With friends like these: The carbon tax edition

  • Josh Bivens
  • Josh Bivens

I know that Thomas Friedman thinks he’s making the case for a carbon tax stronger by emphasizing that it addresses the dangers of both climate change and large federal deficits, but because he’s mixing an honest-to-goodness danger (climate change) with a phantom one (increased debt in the near term), it’s not clear to me he’s helping much. To paraphrase the blogger Daniel Davies, “Good ideas don’t need a lot of misleading arguments mobilized on their behalf.” (I’d like to include a link, but he has since shut down his blog and the post is not available.)

Nevermind that Friedman starts his column by invoking the “cliff” metaphor so common in fiscal policy debates these days, and then riffs off it to decry the mounting public debt of the United States. But [and imagine my hand slapping my forehead] surely everybody knows by now that the danger of the “fiscal cliff” is one of debt rising too slowly, right? And nobody disagrees about this.

The bigger problem is his outsized claim that a too-small ($20 per ton) carbon tax could cut 10-year deficits in half. That sounded high to me, so, I looked up the report he references. (more…)

Michigan’s ‘right-to-work-for-less’ legislation: Bad for workers, undemocratic, fundamentally immoral

The Michigan “right-to-work” law that was enacted in December is bad public policy. Its supporters claim it will attract business to the state and lift incomes, though research shows the opposite is true.

By prohibiting contracts that require union-represented employees to pay dues, “right to work”—or, more accurately, “right to work for less”—gives workers a right to freeload, a right to accept the benefits of a union contract while paying nothing for the cost of organizing the union, winning the contract, or enforcing its terms. Employees can demand that the union represent them in a grievance while paying absolutely nothing for the cost of that representation. This enshrinement of freeloading was matched by the way the bill was passed—by a lame-duck legislature, without committee hearings, without an opportunity for amendment or public input.

In an amazing, impassioned speech, Rep. Brandon Dillon (D-Grand Rapids) condemned both the undemocratic way the right-to-work-for-less bill was jammed through the Michigan legislature and the immorality that animates it. Watch his short but powerful speech below:

Michelle Rhee gets a failing grade on her report card

Michelle Rhee and her misnamed school privatization organization, StudentsFirst, recently issued a report card on the nation’s schools that has been roundly criticized, and rightly so. Rhee ranks all 50 states and the District of Columbia by how closely they hew to her vision of school “reform,” which involves high stakes testing, maximizing the number of charter schools, expanding voucher programs that use tax dollars to pay for private schools, and eliminating teacher tenure and pension plans. Rhee is so keen to reduce the pensions of teachers and their reward for longevity that she makes their elimination an “anchor policy” and gives it triple weight in her ranking methodology.

She also cares deeply about and grades the states on removing school governance from local control and the influence of democratically elected school boards. She prefers giving governance instead to the kind of mayoral control or state control that put her in charge of the D.C. school system under Mayor Adrian Fenty. That gets triple weight, too.

Curiously, despite Rhee’s love of high stakes testing, student performance as measured by the gold-standard test of student achievement, the National Assessment of Educational Progress (NAEP), plays no role in her ranking of the states. These “rankings” put Louisiana and Florida (both bottom 10 on the NAEP), for example, far ahead of high-achieving states like Massachusetts, Minnesota, and New Jersey, all of which ranked in the top three on the NAEP.

Doug Henwood took a close look at Rhee’s rankings and found they have a negative correlation with success on the NAEP:  “[T]he higher the StudentsFirst score, the lower the NAEP reading score. The correlation on math is even worse, -0.25.”

When you consider that Rhee’s rankings actually punish states that limit class size, it’s easy to understand their negative correlation with achievement.

Rhee’s right-wing agenda of privatization, de-unionization, and the funneling of public tax dollars into corporate coffers is becoming clearer to the public—and perhaps even to her own staff. Coupled with her recent stumble over the shootings at the elementary school in Newtown, Conn., her reluctance to oppose a Michigan bill to allow concealed weapons in schools, and the PBS Frontline exposé about cheating scandals during her tenure as chancellor in D.C., Rhee and her agenda may be losing their glitz and appeal.

We can only hope so.

NYT story emphasizes Apple’s positive statements, obscures ongoing labor abuses

The New York Times and the reporters of its Dec. 26 story—“Signs of Changes Taking Hold in Electronics Factories in China”—deserve much credit for raising the profile of the abusive conditions faced by the workers making Apple products, helping to spur promises of reform. But the latest story, while portraying internal changes at Apple that could lead to reforms and describing the possibility that Apple and its competitors may advance a new manner of operating globally, provides surprisingly little evidence or analysis of the degree to which improvements have been made. It thus never gets to the heart of the matter: So far, Apple’s pledges of sweeping change have not been matched by major reforms in working conditions.

The vision

The vision painted by the story is one labor advocates, and presumably many Apple customers, share. When it comes to working hours, compensation, and other working conditions, Apple’s main supplier Foxconn will make the reforms necessary to raise standards dramatically, leading to a “ripple effect that benefits tens of millions of workers across the electronics industry.”

As ostensible evidence of Apple’s leadership and commitment to that vision, the article notes, for example, that Apple has hired 30 new staff members for its social responsibility unit and put two respected and influential former Apple executives in charge. The article also notes earlier and recent statements from Apple and Foxconn pledging to accomplish a great deal for factory workers.

The reality

The article is surprisingly thin, however, when it comes to assessing whether this vision is being fulfilled. The report includes a long vignette about the new, comfortable work chair provided to one Foxconn employee (in which the reporters argue that this helped lead her to view her job and her life prospects in a positive new manner). At other points, the article refers to some reductions in work hours, some safety improvements, a partial Foxconn response to ending the abuses of student interns, and some wage improvements. If all this sounds kind of fuzzy, that’s because it is. (more…)

What we read today

Here’s some good content that EPI’s research team browsed through today:

Strengthening the EITC and raising the minimum wage should go hand-in-hand

Evan Soltas’ Friday column in Bloomberg misses some of the facts on the minimum wage, and presents a false choice between raising the minimum wage and expanding the Earned Income Tax Credit (EITC). The crux of his argument is that even though raising the minimum wage would reduce inequality, likely provide some stimulus to the economy, and help to reduce poverty, liberal policymakers should not pursue it because the EITC allegedly does all this more effectively, and Republican lawmakers might be less opposed to an EITC expansion than they are to raising the federal minimum wage. Questions of political acceptance aside, the reality is that these two policy levers need each other.

There’s a critical relationship between the minimum wage and the EITC that Soltas seems to be missing. In spoken comments at a conference last year, my colleague Heidi Shierholz explained [emphasis added]:

The U.S. has two main policies designed to address the problem of low wages – the minimum wage and the EITC. The minimum wage provides a floor for the wages people get in the market, and through the tax system; the EITC provides subsidies to workers who earn low wages. The real value of the minimum wage has been allowed to erode and needs to be raised. What about the EITC? (more…)

The Bush tax cuts are here to stay

As my colleague Larry Mishel wrote in a post last week, “Fighting to preserve social insurance (Social Security, Medicare, and Medicaid) benefits that the broad middle class depends on and making the public investments we need for growth and equity requires winning the battle over more revenues in the budget negotiations ahead.” This task will prove far more difficult now that the Bush-era income tax rate cuts have been made permanent for all taxpayers earning less than $400,000 ($450,000 for joint filers), making them a permanent part of the legislative landscape moving forward.

The Bush tax cuts, passed in 2001 and 2003, were designed to sunset after 2010 so they could pass Congress through the reconciliation process. They were extended by President Obama through 2012 so as to not raise taxes during the recession/weak recovery; additionally, in exchange for extending them two years, Obama was able to negotiate the payroll tax holiday and the extension of Emergency Unemployment Compensation (EUC).

The most recent extension of these cuts has allowed conservative members of Congress (and others, like Grover Norquist) to claim victory on these tax cuts, which briefly expired on Dec. 31, 2012, only to be reinstated almost in full. Conservative representative Dave Camp (R-Mich.) summed up the situation by saying, “After more than a decade of criticizing these tax cuts, Democrats are finally joining Republicans in making them permanent.” (more…)

What we read today

Here’s some of the interesting content that EPI’s research team browsed through today:

At best, budget deal suggests decelerating anemic growth, labor market deterioration

Yesterday, my colleague Josh Bivens outlined the contours of this weekend’s 11th hour budget deal, concluding that Congress mostly monkeyed around with upper-income taxes—a politically contentious “fiscal cliff” component, but the least economically significant—leaving large swathes of scheduled fiscal restraint in place (or merely delayed a few months). For months, Josh and I have been arguing that the only real challenge facing Congress is the reality that the budget deficit closing too quickly—as it has been since mid–2010—threatens to push the economy into an austerity-induced recession. To this effect, “cliff” was a doubly misleading metaphor, as there was no single economic tipping point (underscored by President Obama signing the deal on Jan. 2, after the misguidedly hyped Jan. 1 “cliff plunge” had passed) and the legislated fiscal restraint was comprised of fully separable policies rather than an all-or-nothing dichotomy.

Viewed through the proper lens of avoiding premature austerity instead of compromising over tax policy for the top 2 percent of earners, Congress predictably failed to adequately moderate the pace of deficit reduction; short of sharply reorienting fiscal policy to accommodate accelerated recovery, U.S. trend economic growth will continue decelerating into 2013—slowing to anemic growth insufficient to keep the labor market just treading water.1 Absent substantial (seemingly remote) additional spending on public investment and transfer payments, the labor market will almost certainly deteriorate this year, regardless of what happens with sequestration and the pending debt ceiling fight.  (more…)

At $250B, costs of occupational injury and illness exceed costs of cancer

Occupational injuries and illnesses are overlooked contributors to the overall national costs of all diseases, injuries, and deaths. My recent study published in the Milbank Quarterly, “Economic Burden of Occupational Injury and Illness in the United States,” estimates these costs to be roughly $250 billion a year. This amount exceeds the costs of several other diseases, including cancer, diabetes, and chronic obstructive pulmonary disease (COPD) for the same year.

The medical costs associated with occupational disease and injury ($67 billion) are very large, but are exceeded by the productivity costs ($183 billion), which include current and future lost earnings, fringe benefits, and home production (e.g., cooking, cleaning, rearing children and doing home repairs). These costs do not in any way account for the pain and suffering caused by this heavy toll of injury and illness. They also gloss over the horror of many of the truly gruesome workplace injuries that occur, including suffocation in corn siloes, drowning in sewer pipes, electrocution, and being ground up or crushed in machinery.

By contrast, Rosamond and colleagues1 have estimated the total cost of all cancers, including medical costs and lost production, to be $219 billion in 2007, $31 billion less than the combined cost of occupational injury and illness. Yet by most accounts (more…)

More fiscal implications of a rising capital-share of income

Paul Krugman has been talking capital-bias and rising profit-shares recently. I was going to write about the implications of this for Social Security and Medicare, but he got there first. Below, I put some (very rough) numbers on how much a rising capital-share of income impacts the current financing of these programs.

The broad issue in a nutshell is that a rising share of overall income in recent years (even decades) has been accruing to owners of capital rather than to workers (or, if you like, accruing to owners of physical and financial capital rather than to owners of human capital). I might immodestly note that there are substantial sections on this topic in both the wages and the incomes chapter of The State of Working America, 12th Edition.

For now, I’ll just talk about some of the interesting tidbits from State of Working America and then sketch out one implication of these rising capital-shares for current fiscal policy debates.

First, the rise in the capital-share (again, the share of overall income claimed by owners of financial capital) really does seem to be happening. In State of Working America, we generally focus lots of attention on the corporate sector of the economy—a sector that accounts for about three-quarters of all private activity. For technical reasons, looking at trends within the corporate sector gives the clearest picture as to whether or not there really has been a substantial shift away from labor and toward capital owners. So has there been such a shift? (more…)

So the ‘fiscal cliff’ has been addressed. The next priority should be to address the fiscal cliff.

The House and Senate passed a budget deal over the long weekend. Headlines reported it as a deal about the “fiscal cliff.” It wasn’t. It had some good and some bad elements, but it did nearly nothing to address the actual problem that was always meant to be described by the (terribly misleading, but also terribly sticky) phrase “fiscal cliff.” This problem is simply described: the still-weak U.S. economic recovery would have been damaged by the range of tax increases and spending cuts that were set to begin taking effect on Jan. 1, 2013, because these would have reduced overall demand in the U.S. economy, and weak demand remains the reason why unemployment is too high. And this problem was at-best deferred and at-worst ignored in the deal made this weekend (note that Iowa Sen. Tom Harkin has made this exact point).

We tried to describe this problem and even put numbers to each of the main components of the “fiscal cliff” in a September report. Some key punchlines of this analysis were that the problem posed by the “fiscal cliff” was that deficits would shrink too quickly in the coming year, and that while the Bush-era tax cuts for upper-income households were the most politically contested part of the cliff, it was the automatic spending cuts (including the end of extended unemployment insurance benefits) and the payroll tax increase that were, by far, the most economically damaging parts of the cliff. In fact, the fate of upper-income tax rates was almost irrelevant, one way or the other, to economic recovery in the coming year.

So what did Congress do in this deal? They mostly monkeyed around with upper-income tax rates. Which leaves the large bulk of the fiscal contraction set for the coming year still in place, or just temporarily delayed. In short, it is very odd to describe what happened over this long weekend as a deal that addressed the “fiscal cliff.”  (more…)

Let’s be straight on ‘investing in our middle class’

The White House continues to maintain that it is investing in the middle class going forward, yet this clearly is not true. This is important to understand as we move toward further budget deals that could make matters worse.

The White House statement on the fiscal deal says: “This agreement will also grow the economy and shrink our deficits in a balanced way – by investing in our middle class, and by asking the wealthy to pay a little more.” And an accompanying fact sheet claims: “this agreement ensures that we can continue to make investments in education, clean energy, and manufacturing that create jobs and strengthen the middle class.”

As my colleague Ethan Pollack has pointed out, this is inconsistent with President Obama’s frequent bragging point that his budget brings the non-security portion of the budget down to record-low levels—“the lowest level since President Eisenhower.” The fact is that if you lower domestic discretionary spending, you necessarily are reducing public investments in education, research and infrastructure. As a reminder, here’s Ethan’s analysis of infrastructure, education and research and development spending in the Obama Fiscal 2013 budget:

So, if we really want to invest in the middle class—as the president claims to—we will have to increase domestic discretionary spending, not cut it further as his most recent and prior budget requests have done (the president also offered to cut domestic discretionary spending by another $100 billion in the recent negotiations). Fighting to preserve social insurance (Social Security, Medicare, and Medicaid) benefits that the broad middle class depends on and making the public investments we need for growth and equity requires winning the battle over more revenues in the budget negotiations ahead. We should all be clear about that.

Minimum wage indexing protects nearly a million low-wage workers this New Year

On Jan. 1, nearly a million workers in 10 states will see the value of their paychecks preserved against inflation. Workers in Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington are protected each year by automatic indexing of their state’s minimum wage. Indexing links the value of the state minimum wage to inflation so that as prices go up, so does the amount that minimum-wage workers must be paid. Low-wage workers in Rhode Island will also see a small boost to their incomes in 2013 thanks to a one-time increase in their state’s minimum wage that was enacted this past June.

Table 1 summarizes the increases taking place on New Year’s Day. They range from 10 to 15 cents, with the exception of the 35 cent one-time increase in Rhode Island. Across these 10 states, roughly 855,000 workers will be directly affected, meaning that they currently earn a wage between the existing minimum and the new minimum. Another 140,000 workers with wages just above the new minimum are also likely to see a small raise as employers adjust their overall wage ladders to reflect the higher wage floor. These wage increases translate into an additional $290 million in new wages for low-wage workers, with average increases in annual pay ranging from $190 in Missouri to $510 in Rhode Island.

For a low-wage worker, these increases are a vital protection against rising costs. In states without indexing (more…)

Litigation reveals extensive abuse of guest workers in the U.S.

As International Migrants Day passes and 2012 comes to a close, it’s a good time to reflect on a number of impressive victories guest workers won this year against employers who exploited, abused, trafficked and robbed them. Although these legal battles have been inspiring, most employer abuses of guest worker programs and guest workers themselves occur with impunity. Even when guest workers have their day in court, the victories are sometimes just moral ones and the victims are not made whole financially. Overall, the guest worker issues litigated in American courts this year are somber reminders that many employers are using these programs to erode labor standards.

The employer abuses that have been exposed and confirmed through court proceedings—and the judgments that vindicated foreign guest workers in 2012—occurred across visa categories and skill levels. The following are some examples:

Boehner’s ‘Plan B’ would result in an austerity-induced recession

With headlines like “Boehner drops effort to avoid ‘fiscal cliff’” saturating the Internet today, a little clarification is sorely needed: Speaker of the House John Boehner’s (R-Ohio) so-called “Plan B” may have been many things, but it was certainly not a plan to avoid an austerity-induced  recession in  2013—which is what people should be talking about, anyway, when they refer to “avoiding the fiscal cliff.” The plan would have mitigated less than one-third of the pending fiscal drags from the various components of the fiscal obstacle course (our preferred alternative to the doubly-misleading “cliff” metaphor). For the millionth time: The fundamental challenge facing policymakers is that budget deficits closing too quickly in the next couple of years will kill the anemic economic recovery, so the pace of deficit reduction must be moderated. But Boehner’s failed plan was instead fixated on accelerating the pace of deficit reduction relative to current policy.

Boehner’s Plan B consisted of two bills. The first, the Spending Reduction Act of 2012 (H.R. 6684), which narrowly passed 215-209 yesterday, would replace scheduled sequestration spending cuts for fiscal year 2013 to the Department of Defense budget with deeper sequestration cuts to nondefense discretionary spending as well as a host of mandatory spending cuts, including: (more…)

The 15 worst economic ideas of 2012

In the interest of cobbling together random listicles to drive traffic to our website continuing our efforts to educate everyone about the good and bad of economic policy and analysis, here’s our list of some of the silliest economic ideas of 2012. There is a strong fiscal theme to these, which is predictable, as the “fiscal cliff” is one of the most written-about, yet least well-understood, economic policy issues in recent memory.

First, all the bad ideas about the so-called “fiscal cliff”:

  1. The problem posed by the “fiscal cliff” is one of too much debt
  2. The “cliff” is a big monolith that we either go over or we don’t
  3. The “cliff” is mostly about the upper-income Bush tax cuts
  4. The economy goes over the “cliff” on Jan. 1
  5. The debt ceiling is one of the issues that must be resolved in debates about the “cliff”
  6. Resolving the “cliff” requires a deal on long-term debt reduction
  7. Financial markets will punish us for not striking a grand bargain to defuse the “cliff”

Ideas not directly about the “cliff,” but still bad and still related to fiscal policy:

  1. You can’t tax the rich enough to make a dent in the deficit
  2. Raising the Medicare eligibility age is a good idea for deficit reduction
  3. Switching to a “chained” consumer price index to calculate the Social Security cost-of-living-adjustment (COLA) is a technical improvement
  4. Contractionary fiscal policy might actually not be contractionary
  5. Only defense spending and tax cuts provide a boost to the economy
  6. We’ll “turn into Greece” if we don’t reduce deficits

And just because even non-fiscal issues can lead to bad economic ideas, we introduce two hardy perennials of non-fiscal related economic myths:

  1. The economy’s real problem is a skills gap
  2. The Federal Reserve is risking inflation in its efforts to help the U.S. economy  (more…)

Fiscal fiasco: The first to be hurt will be the unemployed

If House Republican leaders John Boehner and Eric Cantor act like Thelma and Louise and drive their convertible over the “fiscal cliff,” some of the only victims in the early weeks of 2013 will be the 2 million unemployed Americans currently receiving Emergency Unemployment Compensation. They will have a hard landing when Congress suddenly cuts them off from the unemployment insurance checks that are temporarily paying their bills and keeping a roof over them and their families.

Unlike in some previous budget fights, the current law says that no benefits will be paid beyond Dec. 28; there will be no phase-down for those who have been unemployed for more than 26 weeks. One week, they receive unemployment insurance—the next, they won’t. And hundreds of thousands of others who would have become newly eligible for EUC in 2013 will receive nothing once their regular state benefits are exhausted.

This will also have an immediate effect on the economy, as both EPI economists Heidi Shierholz and Larry Mishel, and the Congressional Budget Office have shown. Ending $30 billion in EUC payments will remove $48 billion of economic activity from the economy, and take 300,000 to 400,000 jobs along with it.

Impact of proposed Social Security cut on blacks and Hispanics, take 2

A number of commentators, including my colleague Algernon Austin, have pointed out that a proposed cut in the Social Security cost-of-living adjustment (COLA) would disproportionately affect blacks and Hispanics. Proponents have countered that blacks and Hispanics are more likely to qualify for Supplemental Security Income (SSI), a means-tested program managed by the Social Security Administration that could be exempted from the COLA cut.

While it’s true that blacks and Hispanics are more likely to qualify for SSI benefits, exempting SSI  from the COLA cut wouldn’t change the fact that blacks and Hispanics still rely on Social Security for a larger share of their incomes than whites. SSI, while a critical lifeline for some, is a much smaller program, representing just 17 percent of the benefits blacks and Hispanics receive from both Social Security and SSI together (calculations are based on tables 3.C7A and 3.C8 in the 2011 Social Security Administration’s Annual Statistical Supplement, which exclude children under 15).

Not only does Social Security represent a greater share of black and Hispanic income, but black and Hispanic beneficiaries tend to be younger than white beneficiaries, with a greater likelihood of receiving disability and survivor benefits (see previously cited tables and this Social Security Administration fact sheet). Disabled beneficiaries and others receiving benefits over long periods face the steepest cuts from the proposed COLA cut. Among retirees, the worst hit will be women across racial and ethnic groups as well as Hispanics, due to longer life expectancies.

The middle class does NOT extend up to $400K

The New York Times is reporting that President Obama is backing off his pledge to allow the Bush tax cuts on income more than $200,000 ($250,000 for couples) to expire, instead proposing to only allow the tax cuts on income above $400,000 to expire. Though not quite as bad as House Minority Leader Nancy Pelosi’s preemptive cave last summer in proposing to shift the threshold from $200,000 to $1 million, this is still a really bad idea.

Beyond the revenue loss, it’s simply ridiculous to claim that households making up to $400,000 are “middle class”; as we’ve shown before, even households up to the $200,000–250,000 threshold probably shouldn’t be considered “middle class.” Yes, it’s notoriously hard to pin down an exact definition of “middle class,” but it is clearly intended to characterize households that fall roughly in the middle of the income distribution. Yet, as the below graph shows, all the thresholds mentioned above include households whose income falls well outside the area where most households are concentrated.

This isn’t surprising. More than 87 percent of taxpayers make less than $100,000 a year, according to IRS data, and the average household makes roughly $50,000 a year. This means that households making between $200,000 and $400,000 are making between four and eight times what most American households earn. Stretching the definition of “middle class” to include households with more than $200,000 is to render the term meaningless.

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French investigative report adds to concerns that conditions faced by iPhone 5 workers remain dire

An undercover documentary report recently aired on France’s public television station found disturbing new evidence that the living and working conditions of the factory workers making the iPhone 5 are grim. The new report adds to the overall picture described in Polishing Apple: Fair Labor Association gives Foxconn and Apple undue credit for labor rights progress; optimistic reports that reforms at Foxconn, which assembles the iPhone 5 for Apple, are going swimmingly are entirely premature.

A story on Engadget provides an English summary of the investigation, which can be found in full (but in French). The story reported that at Foxconn’s iPhone 5 factory in Zhengzhou:

  • Many workers are living in unfinished dorms that have no elevators, electricity, or running water.
  • Eight workers living in dorms with electricity were killed in a fire caused by workers plugging electronic devices into overloaded circuits, according to the reporters’ translation of a safety speech given by a Foxconn supervisor.
  • Student workers are still being forced to work there, including (more…)

Let the Bush tax cuts expire, there are better options

One of the unfortunate side effects of the political dysfunction that has increasingly gripped the nation’s capital is a habit of lurching from one crisis to the next rather than taking time to do a bottom-up assessment of the effectiveness of current policy.

The Bush tax cuts are a great example of this. Republicans want to extend all of the Bush tax cuts, while Democrats generally support extending the tax cuts for only the bottom 98 percent of households. But few end up debating whether these tax cuts are actually optimal policy, and if perhaps a better replacement exists.

This is unfortunate, because the Bush tax cuts are pretty poor policy; in a decade of existence, they have accomplished none of the goals they were intended to achieve. In fact, judging the Bush tax cuts based on their economic impact, distributional impact, and cost, they have been an outright disaster.

Economic stagnation

Under practically any measure, the economy performed exceedingly poorly in the years following the Bush tax cuts. Of the 10 economic expansions since 1949, the economic expansion from 2001 to 2007 ranks last (more…)

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What we read today

Here are a few links that EPI’s research team clicked through today:

A Social Security cut could lead to higher Latino and black elder poverty

As my colleagues have shown, the “chained” cost-of-living adjustment for Social Security being discussed between President Obama and House Speaker John Boehner is a cut to benefits. The AARP Public Policy Institute’s report, Social Security: A Key Retirement Income Source for Older Minorities, helps us to think about how this cut might affect different racial groups.

Nearly one-in-five (18.7 percent) of the Hispanic elderly lives in poverty. For African Americans, the rate is one-in-six (17.1 percent) (Figure A). A cut to Social Security benefits runs the risk of significantly increasing these rates.

Latinos and blacks tend to have lower lifetime earnings and this fact results in lower levels of Social Security income. But it is also the case that these groups have less wealth and therefore depend on Social Security more. Figure B shows that roughly one-in-four Latino (25.4 percent) and black (26.3 percent) Social Security beneficiaries rely on Social Security for 100 percent of their income. For these individuals, Social Security cuts will hurt the most.

On International Migrants Day, remember that guest worker programs aren’t the solution for immigration reform

Although few in the United States have heard about it, Dec. 18 is known around the world as International Migrants Day. It began in part as a way to commemorate and remind governments to adopt the International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families, an international treaty created to protect the basic human rights of those who cross international borders—whether by choice or by force—in search of a better life. But it is also a day to recall the economic contributions of immigrants, by reminding us that most immigrants in the United States are workers—workers who toil alongside their native-born counterparts on agricultural lands, in factories, and in engineering labs. On this International Migrants Day, I am particularly hopeful that positive reforms to our immigration system may soon be enacted—reforms that will benefit and protect both immigrant and U.S. workers alike—thanks to the renewed discussions on comprehensive immigration reform that are taking place among the public, the media, on Capitol Hill and in the White House. And these discussions finally include skeptics, who until recently, considered legalization of the vulnerable unauthorized immigrant population to be unthinkable.

However, my optimism is tempered by the disturbing and uninformed comments being made by traditionally anti-worker sources like (more…)

The unkindest cut

If news reports are accurate, the worst part of the tentative budget deal reportedly being hashed out between President Obama and House Speaker John Boehner is a proposed cut in the cost-of-living adjustment (COLA) for Social Security. This is a travesty, not least because Social Security is required by law to operate in long-term balance and therefore does not belong in budget talks ostensibly aimed at reducing long-term budget deficits.

We at EPI and our allies in the Strengthen Social Security coalition have written at length about the downsides of a COLA cut. It would have the biggest impact on the oldest retirees, who are often the poorest retirees. It would disproportionately affect disabled beneficiaries, including veterans, many of whom will see the cut cumulate over decades. And it would break the pledge made by many would-be Social Security reformers to shield current retirees, who cannot retroactively save more for retirement.

Let no one be fooled by the pretense that this is a technical adjustment. If COLA cut advocates truly believed that the chain index was more accurate (and the current measure inappropriately provided a real benefit increase over time), there would be no talk of a “birthday bump” to temporarily offset the cut after 20 years.

A lower “chained” COLA is supposed to better account for consumers’ ability to substitute cheaper goods and services in response to price increases. But Social Security beneficiaries spend a greater share of their incomes on necessities such as rent and utilities, so it is not even clear that the current measure understates the ability of beneficiaries to make such adjustments.

Even if it does, it is unlikely that a chained measure that also accounted for beneficiaries’ greater spending on out-of-pocket medical expenses would produce cost savings. The Bureau of Labor Statistics produces an “experimental” index, the CPI-E, which roughly tracks the spending of elderly consumers and has risen faster than the current measure. But neither the current index nor the CPI-E are based on the actual spending patterns of Social Security beneficiaries. Along with some 300 other Ph.D. economists and social insurance experts, we think the Bureau of Labor Statistics should construct one. In the meantime, leave the COLA alone.

Social Security has no place in ‘fiscal cliff’ negotiations

If reports are correct, Congress and President Obama are currently considering resolving the fiscal showdown by, among other things, cutting Social Security benefits through changing the cost of living adjustment. It is ridiculous. It is outrageous.

Historically, Social Security, defined-benefit (DB) pensions, and private savings successfully formed the foundation of middle-class retirement security. But DB pensions have declined in the private sector: only 18 percent of workers are covered, compared to nearly 40 percent in 1980. And since the early 80s, stagnant wages have caused the net worth of the bottom 60 percent of households to decline; the typical household approaching retirement age has less than the equivalent of two years’ worth of income saved in a retirement account—if they have retirement savings at all. Social Security remains the most reliable and effective part of the nation’s provision of retirement security, and for many households, retiree benefits averaging less than $15,000 a year are their sole source of income.

Our current deficits largely stem from the economic downturn, the Bush tax cuts, overseas wars, an unpaid-for expansion of prescription drug benefits, and a failure to control the excesses and abuses of the financial industry. In fact, over the last few decades, Social Security was running a surplus, providing cover for ill-advised revenue and spending decisions that Republicans now refuse to rescind. And over the long run, Social Security is legally prohibited from adding to the deficit.

So why are Republicans insisting that resolving the fiscal showdown include Social Security benefit cuts? (more…)

If you’re writing about the ‘fiscal cliff,’ you need to read The State of Working America

Earlier this week, we released the old-school version (i.e., printed book instead of website) of The State of Working America, 12th Edition. All things economic that are not “fiscal cliff” related are having a hard time getting a public hearing these days, which is understandable. But we think that The State of Working America really should be a required reference for anybody writing about fiscal policy debates.

A key point we at EPI have tried to make over and over again in fiscal discussions is that approaching these issues only within the framework of “spending” and “revenues”—with no sense of the broader economic context— will lead to all the wrong questions being asked and solutions being offered. And The State of Working America provides this crucial broader context.

Take the debate over taxes, particularly tax rates on the highest-income households. The first thing the data in SWA help illuminate is just how modest the changes currently under discussion are, and how low taxes paid by the highest-income households are in historical perspective. For the top 0.1 percent, for example, the average effective federal tax rate in 2011 is only about half as high as it was in 1970, and the changes under discussion would only give these rates the gentlest nudge (see the effect of these cuts starting in 2000) back towards these 1970 rates.  (more…)

What we read today

Here’s a sampling of links that EPI’s research team found insightful today:

Reading the tea leaves on financial markets and fiscal austerity

By now, it’s (finally) becoming well-recognized that the term “fiscal cliff” confuses more than it clarifies. The worst problem with it is that it presents the sharp fiscal contraction baked into current law for 2013 as a single monolith, when in fact it’s the result of a bunch of separable tax increases and spending cuts. Given that our previous effort at renaming the “cliff” clearly failed, I now officially nominate “à la carte austerity” as a new entry.

A second problem with the “cliff” metaphor is that it carries the strong implication that if this à la carte austerity is not solved by Jan. 1, then economic chaos will ensue. This is clearly wrong. If nothing is done to address the fiscal contraction throughout the entire first half of next year, then yes, the economy will re-enter recession. But we will not be slammed back into recession Jan. 2 if this isn’t solved by then. I should note one important caveat to this: fiscal austerity will be very “cliffy” indeed for about two million of the most vulnerable Americans, as extended unemployment benefits will see a hard cutoff by the end of December. So if policymakers are trying to manage this situation with maximum efficiency and compassion, it seems that extending the longer unemployment benefits is an obvious place to start, even if other elements of the à la carte austerity are not solved. Yes, I’m not holding my breath either.  (more…)