It is my pleasure in my last column as SGE President to introduce the new web-based SGE Bulletin and upgraded SGE website, which represent the culmination of the work of several SGE Boards. This year’s Board has improved SGE operations in several ways: SGE’s transition to a fully web-based newsletter and upgraded website has further rationalized our cost structure; we also greatly simplified our fee structure and reduced fees for both regular and institutional members. As always, we welcome member feedback and suggestions on new developments.
June is busting out with lots of SGE events:
Also in the SGE Bulletin this month:
See you soon at an SGE event!
Thornton Matheson
SGE President
All SGE members are invited to join the new and outgoing SGE Board members at our annual membership dinner, which will be held Wednesday, June 14, 6:00-8:00 PM, at:
Les Halles Restaurant
1201 Pennsylvania Ave. NW
Washington, DC 20004
(202) 347-6848
Metro stations: Metro Center or Federal Triangle
Happy Hour will be from 6:00-6:30; dinner will commence at 6:30. The cost of the dinner will be $36.00 plus tax, service and beverages. R.S.V.P. by June 11 to thornton.matheson@do.treas.gov
President
Bill Lawhorn
Bureau of Labor Statistics
Vice President
Jonathan Schwabish
Congressional Budget Office
Executive Secretary
Yvon Pho
Bureau of Economic Analysis
Treasurer
Brian Sloboda
Department of Transportation
Thornton Matheson
Department of the Treasury
Thornton.Matheson@do.treas.gov
Warren Hrung
Federal Reserve Bank
(212) 720-6054
warren.hrung@ny.frb.org
Nabeel Alsalam
Congressional Budget Office
(202) 225-2639
nabeel@cbo.gov
Robert Shackleton
Congressional Budget Office
(202) 226-2760
bobsh@cbo.gov
Chris Adams
Anthony Barkume
Seth Giertz
Kevin Moore
Julie Sommers
Thursday, June 22, 2006
Noon to 1:30
Speaker: Kristina Shelley, Supervisory Economist, American Time Use Survey (ATUS)
Affiliation: Bureau of Labor Statistics
Title: "The American Time Use Survey: Overview and Results"
How do we spend our time? Kristina Shelley will provide an overview of the American Time Use Survey (ATUS), the Nation’s first federally administered, continuous survey on time use. Her presentation will explain why the Bureau collects time-use information and review the basics of the survey, including the sampling methods and collection procedures. Ms. Shelley will share some of the first results, potential applications for the data, and look ahead to possible future research and module topics.
Chinatown Garden Restaurant
618 H St., NW, Washington
Metro: Gallery Place (Red, Green, and Yellow Lines).
Restaurant is 1/2 block east of the Metro station's northern (H Street) exit.
Reservations by 12 noon June 21st, to
Lawhorn.william@bls.gov or 202-691-5093.
$15 for SGE and NEC members
$20 for non-members
Wednesday, June 21st, 2006
6:00-8:15 p.m.
Conference room 483, Congressional Budget Office
2nd & D Streets, SW, 4th Floor, Washington, DC 20515
(Metro: Federal Center SW Station)
Panel:
Zachary Schrag, Assistant Professor of History, George Mason University
Ross Capon, Executive Director, National Association of Railroad Passengers
Discussant:
David Johnson, Assistant Director, National Association of Railroad Passengers
Light refreshments served. The seminar is free, but please e-mail Melvyn Sacks at MelSacks@cavtel.net for reservations.
The U.S. consumes much more than its fair share of the world’s energy. With only 5 percent of the world’s population, the U.S. uses 25 percent of the world’s energy. By comparison, Japan uses 6 percent of the world’s energy while having 2 percent of the world’s population. Our roads are congested with SUV’s, our airports are crowded, and global warming is becoming a major problem. Unlike western Europe where public transportation is abundant and gasoline prices are high, mass transit in the U.S. is starved for funding and often not well suited for traveling from home to work or for shopping. Amtrak is in a continual fight for adequate funding, and light rail is often not available for use.
There was a time in this country when interurban trains went from city to city, housing and work sites were concentrated among these rail, trolley and bus routes, and energy usage was a fraction of what it is now. This seminar will explore these issues and whether we have the ways and means of expanding public transportation in this country.
Michael J. Graetz and Ian Shapiro, Princeton University Press, Princeton, 2005, 355 pages.
Reviewed by Thornton Matheson
In Death by a Thousand Cuts, Yale Law Professor Michael Graetz and Yale Political Science Professor Ian Shapiro compile a detailed legislative history of the 1990s movement to repeal the estate tax, commonly known as the “death tax”. This movement culminated in the 2001 passage of the Economic and Growth Tax Relief and Reconciliation Act (EGTRRA), which gradually ratchets the estate tax back to the point of total repeal in 2010. Unless extended by further legislation, however, the estate tax repeal will then “sunset” and return to its pre-EGTRRA levels: a 55 percent tax on the value of estates exceeding $1 million in net assets. The authors describe the repeal of the death tax as arising from the interplay of numerous dynamic individuals and pressure groups, in an account reminiscent of Alan Murray and Jeffrey Birmbaum’s Showdown at Gucci Gulch.
The central mystery of the estate tax repeal, as Graetz and Shapiro present it, is how a broad-based movement to abolish a tax that impacts only a small minority of U.S. households developed. The authors point out that in1999, only 2.3 percent of all estates were affected by the tax, which raised a total of $24.4 billion. More than half came from estates worth at least $5 million, the wealthiest 0.1 percent of the population. The authors show how scions of this wealthy elite, by forging alliances with a disparate array of interest groups representing smaller business and farming interests, were able to create widespread public antipathy to the estate tax.
The first two sections of the book describe the lobbying process that led up to the temporary estate tax repeal embedded in EGTRRA. Graetz and Shapiro detail how natural enemies of the estate tax such as the Gallo (wine) and Mars (candy) dynasties joined forces with “grass-top” small business and farm groups whose members feared that their estates would have to be liquidated to pay the tax. Together, these groups mounted a successful campaign to persuade key lawmakers and the public that the estate tax represented a threat to entrepreneurship and family businesses. They also revived the moniker “death tax,” originally used at the tax’s inception in 1916, in order to emphasize the unfairness of taxing families at the time of a loved one’s death. (Hard-hearted economists, of course, are likely to favor a tax on anything that is inelastically supplied, such as corpses; nonetheless, the death tax inarguably results in some wasteful sheltering of estate assets.)
While the above coalition was attacking the estate tax, who was standing by to defend it? Graetz and Shapiro are sharply critical of the lack of resolve shown by political opponents of estate tax repeal. These include not only most Congressional Democrats, but also major interest groups that stood to suffer from estate tax repeal, including charities (since a major motive for charitable bequests is avoidance of estate taxes), insurance companies (many of whose products are used for estate tax planning) and organized labor (whose members are unlikely to pay estate taxes, but who will likely suffer higher wage taxes and/or lower social benefits due to estate tax cuts). None of these groups organized serious resistance to repeal in the early to mid-1990s, while the coalition in its favor was building steam.
Graetz and Shapiro also neatly describe the imbalance of politico-intellectual arsenals (i.e., think tanks) that has fueled the ascent of conservative opinion since the 1970s. In contrast to the well-heeled conservative bastions typified by the American Enterprise Institute, Cato Institute and Heritage Foundation, liberal think tanks are relatively few and poorly funded. (These do not include the Brookings Institution or the Urban Institute, which are non-partisan.)
A few prominent wealthy individuals, including George Soros, Warren Buffett and Bill Gates Sr., did vocally oppose repeal of the death tax. Their arguments in favor of taxing large estates echoed those promulgated in the early 1900s by leading statesmen and industrialists such as Theodore Roosevelt and Andrew Carnegie. The estate tax, they argued, is necessary to prevent excessive concentration of wealth and the creation of an unproductive aristocracy.
A century later, Graetz and Shapiro note, although the distribution of US wealth and incomes are in fact repolarizing after a period of mid-century compression, most Americans believe that U.S. society is characterized by a high degree of mobility. Therefore, even those lower on the income scale believe that they could one day be among the elite wealth holders, and thus impacted by the estate tax. This point of faith undermines support for not only the estate tax, but for progressive taxation and income redistribution as well. Indeed, Graetz and Shapiro portray estate tax repeal as the first step toward a broader dismantling of the U.S. progressive income taxation system.
By the second half of the 1990s, the growing unpopularity of the estate tax led to reform efforts in Congress. The Qualified Family-Owned Business Interests (QFOBI) proposal built into1997 tax legislation would have raised the exempt asset level to $1.3 million, exempting the vast majority of family-owned farms and business from estate taxation. Had this legislation passed, it would likely have splintered the small business interests from the repeal coalition, leaving only the core of extremely wealthy families subject to the estate tax. The failure of QFOBI to pass, however, left the coalition intact and positioned to push for total repeal, which it finally obtained with EGTRRA, albeit only temporarily due to revenue constraints.
The third and final section of the book offers interesting reflections on the political process and effective methods of propaganda drawn from the descriptions in the first two sections of the book. The authors’ central conclusion is that personal narrative is a far more persuasive device than rational argument in procuring political support. In promoting estate tax repeal, conservatives relied heavily on stories of individuals who suffered or expected to suffer heavily as a result of the estate tax: individuals such as publisher Tina Brown, who died of cancer in her late 30s, or Chester Thigpen, an African-American tree farmer from Mississippi who served as poster child for death tax repeal until his family realized that his business assets were worth less than the exempt threshold.
The authors’ suggestion of how anti-repeal forces could use similar tactics to uphold the progressive estate tax are an amusing highlight: “For example, Luke Weil, the heir to the Autotote gaming fortune, has been described in the Arizona Republic as a ‘loathsome creature’. He gloats about being so rich that Brown University would not throw him out even though he attended only eight ‘academic commitments’ during his four years there, including both classes and exams….Paris Hilton and Nicole Ritchie, heirs to the Hilton Hotel fortune and the pop icon Lionel Ritchie, respectively, might also have served the purpose.…Ms. Ritchie had been charged with heroin possession in California, and a pornographic tryst of Ms. Hilton and her former boyfriend had traversed the Internet.”
The authors appear to take their own advice that personal narrative is the key to persuasion, and offer numerous detailed descriptions of the people involved in promoting and resisting estate tax repeal. While sometimes this device works and renders the history colorful and accessible, at other times the characterizations are cluttered with extraneous detail. For example, the authors’ description of Denise Marie Fugo of the National Restaurant Association: “Fugo is exactly the sort of person George Bush wanted pushing his plan. She has a business degree from the University of Chicago and is a civic leader in Cleveland….She and her husband founded Sammy’s together, using $40,000 they had gained from a real estate investment. Sammy’s is widely credited with introducing fine dining in Cleveland, with specialties including veal with a porcini and basil sauce and roasted rack of lamb with a pistachio nut coating.” What, no recipes?
As a political history of the late 20th century push for estate tax repeal, Death by a Thousand Cuts presents some basic statistics about the revenue raised from the estate tax and the demographics of those affected; however, it does not engage in detailed economic analysis of the tax’s incidence or behavioral effects. Economists seeking a more traditional economic analysis of the tax might wish to read Death and Dollars: the Role of Gifts and Bequests in America, edited by Alicia Munnell and Annika Sunden.
Death by a Thousand Cuts is a remarkably thorough and detailed investigation of the political process that led to the (temporary, phased-in) repeal of the estate tax in 2001. While Graetz and Shapiro present an evenhanded account of the numerous viewpoints surrounding estate tax repeal, their ultimate opposition to repeal underpins the entire narrative. Readers’ enjoyment of the book will therefore likely depend on whether or not they share the authors’ fundamental point of view.
Speaker: Michael W. Horrigan, Assistant Commissioner
Affiliation: Division of Industrial Prices and Price Indexes, Bureau of Labor Statistics
Rapporteur: Anthony Nunes
In his presentation, Mr. Horrigan focused on the recent history and future direction of the Producer Price Index (PPI). He started out by providing a brief overview of the PPI program and the recent expansion in its coverage of service and non-residential construction industries. Horrigan also discussed the importance of finding balances between four major PPI objectives in any future planning: 1) to modernize PPI infrastructure through the JANUS program; 2) to collect more data and produce more indexes; 3) to increase the quality of PPI data; and 4) to make better use of PPI data.
The PPI measures selling prices received by domestic producers for their output. The PPI first started measuring service sector industries such as railroad operations and petroleum pipelines in the mid 1980s. With few resources, the PPI program had to choose services that were relatively easy to define and quantify. Nevertheless, by 2000 the PPI program was capturing roughly half of the in-scope service sector output. Then, in the fiscal year of 2001, the BLS received resources to widen coverage to the construction sector for the U.S. economy and to enhance the ongoing expansion of PPI coverage of the service sector.
With the additional resources, the service sectors covered by the PPI program increased to 58.8 percent in 2004. With the introduction of two banking industry indexes in January 2005, the percentage covered by the PPI program increased to 64.5 percent. In July 2005, the PPI program added several new areas including merchant wholesalers; fitness and recreational sports centers, security and patrol, and internet service providers. These new service areas dramatically increased the in-scope service sector to 76.5 percent. In 2006 the PPI staff thoroughly researched and added amusement parks and golf courses. For next year, the program is adding management consulting services, and in 2008 it will include blood banks, data processing and repair shops. These additions should increase coverage to 77.4 percent.
Another major initiative in the PPI program is the Janus project: a major multiyear project to convert all existing mainframe applications to client server environments. This requires substantial research to develop the software protocol rules, estimation formulas, and seasonal adjustments as well as in-depth analysis of price indexes based on item-level data. As a result of the Janus project, PPI analysts will be able to align individual products with multiple indexes providing much needed flexibility in the construction of alternative aggregation indices.
In order to improve data quality, the PPI program has introduced adjustments for quality change, either through direct measures of the input costs of quality change or, as needed, through the use of hedonic models. For example, a desktop computer may cost a consumer $100 more than the same model the previous year; however quality improvement such as greater processing power may offset, partially or wholly, the price inflation. In order to account for quality changes to the fixed market basket of goods and services being repriced, PPI Industry analysts must stay up-to-date on industry trends. In the case of the automobile industry, for example, analysts travel to Detroit to talk to manufacturers about their last product changes.
Horrigan also described another PPI improvement initiative designed to reduce price index bias owing to the failure to capture rapidly evolving product lines entering the market. With the rapid entry of new products and services, some items might be left out of the PPI sample even if it’s a direct substitute of another in-sample product. By augmenting an existing sample to include new products and producers that did not exist when the original sample was taken, the PPI program reduces the risk of new technologies’ being left out of their pricing calibrations. For example, with sample augmentation, a new generic pharmaceutical can now be captured by PPI without having to wait until the next sample is taken.
Horrigan then turned to the future of the PPI program. One of challenges facing the PPI program is the impact of globalization on the classification of manufacturing industries. In our modern economy, some firms that before were simply manufacturing goods may evolve into wholesalers though the outsourcing of production processes to other countries. Capturing these changes is often difficult.
Horrigan went on to discuss significant remaining gaps in industry coverage by the PPI program. Once the service sector and non-residential construction initiative has been completed, the PPI program will have 82 percent of all U.S. production covered. In evaluating a data-driven approach to future PPI improvements, the emphasis should be on customer needs. User demand from other federal and state agencies, trade associations and academia is invaluable to prioritizing future PPI quality improvements.
Horrigan gave a few examples of the feedback that he has received from end-users. Former Chief Economist for the Bureau of Economic Analysis Jack Triplett believes that educational and business services are significant coverage gaps, while others point to a need for more detail in the wholesale trade and health services.
Horrigan closed his presentation with a few final thoughts on the long-term future of the PPI program, stating that PPI is going forward with a “balanced strategy of adding easier-to-calculate industries in which output and quality adjustments are harder to conceptualize and operationally measure.” He is confident that ongoing improvements will ensure that the PPI program will continue to meet end-user needs.
Reservations are preferred one business day before an event. Walk-ins are welcome.
Friday, June 9
Chinatown Gardens
Adam Sieminski
Deutsche Bank (New York)
Noted energy market expert Adam Sieminski discusses the current energy market situation and outlook.
Please note the change in date
Thursday, June 15
Chinatown Gardens
Ellen Hughes-Cromwick
Chief Economist
Ford Motor Corporation
"Auto Industry Perspectives"
Ms. Hughes-Cromwick, coming from Ford headquarters in Michigan, will make a rare appearance at the NEC. She will address vehicle buying fundamentals in U.S. and other major markets, as well as trends in automotive sales and spending.
Thursday, June 29
Chinatown Gardens
Allan Meltzer
Visiting Scholar
American Enterprise Institute, and Professor of Political Economy, Carnegie Mellon University
“The History of the Federal Reserve, Volume II”
Dr. Meltzer will discuss his current work-in-progress, the second volume of his fundamental work on the history of the Federal Reserve, which is nearing completion.
Listed below are scheduled events, most of which are open to the public. Click on an event title to view more information.
Corporate Income Taxation and the Economy 
With keynote addresses by Treasury secretary John Snow and Council of Economic Advisers chairman Edward Lazear 
Friday, June 2, 2006
Can Foreign Aid Help Win the War on Terror? 
Thursday, June 8, 2006
Buy or Die: Market Mechanisms to Reduce the National Organ Shortage 
Monday, June 12, 2006
Social Security Reform: A Bipartisan Proposal 
Monday, June 19, 2006
Save the Date: Footing the Tuition Bill 
New Developments in the Student-Loan Industry and How They’re Changing the Way We Pay for Higher Education 
Monday, September 25, 2006
“Savings & Access to Financial Services: Transforming the Services Market for Low- and Moderate-Income Boomers”
June 14, 2006
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