Derek Thompson

When a bridge falls in America -- like this one near Seattle on Thursday night -- infrastructure spending has a way of transforming from a fringey bugaboo to A1 national obsession. Fortunately, falling bridges in America are still a rarity. Unfortunately, infrastructure spending is being unnecessarily squeezed by sequestration and the incredible shrinking discretionary budget at the very moment that infrastructure spending is a historic bargain for the federal government.

Public construction spending has been declining since the middle of the recession in outright terms ...

... and as a share of the economy, it's at a 20-year low (the lowest on record with St Louis Fed data).

Our expensive transportation and utility challenges absolutely aren't going away, but our window of opportunity to cheaply fix them absolutely will. Roads, rail, airports, broadband, electrical grids ... repairing or building out these systems is a matter of inevitability and U.S. interest rates and labor costs will only go up as the economy recovers.

The average age of America's 607,380 bridges is about 42 years old. The Federal Highway Administrations claims we'll need to spend about $20.5 billion annually for the next 16 years to properly update them -- about 60 percent more than we're spending every year today. Meanwhile, the Highway Trust Fund has been slammed by a decrease in miles driven nationally, states and cities have been slammed by the weak economy, and private builders face a jumbled knot of "municipalities, investors, and federal overseers."

For a rich country like the U.S., the beauty of the federal government borrowing in its own currency is that you can finance huge deficits when the economy stinks and use that money to fill the gap left by the private sector and state and local governments. Infrastructure improvements -- the shared responsibility of all levels of government and the private sector -- are the perfect recession-time gift from Washington. States and local governments are pulling back because they have to. Washington is pulling back because it chose to.

There are scolds who accurately point out that infrastructure rhetoric is somewhat famously hyperbolic. There are real-keepers who accurately point out that our share of bridges that are either "functionally obsolete" or "structurally deficient" has actually been declining over the last ten years. There are fiscal conservatives who accurately point out that we don't spend much less on infrastructure than the rest of the developed world, including Europe.

My response is two-fold: (a) they're all right; and (b) so is the argument that Washington should be spending more on infrastructure. America's rebuilding needs aren't going away. The basement-bargain price of rebuilding America is. Unfortunately, we might have to wait for a bridge collapse to inconvenience a member of Congress before infrastructure spending is rescued from austerity. Then, perhaps, we'll finally take advantage of the best deal on the market.

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The McKinsey Global Institute specializes in measuring the unmeasurable. Who else has the audacity to appraise the Internet but MGI, who slapped a $8 trillion price tag on the global digital economy.

In its latest report, MGI set out to answer an even more unanswerable question: What will be the economic impact of the dozen most "disruptive" technologies, including utility devices that talk to each other, cars that drive themselves, and printers that can print printers? Their summary graph is the image that kicks off this post. In a sentence: There's mobile Internet, and then there's everything else.

But the chart I find most audacious (in a fun way) is MGI's brave effort to compare the hype surrounding their 12 "disruptive" industries with their estimation of how much that technology will contribute to the economy:

Since renewable energy has made it to the final Disruptive 12, it might be unfair to call it *the* most over-hyped technology ever (that would be Google Wave; or Segway; or Microsoft 8; or ...), especially since part of its contribution shows up in carbon levels rather than profit statements. But it does suggest that automation might deserve more attention.

Apple is a unique company in many ways, but when it comes to the cavernous difference between its historically high profits and its relatively low corporate tax rate, the company isn't an outlier. It's a microcosm. In fact, corporate profits have been rising as a share of the economy since the early 1980s ... just as corporate income taxes' share has hovered near its 20th-century lows. Here's that sentence in a graph, via The Economist:

Why is this happening? I went back to the tax experts who walked me through the Apple congressional report. They both gave the same answer: Basically, it's all about globalization and pass-throughs.

Business profits are escaping U.S. corporate income taxes in three big ways. First, business is literally moving away from the U.S., as multinational companies have expanded abroad.  Second, large companies are wise to the tricks they can use to move income through foreign subsidiaries that avoid America's high statutory rate. Third, smaller companies are finding ways to avoid corporate taxes, altogether.

Let's flesh each of those out, briefly.

First, global companies are still globalizing. At large multinationals, the share of income from overseas increased from 37.1 percent in 1996 to 51 percent in 2004, according to one report. After the recession, nearly 75 percent of new jobs at 35 large U.S. multinationals were created overseas, according to a Wall Street Journal analysis.

Second, as the business has traveled overseas, multinationals have benefited from lower tax rates and credits against American taxes. "The US combined federal and state corporate tax rate has been stuck at 39% since 1986, while nearly all other countries have cut their rates. Canada, for example, is now down to around 20 percent," said Gary Hufbauer at the Peterson Institute for International Economics. So global corporations will "do their best to report earnings anyplace but in the U.S." What's more, corporate tax lawyers have predictably responded "by devising more ingenious ways to route income abroad." This is the sort of ingenious that leads to the Dutch Sandwich, the Double Irish, and other clever tax-loophole nicknames that when lined up, look like the menu for a European continental breakfast.

Third, the most important reason why corporate taxes are falling while corporate income is rising might be that the government no longer taxes most corporations as Corporations, with a capital C. Sole proprietorships (like any one-man biz), partnerships (like law firms), and S-corporations (like a small real estate company) are examples of "pass-through" businesses, where income is only taxed once. In other words, the income "passes through" the corporate tax code and goes straight to the owners.

"The explosion of pass-throughs" is the main reason for the forking of corporate income and corporate taxes, said Howard Gleckman at the Tax Policy Center. Look at the chart above, one more time. Between the 1960s and today, the percentage of overall business activity conducted by plane-old "C corporations" has declined from about 85 percent to 50 percent. So even as corporate income has increased, "C-corp" revenues have actually fallen as a share of the economy, Hufbauer said.

Lower-c corporations don't mean poor corporations, just smaller ones. Four in five dollars of all pass-through income is earned by taxpayers with earning more than $100,000; and more than a third of all pass-through income goes to millionaires, according to the Congressional Research Service.

The corporate income tax has eroded both because globalization happened and because we let it happen in the way we tax business income. We can't change the first. We can change the second.

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Should we mourn them?

Americans are laboring less than ever. So why do we feel so busy?

Every few weeks, some tech writer holds up a media analyst report allegedly showing, once and for all, that the cable guys have finally lost, and the cord-cutters have finally won. One week, that report might come. It will really be something.

This is not that week.

Let's start with news that might appear to be the death throes of cable. Cable companies' TV subscribers collapsed by more than 1.5 million in the last year, according to Leichtman Research Group. (The Big Two, Comcast and Time Warner Cable, have declined by more than 900,000, alone.)

In fact, the trend has been underway for a while. Cable TV customers peaked in the late 1990s and have since fallen to early Clinton-era levels (SNL Kagan data)

But the cable companies aren't exclusively in the business of selling TV. They're really in the business of communications infrastructure, which is TV, phone, and Internet. The Internet business in particular has done very well for them. Since cable video subs peaked in the late 1990s, the industry has added 45 million high-speed Internet customers (SNL Kagan data, again).

The two most important reasons why cable is still making more and more money every year, despite a structural decline in cable TV subs, is that they've successfully gleaned more money per customer: both by charging more for television and by getting households to buy more than just TV. For example, 40 percent of Comcast customers take three products (e.g.: video, phone, and Internet) and 70 percent take two products (e.g.: video and Internet).

Cable ≠ video, and nothing says it more clearly than the latest earnings reports from the Big Two: Comcast, the largest provider of pay-TV in the country; and Time Warner Cable, the second largest cable provider (but behind DirecTV and Dish in total video subs). Comcast's total revenue is almost twice TWC's, but their businesses are remarkably similar.

Upshot: If you equate "cable" with TV, you are literally getting only half the story. Cable providers are in the business of communications transport. They're still in business because selling communications access is still a pretty good business, with high barriers to entry and voracious demand.

There are a few ways to respond to the congressional report that Apple has discovered ingenious ways to avoid paying taxes on income earned overseas.

• There is the outraged response: "Apple's scheming to avoid paying taxes is unethical and unpatriotic."
  
• There is the proactive response: "The U.S. corporate tax system is broken, and we should fix it."
  
• And there is the indifferent response: "Wow, a multinational company is legally saving money. What color is the blue sky, again?"

A year ago, I would have told you I fall between outraged and proactive. I'm trending rapidly toward indifferent.

'A Bad Boy'
Apple is a multinational company, with 61 percent of its revenue from foreign operations. To (legally) minimize its tax bill, Apple has set up empty subsidiaries in lower-tax countries like Ireland, effectively making them a quasi-stateless corporation with an effective corporate tax rate of about 20 percent.

This might sound devious and and a little bit evil. But we aren't accusing Apple of behaving like a criminal. We are accusing them of behaving like corporation, since it is in the nature of corporations to find ways to save money. Rather than a story about patriotic duty, or funding the social net, or corporate ethics, this is really a story about unrealistic expectations. We wish we could tax American companies on their earnings from all around the world. And we can't. We just can't.

Apple is an American company, in most people's eyes. But it is a global company, insofar as most of its employees and most of its revenue come from outside the country. Since most developed foreign economies have lower statutory rates -- and because there are ways to play national tax laws off each other to further cut taxes -- multinational companies like GE and Google have mastered the global tax labyrinth to save money. Congress operates under the illusion that it can impose U.S. taxes on foreign earnings, but trying to fit a global mesh of far-flung money under Washington's narrow tax purview will always end like all efforts to push toothpaste back into a tube: Messily, somewhat embarrassingly, and thoroughly unsuccessfully.

"The most important takeaway for me from this report how ridiculous the US corporate tax system is," said Gary Hufbauer, an international tax policy expert at the Peterson Institute for International Economics. "We have this illusion of taxing earnings abroad. We think we should be taxing Apple and GM on any income earned anywhere in the world. But we can't, and very few countries even try."

"I would hope this turns out to be a great teaching lesson on how dysfunctional the architecture of our tax system is," he continued. "But it's more likely that we'll learn an easier lesson: That Apple is being a bad boy."

'The Worst of All Possible Worlds'
Tax experts I spoke with called the US corporate tax code "the worst of all possible worlds": a high tax rate, loopholes upon loopholes, billions of dollars falling through the cracks, and trillions stowed away overseas to avoid repatriation.

"When Apple needs money, it's cheaper for the company to borrow from the bond market" than to bring back earnings from overseas, said Howard Gleckman at the Tax Policy Center. "That's just crazy."

But even the simplest solutions to the craziness wouldn't end it. One sensible thing to say, if you're a tax wonk, is that we should "move to a territorial system with a lower statutory rate," which is wonkese for "just tax profits in the U.S., but not so much." It's a fine idea. It might even lead to more revenue, counter-intuitively, since more companies might hire and build here under the lower rate. But it wouldn't stop Apple from employing Apple-y tax schemes, because those tax schemes would save money over basically *any* U.S. statutory rate.

"There is not a simple solution," Gleckman said. "Even with a territorial system, there is no evidence that it would create more jobs here. If you're paying tax in the U.S. on US earnings only at 25 percent, we're still competing with an Irish system at 12 percent. So, [all things equal] if you have a choice of building a factory here or Ireland, you're going to go to Ireland."

The current system of international corporate income taxes is not working. But it might not "work," under certain definitions of the word, no matter what we do. Even as most people publicly agree that the system is "broken," Apple (and GE and Google, etc) aren't terribly enthused about most of the proposed reforms, because their tax departments have already figured out how to exploit the "broken" system to save money.

The Real Problem With Ingenious Tax Schemes
So what's the argument against ignoring this whole thing and directing our finite attention to stuff where reform could really make a difference?

Gleckman responded with a short story: Think of it this way, he said. Apple has got all this money stashed overseas. It wants to make investments in the U.S. But bringing the money back is too expensive because of our tax code. So it sells bonds instead. And then it uses the money from that bond sale to pay tax lawyers to keep its tax burden low. "That's a huge waste of resources."

Even as I've grown cynical about attacking Apple for behaving like a corporation, this argument hits home. In perhaps the most ingenious tax juke reported by the Permanent Subcommittee on Investigations', Apple realizes that the US taxes companies based on where they incorporate, while Ireland taxes companies based on where the subsidiary managers work, so Tim Cook sets up an empty subsidiary in Ireland and manages it in the U.S. to avoid taxes in both countries. Admit it. That's ingenious.

And the fact that it's ingenious is sort of the problem. It would, after all, be nice if America's greatest companies spent more time and resources designing ingenious things than designing ingenious tax schemes.

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The rise of women in the workforce has been hailed by The Atlantic as not only the greatest economic development in the last 50 years, but also the most positive overall development in the whole global economy. But a new study suggests that, for working women in the U.S., there is a surprising cost to earning more than your partner. Evidence suggests that couples are less likely to get married if the woman's income exceeds her partner's. Once married, a wife earning more than her husband is more likely to be unhappy in the marriage, more likely to feel pressured to take fewer hours, and more likely to get divorced.

To fully unpack this thing, let's start with a quick and dirty overview of the marriage market, as economist are fond of call it rather un-romantically. In the last 50 years, marriage has been in decline, technically speaking, as the share of adults who are married has fallen from 72 percent to 51 percent of the 18-and-over population. Sounds like one big marriage drought, but in fact, there are two marriage markets (at least). Among the most-educated and highest-earning men and women, marriage rates are generally high and rising, although these couples are also getting hitched a bit later in life than they used to. Meanwhile, the bottom half of female earners have seen their marriage rates decline by 25 percentage points since 1970. Here's the picture from the Hamilton Project:

The classical economic explanation for the decline of marriage among the low-income starts by blaming the guys. Sorry, guys. This theory of marriage starts with "gains from trade" (a wonky term for "what each side brings to the table"). You'll note that declining marriage rates correlate roughly with declining male earnings (see graph below, also from the Hamilton Project). Men simply offer less financial security than they used to -- especially compared with women, who are more financially self-sufficient than ever.

This classic approach to marriage economics might explain why there are fewer overall marriages. But it fails to explain something that might be even more interesting: Why there are so very few marriages where women earn more than their husbands, and why such marriages are so troubled.

This story is best told through pictures. Here's the distribution of marriages by the wife's share of household income. As you can see, there's a sharp drop-off after the .5 mark, where the women earns more than 50 percent of the household income. That means it's surprisingly rare to see a woman earn 60 percent or more of a couple's income today, even though women earn a similar share of all today's bachelor degrees.

This drop-off is simply too steep to be explained by randomness or classical economics. If men and women were forming marriages without concern for relative incomes, we'd expect a smoother distribution curve, more like this guy ...

If classical economics doesn't do the trick, maybe it's because the dearth of female breadwinners has little to do with classical economics. In a cool new paper, Marianne Bertrand, Jessica Pan, and Emir Kamenica pose a theory that some people might find controversial but others might find intuitive: What if there's a deficit of marriages where the wife is the top earner because -- to put things bluntly -- husbands hate being out-earned by their wives, and wives hate living with husbands who resent them?

If this were true, we would expect to see at least three four other things to be true. First, we'd expect marriages with female breadwinners to be surprisingly rare. Second, we'd expect them to produce unhappier marriages. Third, we might expect these women to cut back on hours, do more household, or make other gestures to make their husbands feel better. Fourth, we'd expect these marriages to end more in divorce. Lo and behold (as you no doubt guessed), the economists found all of those assumptions borne out by the evidence.

"There simply aren't nearly as many relationships with women out-earning men as we would expect [through random pairing]," Kamenica told me. "And women who should out-earn their husbands based on their education and other demographics are more likely to stay at home [and not work] than the similar women who don't out-earn the husbands," Kamenica said.

But that's not the most surprising finding from their research, he added. The most surprising thing was that wives who earn more from paid work also report doing significantly more chores around the house. This doesn't make much sense, intuitively. For women and men at all income levels, more work in the office usually leads to less time spent doing chores at home. But suddenly, when a wife earns more than her husband, her hours spent on chores and childcare go up.

"Classical economics can't explain that increase," Kamenica said. "The only way to make sense of it is compensatory behavior." In English, please? "Maybe the husband feels threatened, so she does more of the cooking, even though she earns more."

The economists found the exact same trends living in Canada. Not only did they find a "sharp decrease in the number of couples once the wife's income exceeds the husband's," but also they found no correlation between divorce and income ... except when the wife earned more than her husband.

One hundred years ago, husbands and wives specialized. He worked for pay. She worked at home. But with married women working more and more, this paper suggests gender norms are changing slower than gender economics, and many women still aren't comfortable out-earning their boyfriends -- and many men still aren't comfortable earning less than their wives.

Well, they'd better get comfortable! Women are going to be the primary breadwinners in more and more families for so many reasons  -- (1) the shift from brawn economy to service economy; (2) women's growing share of college degrees; and (3) sexism softening among male-dominated industries as women establish themselves in more positions of power. A national aversion to successful wives is a really bad recipe for economic growth and family formation. Get over it, guys. It's a woman's world, now.

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