Does the Immigration Innovation Act Help Offshore Outsourcing Firms? Financial Advisory Firm Says Yes

Supporters of the Immigration Innovation Act, dubbed the “I-Squared Act,” claim that legislation to dramatically increase the annual quota for H-1B guest worker visas is urgently needed to keep and create jobs in America. But the I-Squared Act will do just the opposite.

The headline in the leading news daily in India – the Times of India – had this assessment: “Proposed H-1B legislation to help Indian IT [companies]…”

CLSA, a leading financial advisory firm that analyzes the offshore outsourcing industry for investment clients, believes I-Squared will spur the sector’s growth. The firm finds the proposed legislation is “encouraging for Indian IT companies,” most of which are outsourcing companies with a business model that sends high tech American jobs overseas. The report says that passage of such a bill will make it much easier for the outsourcing industry to use the H-1B visa to bring in foreign guest workers from abroad, thus reducing the need for “hiring of locals in [the] US” at higher wages. In other words, if the bill passes, firms could more easily bypass and replace qualified American workers with hundreds of thousands of cheaper H-1B guest workers.

Given the policy proposals by some senators, CLSA has advised clients to “overweight” the Indian IT outsourcing sector in their portfolios. This is a reversal of fortune mostly based on the prospect that the U.S. government will make it possible for the outsourcers to get access to three to four times more guest workers per year. (more…)

Sequestration was never about fiscal responsibility

As a follow-up to my earlier blog post on the responsibility for and consequences of sequestration, I want to underscore that the entirety of the Budget Control Act (the resolution to the 2011 debt ceiling crisis, which created the sequester) was about shrinking government, not fiscal responsibility. As I previously noted, sequestration will harm the economy, and perversely increase the debt-to-GDP ratio to 76.3 percent by the end of fiscal 2013, from 76.1 percent without sequestration. And by defunding public investment (a key driver of long-run economic growth) and delaying economic recovery, thereby incurring more long-run economic scarring, sequestration will leave a poorer country to service larger relative debts.

But even ignoring the macroeconomic damage wrought by sequestration, this across-the-board meat cleaver approach to cutting spending is often fiscally imprudent even on a programmatic level.

For instance, the Office of Management and Budget estimated that the Internal Revenue Service tax enforcement department would see $436 million dollars of budget authority sequestered in fiscal 2013. (This estimate predates the lame duck deal’s two-month delay, although the fiscal 2014 cut would be larger.) But by all estimates, marginal increases in funding for tax enforcement pay for themselves multiple times over. In fiscal 2012, IRS enforcement raised $50.2 billion in revenue, or $2.3 million per enforcement agent. Former George W. Bush administration IRS Commissioner Mark Everson estimated that every additional dollar spent would return $4 in revenue, for $3 in deficit reduction (Sawickey et. al 2005). That would imply that the full fiscal 2013 cut could add $1.3 billion to the budget deficit. (more…)

GOP sequester position derails recovery (again)

As “sequestration” spending cuts seem increasingly likely to take effect tomorrow, and the blame game escalates over responsibility for the fallout, some incorrect revisionist history as well as (silly) pox-on-both-houses punditry merit comment.

If sequestration takes effect, it will be because congressional Republicans put draconian spending cuts in play, and have subsequently refused to replace those cuts with more sensible deficit reduction. And should sequestration take effect, this would not be an isolated case of economic policy malpractice: Congressional Republicans have consistently hamstrung efforts that economists overwhelmingly agree would have meaningfully helped lower the unemployment rate and instead advanced policies projected to decelerate near-term growth.

My colleague Josh Bivens and I recently chronicled at length the numerous, varying ways Congressional Republicans have deliberately obstructed a stronger economic recovery over the past four years. 1 This economic and budgetary obstructionism, in turn, has been a considerable factor explaining why U.S. economic growth has decelerated since mid-2010 and is currently far too slow to push the economy back to full health in the next few years, already more than five years after the start of the Great Recession.

What follows is a not-so-quick history of how we got to this week’s deadline. (more…)

What we read today

New Investigation Finds Alarming Conditions at Three Apple Suppliers

The Hong Kong based group SACOM released a report today of a new investigation of working conditions at three Apple factories in China. The investigation uncovered extensive labor rights abuses, including extremely long work hours, employees forced to work off the clock for no pay, continuing hazards to worker safety, and verbal abuse and humiliation of workers by supervisors. The report, issued on the eve of Apple’s annual shareholder meeting, calls into question the accuracy of Apple’s claims of labor rights progress in its supply chain.

SACOM interviewed 130 workers employed at Foxlink, Pegatron and Wintek, three key suppliers of parts used in the assembly of iPhones, iPods and Macs.

Of note, the report found that poor conditions have led to turnover rates so high that the factories are resorting to the use of contracted labor on a massive scale, hiring so-called “dispatch” agencies to provide workers who are employed by the agencies, not the factories. This arrangement makes workers especially vulnerable because they enjoy few protections under Chinese labor law. SACOM found that dispatch workers comprise as much as 80% of the workforce at these factories.

The findings in the SACOM report include:

Excessively long work hours remain common. During peak production periods, workers can work up to 14 hours per day and receive only one or two days off over a period of nearly three months. Working 70-100 hours per week is common during peak periods, far in excess of what is permitted by Chinese law (49 hours) and even above the maximum allowed under Apple’s own code of conduct (60 hours). (more…)

What we read today

Problems in the high tech labor market

If you want to understand the high tech labor market in the United States, a good place to start might be one of these stories about a lawsuit in the U.S. District Court in California.

These stories trace the progress of legal actions against some of America’s best-known tech companies over their attempts to suppress their employees’ wages through anti-competitive “no-poaching” agreements.  The Department of Justice found evidence that Intel, Adobe Systems, Google, Apple, Pixar, and Intuit made  secret agreements not to call each others’ employees with job offers, thereby reducing job opportunities and salaries in the industry. DOJ induced the six companies to settle an anti-trust suit in 2010 with a promise not to engage in similar restraints on trade in the future. The companies paid no damages and admitted no violations of anti-trust law, but the employees who had been hurt by the practices were not satisfied.

Employees filed suit against the six companies and Lucasfilm in federal court alleging an illegal conspiracy to restrain wages and salaries and seeking damages.  When the companies tried to have the suit dismissed, the district court judge sided with the plaintiffs, and in January, according to Phys.org, Judge Lucy Koh ruled that the case should proceed to trial and that Apple CEO Tim Cook, Google Chairman Eric Schmidt and Intel chief Paul Ottelini may be questioned by plaintiffs’ attorneys about their roles in the alleged conspiracy. The trial, reportedly, will take place in November.

I recommend keeping this case in mind when it comes time to evaluate the companies’ claims that their interest in bringing skilled guestworkers to the U.S. has nothing to do with getting cheaper labor. Never mind that the H-1B visa, which ties employees to a single employer for 6 years or more, is a bigger restraint on employee mobility than a no-poaching agreement.

Obama and Abe should address currency manipulation and Japanese trade barriers

When President Obama and Japanese Prime Minister Abe meet on Friday, currency manipulation and Japan’s unfair trade policies must be addressed. The Yen has declined 13% in the past three months, in part because Mr. Abe has pledged to weaken monetary policy to spur growth. A weaker Yen lowers the cost of Japanese imports in the U.S. and raises the cost of U.S. exports in Japan and other countries where our products compete. While a more expansionary domestic monetary policy is an appropriate tool for a country stuck far below economic potential because of demand shortfalls, Japan has also displayed a historic pattern of intentionally lowering the value of their own currency vis-à-vis the U.S. dollar by buying U.S. denominated assets. Because the first-order effect of this direct currency manipulation is to create demand for Japan at the expense of the U.S., which is also currently starved of demand, this is not responsible policy for a country as large and important in global trade markets as Japan.

Currency manipulation is the single most important cause of growing U.S. trade deficits and Japan has a well established reputation as a currency manipulator. Japan has expressed a desire to join the proposed Trans-Pacific Partnership (TPP), a regional free-trade agreement with 10 other countries.  The TPP should include language to end currency manipulation by Japan and other trading partners.  Elimination of currency manipulation by China, Japan and other countries could create 2.2 to 4.7 million jobs, expand U.S. GDP and reduce the federal deficit, according to a recent EPI report.

The U.S. trade deficit with Japan increased from $66.4 billion in 2011 to $79.9 billion in 2012, an increase of $13.4 billion (20.2 percent).1 Growing trade deficits lead to job losses and growing unemployment or weaker growth in the United States. (more…)

The PhD bust

Jordan Weissman put together a nice series of charts in The Atlantic that help us better understand what’s at stake in the debate over tripling the number of “guest” workers admitted to the U.S. each year with college degrees and skills in science or engineering. It’s gotten harder and harder for U.S. PhDs to find work, and especially work that pays a salary that corresponds to the intellect of and investment made by these students, who are truly our best and brightest. A question members of Congress have to answer is: do we want to encourage or discourage U.S. students from pursuing these top degrees? Is NIH paying science post-docs enough? Is industry doing enough to recruit young U.S.-trained scientists? Will the Hatch-Klobuchar plan to admit 300,000 temporary, foreign high tech workers each year make matters better or worse for our young PhDs? Will the addition of as many as 1.8 million new foreign tech workers over six years crowd the U.S. labor market and depress wages?

What we read today

American job seekers think increasing the minimum wage would be good for them, and the country

Both advocates and opponents talk a lot about how a minimum wage increase would affect Americans who are trying to find jobs. For the first time, we have insight into what job seekers themselves think about minimum-wage issues, thanks to newly-released data from the American National Election Survey.

The majority of job seekers report that raising the minimum wage to keep pace with the cost of living would be good for them personally. In fact, ten times as many job seekers report that minimum-wage increases would be good for their lives (66.5 percent) than report that it would be bad for their lives (6.5 percent). By a seven-to-one margin, they think it would be good (71.0 percent), rather than bad (10.1 percent), for America overall.

Here are the details. The data come from the American National Election Survey collected in December 2011 (ANES EGSS3 preliminary), which surveyed a nationally-representative sample of 1315 Americans including 126 job seekers. Job seekers are those currently not working and looking for work as well as those working part time but who would prefer full-time work. Using post-stratification weights among respondents, here are the questions and results.

Proposal: Raise the minimum wage every year to keep pace with inflation.

Would this be good, bad, or neither good nor bad for you personally?

Responses Percentage Cumulative
Extremely good 28.0 28.0
Moderately good 23.1 51.1
A little good 15.4 66.5
Neither good nor bad 27.1 93.6
A little bad 3.7 97.2
Moderately bad 2.8 100.0
Extremely bad 0.0 100.0

Would this be good, bad, or neither good nor bad for the country?

Responses Percentage Cumulative
Extremely good 31.0 31.0
Moderately good 14.1 45.1
A little good 25.9 71.0
Neither good nor bad 19.0 90.0
A little bad 2.2 92.1
Moderately bad 5.2 97.3
Extremely bad 2.7 100.0

Knowing that job-seekers—those with among the most to lose if opponents of increasing the minimum wage were correct in predicting job-loss—so clearly favor increasing the minimum wage to help workers keep up with inflation should matter to policy makers. Instead of listening only to talking heads speaking in the name of job-seekers, let’s hear the voices of job-seekers themselves.

Aaron Sojourner is a labor economist at the University of Minnesota’s Carlson School of Management.

Close to slavery

Most members of Congress know very little about the H-2 guest worker visa programs, and, unfortunately, what they do know is mostly from speaking to a handful of business people who use the program or from listening to lobbyists who market ridiculous “studies” about how H-2 workers help the economy. They might have an image in their minds of “guest” workers lining up to take good jobs in the United States that no one else wants, and happily returning year after year. But Congressmen have little contact with H-2 workers and most are unaware of the widespread and ugly abuses that have marred the programs for decades. If they knew how often the programs have been used to exploit, cheat, and degrade foreign workers, they would realize it is no better than the infamous Bracero program of 50 years ago and should be either drastically reformed or abolished.

The Southern Poverty Law Center has been representing H-2 workers throughout the southern U.S. for years, hearing their stories of abuse and exploitation and suing on their behalf to recover at least some of the wages promised but unpaid, the fees extorted from helpless victims, the travel costs and debts incurred in return for unkept promises of well-paid, steady work. SPLC’s experience is captured in its new report, Close to Slavery 2013, which every journalist and immigration policy expert ought to read.

Every H-2 worker is not mistreated, but as Close to Slavery makes clear, so many workers are so badly abused that the program can’t be allowed to go on as it has. Year after year, international recruiters trick unsophisticated foreigners into borrowing large sums of money for the right to have a good job and substantial earnings in the U.S., only to find themselves locked into rural labor camps, poorly housed and fed, treated like prison labor, paid far less than promised, and then forced to repay recruiters and employers for expenses never mentioned during recruitment. SPLC has represented thousands of abused workers and won tens of millions of dollars in damages, but most H-2 workers have no access to our legal system, and even the judgments won often go unpaid.

Attempts by the U.S. Department of Labor to fix the H-2B non-agricultural program through regulatory improvements have been blocked by senators and congressmen from both parties who either don’t understand or don’t care that allowing these abuses to continue hurts U.S. workers, not just the foreign victims. The government’s failure to fix the well-documented problems in the program’s design makes it clear that any expansion of the program must be defeated. Real immigration reform would include reform of the H-2 visa and much tighter controls on the businesses that compete by exploiting the program and the guest workers themselves.

What we read today

Strengthening Social Security for all

Americans need Social Security more than ever, and they’re willing to pay for it. Rather than more cuts, we need higher benefits across the board.

This was the gist of my presentation at the National Academy of Social Insurance conference last month, whose theme was “Social Security and Medicare in a Time of Budget Austerity” (emphasis added). I wasn’t expecting it to go over very well.

Though my colleague Josh Bivens likes to point out that deficit reduction doesn’t necessarily imply spending cuts, and though Republicans don’t hesitate to call for tax cuts in the same context, there’s a general sense that expanding social insurance programs is out of the question and the best we can hope for is targeted measures to protect the most vulnerable.[1]

Even many progressives have trimmed their sails. Though most reject the need for additional cuts, few call for fully reversing cuts enacted in 1983, notably the gradual increase in the retirement age that is still taking effect. Progressives have also been divided about raising the payroll tax rate, the only way to pay for significant benefit increases while preserving the program’s contributory structure. Though almost all agree we should “scrap the cap” on taxable earnings, this only gets you part of the way to closing the projected shortfall in the aftermath of the Great Recession. (more…)

Putting a $9 minimum wage in context

Raising the minimum wage to $9.00 per hour, as the President called for in his State of the Union address, would be a good step toward reversing some of the huge decline in the purchasing power of the minimum wage that has occurred over the past 45 years.  Now as lawmakers, pundits, bloggers, economists, and the public begin talking about the president’s proposal, it’s important that we keep the true value of the minimum wage in context, and look at how the president’s proposed minimum wage compares both with precedent and what the minimum wage might have been had we not let its value erode for so long.

In his speech, the President noted that a parent who is a minimum wage worker and works full time, year round, does not make enough money to be above the federal poverty line.  This wasn’t always the case.  Figure 1 shows the annual earnings of a minimum wage worker compared with the federal poverty line for a family of two or three. Until the 1980s, earning the minimum wage was enough for a single parent to not live in poverty.  Indeed, a minimum-wage income in 1968 was higher than the poverty line for a family of three.  But as the figure shows, today’s minimum wage is not enough for single-parents to reach even the most basic threshold of adequate living standards.  The president’s proposal to raise the minimum to $9 per hour would bring the minimum wage back to a more reasonable level, although it would still fall short of the 1968 peak.

(more…)

Regular people are smarter than pundits, at least when it comes to Social Security

It is critical that we preserve Social Security even if it means increasing Social Security taxes paid by working Americans.

If you agree with this statement, you’re like 82 percent of respondents to a National Academy of Social Insurance poll, including the majority in all age groups, income brackets, and party affiliations.  An even higher share (87 percent) support raising taxes on wealthy Americans to preserve Social Security, which could be done by lifting the cap on taxable earnings, currently set at $113,700.

OK, so let’s fix Social Security and move on to real problems, like health care cost inflation and Kim and Kanye’s questionable taste in photo ops.

Not so fast, say some Very Serious People, who are leery of surveys that lend support for higher taxes. After telling everyone for years that our problems are caused by wanting to have our cake and eat it too, pundits are at a loss when it turns out not to be the case—at least not when it comes to Social Security. Thus, Wall Street Journal economics editor David Wessel, who recently assured an interviewer that “the problem is that the American people want more in benefits than they’re willing to send to Washington in taxes,” dismissed the NASI poll out of hand:

I saw the poll that NASI released this morning and I have to say, some of it I found almost impossible to believe. (more…)

Top 10 users of H-1B guest worker program are all offshore outsourcing firms

The H-1B ‘non-immigrant’ temporary foreign guest worker program is called a valuable tool for employers to attract and retain the “best and brightest” immigrants in the science, technology, engineering, and math (STEM) fields. Because employers may petition for permanent residence for their H-1B employees, the visa is sometimes described as a “bridge to immigration” that will keep the smartest foreign STEM workers in the U.S. permanently and thus improve the nation’s competitiveness. In part that’s how Senators Hatch, Rubio, Coons and Klobuchar explain their new bill – known as the “I-Squared Act” – that would more than quadruple the size of the H-1B program.

However, for the biggest users of the program, this view is false: In 2012, the 10 employers receiving the largest number of H-1B visas were all in the business of outsourcing and offshoring high-tech American jobs. Many of the jobs that went to H-1B workers should have instead gone to U.S. workers, but employers are not required to recruit them before applying for an H-1B, and can even replace their U.S. workers with H-1Bs. The top 10 H-1B employers were granted an astonishing 40,170 visas; nearly half the total annual quota. The table also shows each firm’s immigration yield: the ratio of permanent residence applications to new H-1B petitions for these companies. It is evidence of the companies’ intention to hire and keep their H-1B workers in the country permanently.

(continued)

Immigration yield for top 10 H-1B employers, fiscal 2012

Rank Employer Approved initial I-129 petitions for H-1B PERM applications for H-1B workers Immigration yield Significant offshoring*
1 Cognizant 9,281 669 7% X
2 Tata 7,469 4 0% X
3 Infosys 5,600 21 0% X
4 Wipro 4,304 30 1% X
5 Accenture 4,037 8 0% X
6 HCL America 2,070 44 2% X
7 Tech Mahindra SATYAM 1,963 20 1% X
8 IBM & IBM India 1,846 96 5% X
9 Larsen & Toubro 1,932 15 1% X
10 Deloitte 1,668 260 16% X

* A significant component of this company’s business model is offshore outsourcing.

Source: Author’s analysis of PERM Disclosure Data, Office of Foreign Labor Certification, Department of Labor, fiscal 2012; and I-129 data by employer, USCIS, fiscal 2012

(more…)

Who would be affected by President Obama’s proposed minimum wage increase?

Of the many proposals in Tuesday night’s State of the Union address, the one that seems to be receiving the most attention (especially in the Twitterverse) is President Obama’s plan to raise the federal minimum wage from $7.25 to $9.00 an hour by 2015. The President also called for subsequently indexing the minimum wage to rise automatically each year with the cost of living. Though some states have higher minimums, the federal minimum wage has been set at $7.25 since July 2009. In the meantime, as it always does, inflation has eroded its value. This proposal lays the foundation for an important and overdue conversation about increasing the minimum wage to combat its erosion over the past four and a half decades.  We have found that raising the minimum hourly rate to $9.00 by 2015 would directly boost the wages of over 13 million Americans. The increase would also have a spillover effect, bumping up wages for another 4.7 million workers who earn just above minimum wage.

The demographic composition of minimum wage workers is often grossly mischaracterized, so let’s take a closer look at exactly who the 18 million workers who would see a raise under the president’s proposal really are. (The 18 million estimate is revised slightly from yesterday’s analysis to reflect improved methodology.) The findings that follow are largely an update to an earlier EPI analysis which was based on the somewhat higher minimum wage increase introduced by Senator Tom Harkin (D-Iowa) and Representative George Miller (D-California) as the Fair Minimum Wage Act of 2012.

It is a common misconception that the minimum wage workforce is comprised mostly of teenagers working part-time to make a little extra spending money. (more…)

Signing trade deals is a terrible jobs strategy

As part of his proposals to spur job growth, President Obama promised in last night’s State of the Union address to complete negotiations on the proposed Trans Pacific Partnership (a proposed free trade agreement (FTA) with at least eight other countries in Asia and Latin America), and announced new talks on a comprehensive FTA with the European Union. This is a shame, because chronically high unemployment is a real crisis, while trade agreements are a fake solution.

The issue is simple: it is trade balances – the net of exports and imports – that can affect jobs. Unless trade agreements promise to reduce our too-high trade deficit, they will have no positive effect on jobs. Even worse, past trade agreements have actually been associated with larger trade deficits in their aftermath.

This is not some proprietary EPI stance on trade – the economics textbook teaches that, as Paul Krugman has summarized, “Trade Does Not Equal Jobs.” (more…)

Immigration reform and the minimum wage

The most surprising part of the president’s State of the Union address last night was his forthright endorsement of the principle that no one in the United States of America should work full-time and yet still find himself in poverty. That is a statement I often heard from Sen. Edward Kennedy, but I can’t remember any other president—not JFK, not LBJ, not Jimmy Carter, and not Bill Clinton—announcing it so clearly and forcefully.

The president called on Congress to raise the minimum wage to $9.00 an hour, which translates into a full-year income of $18,720, almost enough to meet the federal poverty guideline for a family or household of three people ($19,090), and more than enough to satisfy the guideline for a family of two ($15,130).

Raising the minimum wage is a perfect complement to immigration reform and its promise of legalizing millions of undocumented workers. Many of them are working at wages below even the current $7.25 per hour minimum wage and cannot have amassed much in the way of savings. If they are to pay the penalties and back taxes the immigration bill will require, and pay for English lessons to meet the bill’s other requirement, they will need to be paid fairly for their work.

I hope that Congress sees fit to include a higher minimum wage in any immigration reform bill it enacts.

President Obama throws his support behind increasing the minimum wage

Last night’s State of the Union address laid the foundation for important policy initiatives, from investing in infrastructure and early care and education to prioritizing the creation of more manufacturing jobs.  But according to a post-SOTU briefing hosted by the White House, the “most-tweeted” element of the President’s address was his proposal to increase the minimum wage to $9.00.

“We gather here knowing that there are millions of Americans whose hard work and dedication have not yet been rewarded… for more than a decade, wages and incomes have barely budged… We know our economy is stronger when we reward an honest day’s work with honest wages.  But today, a full-time worker making the minimum wage earns $14,500 a year… Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00.”

This proposal lays the foundation for an important conversation about increasing the minimum wage, a conversation that has already been joined by many, including our former EPI colleague, Jared Bernstein, our colleagues at the National Employment Law Project, and even Bloomberg News, which posted an article online that recognizes the positive impact such a change would have on the economy.

The erosion of low wages is not news, both in the sense that it’s not a new phenomenon, and it certainly hasn’t been the focus of much media attention. (more…)

What we read today

The president can end currency manipulation with the stroke of a pen, halving the U.S. trade deficit and creating millions of jobs

Five years after the start of the great recession nearly nine million jobs are still needed to return to full employment.  And as the Administration lays the groundwork for its second term, job creation should be goal number one.  Under existing authority, the President can execute one simple policy that would create 2.2 to 4.7 million jobs over the next three years:  End currency manipulation by a handful of countries, especially China.  This policy would boost GDP, reduce unemployment and, in budgetary terms cost nothing. It would, in fact, substantially reduce the federal deficit.  No other policy could achieve this jobs trifecta.

Over the past fifteen years rising trade deficits have devastated U.S. manufacturing employment. Since April 1998, the United States has lost 5.7 million manufacturing jobs, nearly a third of manufacturing employment and most of those job losses were due to the growing U.S. trade deficit.  Although half a million manufacturing jobs have been added since 2009, a full manufacturing recovery requires greatly increasing exports relative to imports.  While exports support domestic job creation, imports (and growing trade deficits) eliminate domestic jobs.  Although the overall U.S. trade deficit declined slightly last year, the trade deficit in manufactured products increased by $44.7 billion in 2012.  This growing manufacturing trade deficit is a threat to manufacturing employment and the overall recovery.

Currency manipulation, which distorts trade flows by artificially lowering the cost of imports to the U.S. and raising the cost of U.S. exports, is the single most important cause of these growing trade deficits. Halting global currency manipulation by making it illegal for China and other currency manipulators to purchase U.S. Treasury bills and other government assets is the best way to reduce the U.S. trade deficit, create jobs, and rebuild the economy. (more…)

What we read today

CBO report shows two vastly different baselines moving closer together

Yesterday, the Congressional Budget Office (CBO) released their updated budget baseline in the February 2013 Budget and Economic Outlook report.  One interesting takeaway is that projected deficits for the new ten-year budget window are $7 trillion, whereas last August the agency projected $2.3 trillion in total deficits over 2013-22.1 Why such a large change in projected deficits?

First of all, the August baseline assumed the expiration of a variety of tax provisions, including the Bush tax cuts, the Alternative Minimum Tax patch, a variety of business tax extenders, indefinite war spending, a massive cut to Medicare doctors’ payment rates, and sequestration. Though CBO always calculates these baseline projections with respect to current laws, it was clear that this was not a realistic baseline and that the current policy baseline was a more accurate depiction of likely ten-year budget projections.

Secondly, each time the CBO updates their baseline budget projections, they take into account legislative, economic, and technical changes that have occurred since the previous update—changes that impact the size of projected surpluses or deficits. In this instance, passage of the American Taxpayer Relief Act of 2012 (ATRA) caused enormous changes that pretty much explain the entire increase in projected deficits (excluding debt-service costs, ATRA boosted projected deficits by $4 trillion). ATRA impacted future revenue levels by:

  • Permanently extending the Bush income tax rates for all income under $400,000 ($450,000  for joint filers); a provision that, though helpful for lower-and middle-income earners while the economy remains depressed, is already proving to be very costly down the road. (more…)

The Progressive Caucus’s sensible approach to sequestration: Prioritizing jobs and growth

Congressional Progressive Caucus (CPC) Co-Chairs Rep. Keith Ellison (D-MN) and Rep. Raúl Grijalva (D-AZ) have introduced the Balancing Act of 2013 (H.R. 505) which presents an evidence-based approach to two imminent challenges actually facing policymakers: preventing what is intentionally terrible budget policy from taking effect, and preventing budget policy from exacerbating the jobs crisis and counterproductively delaying a return to full employment.

Broadly speaking, their bill would replace the entirety of the pending automatic “sequestration cuts”—now legislated to commence March 1—with $948 billion in progressive revenue (much of which was proposed in the CPC’s budget fiscal 2013 alternative, the Budget for All) coupled with $276 billion in near-term economic stimulus, paid for with $278 billion in cuts to spending by the Department of Defense. Replacing the sequester with revenue would bring net spending cuts and revenue increases roughly to a 1:1 ratio, and the DOD spending reductions would bring nondefense and defense discretionary spending cuts to a 1:1 ratio (measuring deficit reduction since the start of the 112th Congress, notably $1.5 trillion in discretionary spending cuts and $633 billion in policy savings from the lame duck budget deal). And most critically, the bill would balance deficit reduction with near-term measures boosting growth and employment, while making the composition of deficit reduction less economically damaging than scheduled. (more…)

The UK is showing us why austerity is dangerous, but are we paying attention?

With the recent news that both the United Kingdom’s and United States’ economies contracted last quarter—the U.K. by a large 1.2 percent annualized rate and the U.S. by a much smaller 0.1 percent—it’s a good time to revisit the contrasting economic situations in the U.K. and the U.S. to show just how dangerous austerity is to economic growth. First off, both countries fell into recession by experiencing a similar housing market shock, and the central banks of both countries engaged in responses of similar magnitude. And between the second quarter of 2009 (the trough for both countries) and the third quarter of 2010, both countries grew at similar rates: 2.2 percent annualized real growth for the U.K., and 2.5 percent annualized for the U.S. (according to OECD data).

But in the summer of 2010, the newly-elected conservative-led coalition government of the U.K. passed and implemented an aggressive austerity budget. This budget was heavily weighted toward spending cuts—nearly 80 percent of the total fiscal consolidation—and included a 25 percent cut to non-health domestic departmental spending by 2014-15. Tax increases accounted for the remaining 20 percent, including increases in the value-added tax (essentially a sales tax). In total, this fiscal consolidation represented 2.2 percent of U.K. GDP by 2014-2015. Combined with the previous government’s planned austerity, the overall fiscal consolidation implemented totaled 6.3 percent of GDP.

Screen Shot 2013-02-04 at 2.39.43 PM (more…)

Immigration reform should invest in labor standards enforcement and electronic employment verification—not more border security

The Pew Hispanic Center estimates that 45 percent of unauthorized immigrants crossed the border legally, but overstayed their temporary work or tourist visas, which means that almost half of unauthorized migration won’t be impacted at all by more Border Patrol agents, surveillance drones, or additional miles of border fencing. That’s why the additional funding proposed for border enforcement in the immigration proposals put forth by President Obama and the “Gang of Eight” Senators is misguided. Instead, some of those funds would be better spent by first, legalizing and fully integrating unauthorized immigrants into the fabric of American society, and then by investing in the creation of a functioning electronic employment verification mechanism. New funds should be devoted to increasing the level of labor standards enforcement by the agencies of the U.S. Labor Department. This is the only way to prevent future unauthorized migration.

It is encouraging that both immigration proposals offer a pathway to citizenship for unauthorized immigrants. Legalization will ensure that five percent of the labor force is no longer exploitable and that unauthorized workers do not degrade the wages and working conditions of U.S. workers. But the proposals ignore the reality that according to almost every conceivable metric, the southern border is more secure than it has ever been, and cities near the southern border are some of the safest in the country. Last year, $18 billion in taxpayer dollars was spent on securing the border—perhaps it was worth it, based on these results—but we might have reached the point of diminishing returns.

Compare this to the $1.6 billion that was spent in 2012 on enforcing labor laws and regulations, to protect 135 million workers, despite rampant wage theft of low-wage workers and alarmingly high levels of work-related injuries, illness, and deaths. Employer subcontracting to avoid accountability and employees being misclassified as independent contractors are also widespread problems in the workplace; they are tactics businesses use to exploit workers and escape liability when they circumvent labor and immigration laws, and to avoid paying payroll taxes and worker’s compensation insurance premiums. If a new comprehensive immigration law does not invest heavily in enforcing labor standards and tackling these problems, they are likely to continue.  (more…)

Immigration system should meet labor market needs and reform guest worker programs

President Obama and a group of eight Senators (also known as the “Gang of Eight”) have each released sets of principles for reforming our immigration system. Their courage and hard work to fix our long-broken immigration system should be applauded. Both plans rightly focus on granting a path to citizenship for the unauthorized immigrant population—which will allow more than 5 percent of the U.S. labor force to come out of the shadows and the underground economy. This will level the playing field for all workers (as well as the firms that employ them) and end the exploitation of foreign workers who labor without the protections offered by most labor and employment laws.

MORE: Key EPI research on immigration

What has not been discussed to a large extent—and which the president and the Gang of Eight’s frameworks do not yet address in detail—is how we manage future flows of immigrant workers, and how we fix the poorly functioning programs employers use to hire workers from abroad. Any acceptable and successful comprehensive solution to our immigration system will hinge upon this. (more…)

Debt stabilization does not require $1.4 trillion, $1.5 trillion, or any other single number

There is a rapidly-forming consensus that policymakers should commit to specific levels of deficit reduction over the next 10 years. At a press conference earlier this month, President Obama endorsed a specific 10-year savings target of $1.5 trillion, arguing that two years ago there was a consensus that “we need[ed] about $4 trillion to stabilize our debt and our deficit, which means we need about $1.5 trillion more.” This is consistent with the Center on Budget and Policy Priorities’ recommendation that  $1.4 trillion in deficit reduction (including interest savings) over the next 10 years be targeted to stabilize the debt ratio (federal debt as a share of total gross domestic product).

Various commentators such as Martin Wolf of the Financial Times and Paul Krugman of the New York Times have noted that this amount of deficit reduction is modest, and consequently suggest that policymakers instead focus on the more pressing priority of job creation and rapidly lowering unemployment. But the case for turning to job creation is even stronger than perhaps they realize: this analysis shows that the debt ratio can be stabilized with less than $1.4 trillion. And more importantly, there actually isn’t a single minimum target necessary; if coupled with near-term stimulus, the debt ratio could be stabilized without any deficit reduction whatsoever.  (more…)