INSIGHTS: NY GOVERNMENT IS LIKE A $50 CHEESEBURGER
Guest Columnist: Brandon Muir, Executive Director, Reclaim New York
Imagine you stop by a new neighborhood burger place. You go up to the counter, order the deluxe cheeseburger, and ask how much it costs. You’re told there is no price. How would you know whether you got a good deal?
Maybe the cheeseburger is great, but if it costs $50, that’s not a very appetizing deal.
In New York, this is the reality that families, businesses, and taxpayers face.
State government is set to spend over $150 billion over the most recent fiscal year. That is twice the budget of the state of Florida, which now has a higher population than New York.
Even some local governments spend into the billions – like Nassau County.
There is an affordability crisis in our state that is driven by these costs. They drive government to grab for more money at every turn, rather than finding a way to offer a better, more affordable deal. We have the 49th-ranked business climate, and worst combined state and local tax burden.
It’s no wonder taxpayers are leaving. New York led in outmigration to other states again in 2017.
Those facts are scary, but don’t show the personal impact that is tearing the fabric of the state apart.
Reclaim New York’s affordability crisis reports show how and why it costs families so much to live here. They combine all the taxes a New Yorker pays, and basic expenses, to show what it really costs to live in their neighborhood.
This sobering view leaves no question as to why people can’t build a future. From the Southern Tier, to Staten Island, the reports show middle-class families spend 90-percent or more of their annual earnings just to wake up in New York.
People at the median, to two-times the median income for their neighborhoods are getting crushed.
It gets even heavier with a look at a family’s personal online affordability calculator results (via reclaimnewyork.org/affordability). This year, over 5,000 New Yorkers have used the tool to see what they really pay thanks to the state’s high taxes and cost of living.
It’s a harsh wake-up call, and one that shows New York was already tax hell. Complaints about newly-signed federal tax reform from the likes of Governor Cuomo and California Governor Jerry Brown should be taken with a grain of salt.
After all, when they are crying about the horrible tax burdens residents will now have to pay, it is their own state governments that have created the high costs. Washington is just now pulling back the curtain to show taxpayers how much the state is truly charging them.
There’s plenty of reason to fight back against these high costs. Yet, government has become run by political insiders, cutting out New Yorkers. There is no better example than Albany’s “three-men-in-a-room” legislative process.
To have any hope of fixing the problem, we have to get citizens back in the game and holding their public officials accountable.
ON THE ECONOMY: 2018 JDA PREDICTIONS
John Dunham, Managing Partner, John Dunham & Associates
Greetings, my friends. We are all interested in the future, for that is where you and I are going to spend the rest of our lives. So began one of the great cult movie classics of all time, Ed Wood’s Plan 9 From Outer Space. The narrator of the film was a former radio announcer known as the Amazing Criswell. Criswell was famous for his bizarre predictions including a claim that the earth would be struck by a ray from space that would cause all metal to adopt the qualities of rubber, leading to horrific accidents at amusement parks. He also suggested that the end of the planet would happen on August 18, 1999. While Criswell never claimed to be a real psychic, and his bizarre prognostications were for entertainment only, many of those who make forecasts are not always so humble.
In our final Monthly Manifesto of the year we like to examine the predictions that were made through 2017. As usual, the year was full of incorrect predictions. Let’s start with the stock market. At the beginning of last year, most Wall Street analysts predicted that both inflation and interest rates would increase. So did I. But this did not happen, and actually most forecasts made at the beginning of 2017 were really off. Back last December, according to WalletHub.com, The S&P 500 was predicted to finish the year at about 2,288 (I love the exactitude). It currently stands at 2,683, 17 percent above that forecast. Analysts at Nomura, a large Japanese bank forecast a surge in productivity. While productivity was up in 2017, the increase was well below levels seen in 2013-2015. Were this this to happen, implications for the markets would be far-reaching from stronger equity markets to a more aggressive F
ed hiking path,” the team wrote. The economists at IHS forecast that the US dollar would rise by about 2 or 3 percent in 2017. It was down by almost 7 percent, and the Kiplinger Letter suggested that the darling of investors would be – Snapchat. Well, Snap’s $25 billion IPO was a disaster, with the stock falling by more than a third since its launch in March.
Bad predictions were made in the public policy arena as well. In a Bloomberg.com article, Bradley Tusk, former mayoral campaign manager for Michael Bloomberg, said that the momentum on cannabis legalization will halt as the Department of Justice no longer turns a blind eye to what’s happening in states. Well in 2018, California, Massachusetts and Maine are all scheduled to legalize weed.
A group of “experts” brought together by LinkedIn predicted such winners as a pig heart being transplanted in a person in 2017, and that at least one Fortune 100 company would become a so-called B Corporation (or Public Benefit Corporation). Of course Donald Trump was not impeached, Obamacare was not repealed, and Jay Z and Beyonce did not split up. Nor did the end of the world occur after the blood of Saint Januarius failed to liquefy.
All of this suggests that we should all be wary of predictions, and particularly of the computer models that all of us rely on to make them. The fact is, as economist John Kenneth Galbraith has been quoted as saying, “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” Then again, the Simpsons forecast that Disney would acquire Fox in a 1998 episode…
With this in mind, how did JDA do in its predictions for 2017?
Our long-term prediction was that the US economy would enter a recession in 2017 no matter who won the Presidential election, was way off. In fact, 2017 was one of the best years for the economy since the last recession ended. We continue to think that the business cycle is getting geriatric, but also see that a more accommodating regulatory environment has given it a bit of a jolt. That and the fact that the tax cut just passed by Congress will likely send a large flow of capital into the economy in 2018 (as corpora
te entities take advantage of a one-time tax break and de-tax unremitted income), should ensure that growth will continue through 2018.
We were also way off on what we thought would happen to interest rates. This is a very difficult environment in which to predict rates since the market has been impacted by the massive purchase of fixed income instruments by the Federal Reserve. Long term interest rates are well below what they should be even in a flat to declining economy, and we believed that they would trend upward toward a more realistic rate. We correctly predicted the change in the Federal Funds rate, or the overnight rate that is set by the Fed; however, we believed that the Bank would at least begin to unwind their grossly inflated balance sheet. This did not happen, and until it does, market interest rates will continue to be abnormally low.
On the other hand, we called the Federal Funds rate at 0.75 by the 4th quarter, and were almost spot on for our interest rate forecasts. Our inflation forecast was also pretty much right on.
Since I totally missed it on the big numbers, I give myself a Gentlemen’s C for 2017. I could have played it safe and kept with the pack, but went with my gut that the economic data was pointing to an inflection. I stand behind this and will argue that the change in Administration probably helped more that I would have expected.
Based on this stellar performance in 2017, what do we foresee for 2018?
Let’s start with GDP. As I said before, with the tax cut bill passing, my forecast has significantly changed. We forecast some significant growth in both nominal and real GDP would occur in 2018 following the enactment of the tax bill. We should see this starting to take effect in the first quarter and grow through the year. Our model forecasts that real GDP will grow by an average of about 5 percent a year over the next two years which is significant but well below the 7.25 percent growth that followed the Reagan tax reforms. We believe that wage growth will accelerate from an average of 2.3 percent to about 3.3 percent, and inflation will rise to the 3 percent range. In effect the tax bill will likely stave off a recession for at least the next two and maybe three years. Our models also forecast significant job growth – maybe a bump in overall employment of as much as 5 million new jobs (which would equal the overall employment growth that has occurred since 2016). Quarterly employment growth of 800,000 to over 1 million jobs was not uncommon in the 1980s following the Reagan tax cuts, but these tax changes are not as
dramatic and job growth will be driven by the influx of unrepatriated earnings. In addition, the labor market is tight right now after nearly 9 years of growth. So while actual physical jobs may not boom by 5 million, hours, wages and investment should, as more money enters the economy. With that said, we expect to see unemployment fall to very low levels – maybe as low as 3.5 percent in the next year, with more people entering the workforce.
Consumer spending should increase but likely not as rapidly as the economy as much of the windfall in new after-tax income is used to pay down debt. This should also help hold the line on inflation which we expect will rise modestly.
Deregulation will continue to be an important factor, but as we said last year, its effects will be felt slowly. It takes a long time to pass rule changes, and there will continue to be states like New Jersey and California that pass onerous regulations on business.
Even with the increase in inflation we expect to see the Federal Reserve continue to slowly raise the Federal Funds Rate, but with the new capital available to business demand for loans will continue to be soft. We also do not envision a major deleveraging by the Bank, so higher overnight rates will still not be fully reflected in market rates. That said, we hope to see a normalization in rates away from the absurdly low levels of the last decade over the next few years.
Based on these general findings, our most recent forecasts for 2018 are presented in the following chart.