The unnamed woman is one of countless Iranians who say their savings have been wiped out by the collapse of fraudulent businesses and unlicensed credit institutions in recent years. Economists are now pointing to the abrupt closure of these poorly regulated institutions as laying the foundation for the unrest that struck Iran starting in late December.
.. “Banks are shutting down without any kind of notice, and it’s creating a huge political and economic backlash at a local level,” said Suzanne Maloney, senior fellow on Middle East policy at the Brookings Institution.
.. it seems to have tapped into a deep sense of alienation and frustration, that people aren’t just demonstrating for better working conditions or pay, but insisting on wholesale rejection of the system itself.”
.. the average budget of Iranian households declined by 15 percent from 2007 — when the U.N. Security Council adopted some of its toughest sanctions on Iran — to 2016.
.. Iranian President Hassan Rouhani, a relative moderate who was reelected to a second term in May, has carried out a program of fiscal austerity. It has brought down inflation but hurt job growth
.. Rouhani has also imposed what Salehi-Isfahani called “regressive policies,” such as raising energy prices while shrinking cash transfers that the poor use to pay for essential items.
.. Other new policies have favored businesses and the middle class, whose members predominantly reside in the capital, Tehran
.. Iran has seen a “divergence in living standards (measured by per capita expenditures) between Tehran on one side and the rest of the country on the other
.. The budget envisioned steep cuts for cash subsidies to the poor, while increasing fees for things like vehicle registration and traveling abroad.
.. Rouhani’s budget was also notable because it was the first time the government made public the funds allocated to Iran’s wealthy religious foundations — as well as its powerful military and paramilitary forces.
.. The disclosure of an $8 billion budget for the Revolutionary Guard Corps, Iran’s most influential security body, prompted sharp criticism from protesters who objected to government spending on Iranian involvement in regional wars, including in Iraq and Syria.
.. Religious foundations, many of which are tax exempt, also got a boost in the new budget, including, for example, a 20 percent increase for representatives of the supreme leader, Ayatollah Ali Khamenei, posted at Iran’s universities.
.. Rouhani sold the nuclear deal to Iranians as crucial for reviving the ailing economy. Iranians have been disappointed that growth has not been faster, including 74 percent who said in July that there had been no economic improvement as a result of the deal
Why Iran Is Protesting
.. The current unrest looks different. So far, the middle class and the highly educated have been more witnesses than participants. Nonviolence is not a sacred principle. The protests first intensified in small religious towns all over the country, where the government used to take its support for granted. Metropolitan areas have so far lagged behind.
.. they all mention unemployment, inflation and the looting of national wealth: A woman asks President Hassan Rouhani to live on only her salary of $300 a month
.. The chants are also different this time. “Where is my vote?” and “Free political prisoners!” dominated in 2009. Today they have been replaced with “No to inflation!” and “Down with embezzlers!” and “Leave the country alone, mullahs.”
.. emerged as a resonant, nationwide cry for justice and equality.
The Fed Isn’t the Tax Cut’s Enemy
Officials are open to the possibility that the tax cut will raise the economy’s potential growth rate, although it isn’t their base case
conventional wisdom is that this is the wrong time for Republicans to cut taxes by $1.4 trillion over the next decade. The fiscal stimulus will overheat the economy and force the Federal Reserve to slow it down by raising interest rates more aggressively.
inflation is still too low, and that completely changes the equation: It suggests overheating is to be welcomed, not resisted.
officials are open to the possibility that the tax cut will raise the economy’s potential growth rate, which means faster growth wouldn’t necessarily lead to more inflation.
.. Ms. Yellen and her likely successor, Fed governor Jerome Powell, aren’t yet the party poopers many supply-side tax cut advocates feared.
.. [Larry Kudlow: ] The real test, he said, is how the Fed reacts if growth tops 3%
.. By 2020 Fed officials expect their benchmark federal-funds rate to reach 3.1%, which would be above the 2.8% they expect to prevail in a fully-employed economy growing normally
.. Ms. Yellen made it clear she didn’t agree with Mr. Trump and Treasury Secretary Steven Mnuchin that the tax cut would pay for itself, and warned it may be “taking what is already a significant [debt] problem and making it worse.”
How a New Inflation Measure Raises Taxes on the Middle Class
Switch to chained consumer-price index would shift burden after several years as people move into higher bracket
Tucked into Republicans’ tax overhaul bill is a technical tweak to how inflation is measured. The change is designed to hold down the deficit, but over time it becomes a significant tax increase that hits many of the same middle-class households who start out as the plan’s beneficiaries.
.. This makes economic sense because economists consider the chained CPI a more accurate gauge of the cost of living. But because it also yields a lower measure of inflation, it pushes people more rapidly into higher tax brackets. For some income groups, this could eventually wipe out the entire initial tax cut
.. many taxpayers with no real gain in income would still be pushed into higher brackets merely because of inflation.
.. But economists have long known the CPI overstates the cost of living. When prices for a particular commodity rise faster, consumers shift to cheaper alternatives. The CPI adjusts for this by updating the weights of various items in the index every two years.
.. Since 2001, inflation has averaged a quarter percentage point less under the chained CPI than the regular CPI.
.. This raises about $130 billion more revenue over 10 years in the latest versions of both the House and Senate bills
.. After-tax incomes drop by 0.2% to 0.3% for households earning between $40,000 and $1 million and 0.4% for those earning between $20,000 and $40,000. The impact is largest for the lowest-income taxpayers because they depend more on the standard deduction, child tax credit and a new family flexibility credit, all of which will be indexed to the chained CPI.
.. This is also why some income groups start with a tax cut and end up with a tax increase.
.. Once the new index becomes law, don’t count on it being reversed, for two reasons: First, because the effect is so subtle in any single year, most taxpayers won’t even notice so there is little political price to keeping it. Second, as deficits widen, the revenue the new index raises becomes ever more irreplaceable.
.. Lawmakers decided to let most of the personal tax cuts expire in 2025 to keep the total cost within Senate guidelines. But the chained CPI will stay.
.. when lawmakers finally get around to tackling the deficit, they may apply the chained CPI to government benefits such as Social Security to save even more money.