire letter here.

The effort to fully repeal the death tax comes at a time when Democratic presidential hopefuls are calling for huge tax increases on many family business owners. Sen Bernie Sanders, I-Vermont, has called for increasing rates to as much as 77 percent and applying the tax to estates of just $3.5 million, down from more than $11 million in current law. Rates he is proposing haven’t been seen since the 1970s.

Meanwhile, Sen. Elizabeth Warren, D-Mass., has proposed an unprecedented “wealth tax” and Rep. Alexandria Ocasio-Cortez, D-N.Y., has called for raising the top marginal income tax rate to 70 percent.

Many family businesses are relatively cash-poor but have significant land and equipment assets, making it difficult to pay high estate taxes without selling the company.

Economic Forecast 2019: Good, But Not as Good as 2018

By Elliot Eisenberg, Ph.D.

Despite increasing political uncertainty, a split Congress, trade concerns, financial-market volatility, and slowing global growth, from an economic perspective, the next 12 months should be decent. The odds of a recession have roughly doubled but remain relatively low –- about 25% — despite being just a few months away from the longest economic recovery in US history. While growth is slowing in all major economies, inflationary pressures are surprisingly tepid. As a result, the Fed will have the luxury of raising rates at a very leisurely pace, and thus hopefully avoid prematurely ending the continuing, albeit slowing, expansion that we will experience in 2019.

Economic Forecast 2019: Good, But Not as Good as 2018

Elliot Eisenberg

A major reason for the slowdown is the fading of fiscal stimulus from tax cuts passed in December 2017 and debt-financed spending increases totaling $400 billion passed in February 2018. Collectively, this should clip GDP by close to half a point. Add to that global slowing, trade concerns, a strengthening dollar, Brexit fears, and other threats — and GDP growth during the next 12 months should average 2.3%, down from 3.0% in 2018.

Despite slowing growth, unemployment will continue declining from the current rate of 3.7% to 3.5% and maybe as low as 3.4%, rates not seen in more than 50 years! As the labor market tightens, wage growth should increase in 2019, from 3%/year last year to 3.3%/year and maybe 3.5%/year by year end 2019, a healthy rise. Inflation, as measured by the PCE, the Fed’s favorite measure, looks to flatline at 2% in 2019, while core inflation (which excludes food and energy) will edge up slightly from 1.9% to 2.1% due to rising wages.

Because of the very slow rise in core inflation, the Federal Reserve will raise the federal funds rate from 2.375%, where it is now, to at most 2.875% by year’s end, with a quarter-point rate increase in June and possibly another one in December. 10-year Treasuries will end 2018 at 3.35%, up from the current 2.8%, and the rate on 30-year mortgages will end 2019 no higher than 5.1%.

As for housing starts, the combination of high land costs, rising worker wages and input costs, and the reduced benefits of homeownership resulting from last year’s tax reform should see them increase by no more than 2% to 1.28 million. Single-family starts will likely total 900,000, up from 883,000, while multifamily starts should flatline at about 380,000.

New and existing home sales should both remain largely unchanged in 2019 and end the year at 620,000 and 5.3 million respectively, with mortgage purchase volume rising by $50 billion due to higher prices. Refinance activity should fall by about $60 billion because of the rise in mortgage rates. Housing inventories will rise slightly, but due to the combination of continued strong household formation and insufficient new home building, home prices will still rise by 4%, less than last year.

In summary, growth in 2019 looks to be slower than what we became accustomed to in 2018. This is attributed to slowing global growth, increasing trade concerns, a growing worker shortage, higher interest rates, and substantially less fiscal stimulus coming from Washington. Although the Fed may raise rates as much as two times next year, strong consumer spending combined with continued employment growth and rising wage growth should keep the economy on track. The chances of a recession, while meaningfully higher than in 2018, remain relatively low.

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.

Frivolous PAGA lawsuits are making some lawyers rich, but they aren’t helping workers or employers

This op-ed by FBA Chairman Ken Monroe appeared in the Los Angeles Times on December 6, 2018

Fourteen years ago, California set up a new method for enforcing its complex wage and hour laws.

Ken Monroe Family Business Association of California

Ken Monroe

The legislation, called the Private Attorneys General Act, or PAGA, allows private attorneys to sue employers on behalf of a class of company employees.

The ostensible motivation behind the law was to protect workers. But in reality, PAGA lawsuits have made it more difficult for family-owned businesses like mine to be flexible with employees. Predatory trial lawyers take advantage of the law, using as their playbook the more than 800 pages that make up California’s labor code.

PAGA lawsuits have made it more difficult for family-owned businesses like mine to be flexible with employees. PAGA sets penalties for each labor code violation, no matter how minor: $100 for each employee per pay period for an initial violation, and $200 for each employee per pay period for each subsequent violation, and other possible penalties. These violations can be stacked, with multiple penalties for each statutory wage violation.

As I learned the hard way, these penalties can add up fast, easily reaching hundreds of thousands of dollars for a small company like ours (and millions for larger businesses). The end result is that employers have to enforce onerous labor regulations that often do not benefit employees, or risk getting sued. For instance, we have employees who start their work day early and don’t necessarily want to stop for lunch at 10 a.m. They would rather wait until their friends take their lunch breaks, so that they can eat together.

As a family-owned business, we wanted to take employee desires into account, so we used to let them wait to eat — even though state law requires that hourly employees take a half-hour meal period after five hours of work, whether they want to or not.

Then, about two years ago, we were hit with a PAGA lawsuit. A disgruntled former employee had linked up with San Diego trial lawyers who specialize in such suits. Like virtually all companies that find themselves the target of a PAGA or class-action lawsuit, we negotiated a settlement rather than take the risk of losing in court and facing the onerous maximum penalties prescribed by the law.

In what was a pretty standard negotiation, the attorneys received 35% of the settlement, the state got 2%, the mediator got 2% and the disgruntled former employee got $7,500. The 300 employees that made up the class action each received between $23 and a few thousand dollars.

Our employees did better than some plaintiffs, at least. Google recently paid $1 million to settle a similar lawsuit. Its employees got $15 each, while the lawyers who brought the case walked away with more than $300,000. Uber drivers did even worse. They got $1.08 each, the lawyers $2.3 million.

The law of unintended consequences has since kicked in at our company. We have had to institute strict rules about meal and rest breaks and the accuracy of time cards, to ensure that we are always in compliance with California’s complex labor laws.

Now employees who want to work through their lunch so that they can go home early or eat with fellow employees are simply out of luck. We cannot legally accommodate their reasonable requests. The company cannot risk another PAGA lawsuit.

We’ve received many complaints from our employees about our strict adherence to every clause on every page of the labor code, and we’re sorry to take away their flexibility. But our hands are tied. Making matters worse, a California appeals court ruled in September that business owners can now be held personally liable for certain violations.

Ask any human resources consultant what employees want in the workplace and their answer is likely to include: respect, trust, recognition, autonomy and flexibility. Unfortunately, California’s labor laws and regulations are making it increasingly difficult for businesses to provide these things.

Lawmakers defeated two bills this year that would have given employers the right to fix problems before PAGA suits could be filed. The Family Business Assn. continues to search for solutions.

In the meantime, I encourage state legislators to come by any of my company’s locations, from Merced to Redding, and talk to employees who now can’t eat lunch with their friends or leave early to go to a doctor’s appointment.

Surely this isn’t what the authors of the Private Attorneys General Act had in mind.

Ken Monroe is the chairman of the Family Business Assn. of California and the president of Holt of California.

Family businesses celebrate milestone anniversaries

While family businesses are the bedrock of California’s economy and its communities, keeping a business going for decades is extremely difficult. Studies show that only 30 percent of family businesses survive into the second generation, 12 percent to the third, and only 3 percent to the fourth generation and beyond.

But in 2018, eight family businesses that are members of the Family Business Association of California celebrated milestone anniversaries, demonstrating that despite the difficulties of running a successful business in California well-run companies can thrive for generations, said FBA Executive Director Robert Rivinius.

“This year’s list of anniversaries includes a wide range of companies, including two that marked their 100thyear in business,” Rivinius said. “The families who have these businesses growing for 50 year or more deserve recognition for their hard work and their ability to navigate the state’s difficult tax and regulatory regime.”

Profiles of five of the companies can be found on the FBA website: Shubert’s, Lund, Pini, Lippow, Jim Dobbas

The companies are:

Gorrill Ranch, Durham, was founded in 1918 by Ralph Gorrill, an engineer who was part of the team building what became U.S. 99. He purchased 2,400 acres along Butte Creek from the Leland Stanford estate. Teaming up with a colleague, Gorrill learned the rice industry and today the ranch is a small but prominent grower of rice and orchard crops. The ranch is now run by the fourth generation of family members. http://gorrillranch.com/our-story

Pini Hardware, Novato, was also founded in 1918, by a Swiss immigrant who opened a general store which within a decade became one of the largest employers in town. The Young family became involved in ownership in 1968 and today the store is operated by the third generation of the family. http://www.piniacehardware.com/about-pini/

Shubert’s Ice Cream and Candy, Chico, was founded in 1938 by Leonard C. Shubert, who left Montana at the age of 54 to find a location in California for an ice cream shop. When he drove into Chico, he knew he’d found his location and since then the shop has become a community institution. The fourth generation of the family now make ice cream and candies on the premises. https://shuberts.com/our-story/

Valley Truck and Tractor,Yuba City, was established in 1948 and today is the leading John Deere dealer in Northern California. https://www.valleytruckandtractor.com/about-valley-truck-tractor-yuba-city-chico-ca–info

Lippow Development, Martinez, was officially formed in 1948 – 44 years after Leo Lippow arrived in the United States as a penniless immigrant. Now run by the third generation of the family, the company owns and operates a diverse portfolio of commercial and industrial properties in California and Arizona.  https://www.lippow.com/about

Lund Construction, North Highlands, was founded 1958 by George and Alta Lund out of their garage. Now in their third generation, the company specializes in pre-construction, earthmoving, and pipeline services. https://www.lundconst.com/company/

Vanella Farms, Chico, began in 1968 when 23-year-old Bob Vanella purchased his first almond huller. Today, the company grows and processes almonds, walnuts and other crops on 3,000 acres and is a wholesaler that sells nuts to customers around the world. https://vanellafarms.weebly.com/about.html

Jim Dobbas, Inc., Newcastle, began its heavy equipment contracting business in 1968 and today specializes in emergency and derailment response services for class 1 railroads. The company is now run by the second generation of the family. http://www.jimdobbasinc.com/about/company-overview

Rivinius noted that the state’s 1.4 million family businesses employ 7 million people and tend to pay their employees better, train them better, and provide more generous benefits than nonfamily companies.

About the Family Business Association of California (FBA): Founded in 2012, the Family Business Association of California is the only organization working exclusively at the Capitol to educate lawmakers and regulators about the importance of family businesses to the state’s economy and to their communities – and to advocate positions on legislation and regulations. For more information, visit www.myfba.org.