The headline distributional numbers for the Senate tax plan from the Joint Committee on Taxation (JCT) attracted much attention because they showed that households making under $75,000 would actually see a tax increase on average in 2027. Many have noted that the House bill is not as bad on this score, with the JCT analysis showing that “only” households earning between $20,000 and $30,000 will face a tax increase on average in 2027.

But behind the ostensibly better House distribution score is a major catch—low- and moderate-income households will face tax increases unless corporate tax cuts trickle down to them in the form of higher wages, which historically has not happened when corporations receive large tax cuts. The individual income taxes low- and moderate- income households pay through withholding on their paychecks and on tax forms each year will certainly increase by 2027.

The central mechanism of both versions of the Tax Cut and Jobs Act (TCJA) is easier to see in the Senate bill: permanent tax cuts for corporations, coupled with eventual individual income tax increases for low- and moderate-income households. By 2021, households making less than $30,000 will see individual income tax increases under the Senate tax bill. And the only individual income tax changes that are permanent are the repeal of the individual mandate from the Affordable Care Act (ACA) and indexing tax brackets to a slower growing measure of inflation, thereby pushing people into higher tax brackets more quickly. This means that on average every income category is paying more individual income taxes in 2027 under the Senate tax bill. These tax increases are used to pay for permanent tax cuts for big corporations.

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Tomorrow, the BLS will release the latest numbers on job creation and the labor market. Today, I’m going to take step back and provide some context for what we’ve seen so far this year, as we approach the 10^th anniversary of the beginning of the Great Recession. I’m also going to provide some perspective on the tax bill wending its way through Congress, in light of steady progress in the labor market over the last several years. The bottom line is that (1) contrary to recent economic commentary surrounding the proposed tax cuts in Congress, it is not clear that we have reached genuine full employment yet and significant slack may still remain in the labor market , but (2) if we continue to see solid payroll employment growth in the months to come, we should expect to see continued strong progress in labor force participation, particularly among prime-age workers, and in wage growth—even in the absence of any fiscal stimulus from tax cuts. Any claims that these tax cuts, if they pass, will lead to significant improvement in the labor market or in wages need to be viewed in the context of an already steadily improving economy.

In January 2017, we released our autopilot economy tracker, as a way to set down key benchmarks for the U.S. economy. Think of it as providing a gauge of whether changes to policy are leaving any discernible mark on the economy’s trajectory. We look at where several economic indicators were headed before the year started, and where they would be if those trends simply continued. Take, for example, the prime-age employment to population ratio (EPOP). In the figure below, you can see clearly the progress that has been made over the last several years, and the continuation of that trend through this year with no discernible uptick in the pace of recovery. Steady improvements in the prime-age EPOP since January have tracked our predictions of an economy on auto-pilot fairly well, and we should expect this trend to continue into next year.

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The House and Senate both passed versions of the Tax Cuts and Jobs Act (TCJA) in recent weeks. Both versions of the bill, which must now be reconciled and voted on again, are made up mostly of large, hugely regressive tax cuts that give disproportionate benefits to big corporations and the wealthiest Americans. While the regressivity of these bills by income class has been well-documented by now, we’ve been asked by a number of people about the likely distribution of tax cuts called for by the TCJA across racial groups. A fully fleshed-out and precise estimate of this racial distribution would take lots of time and effort to calculate, but a decent rough estimate can be made pretty quickly if we’re willing to use some plausible proxy data.

However, it is also crucially important to note that congressional Republicans have not just passed versions of the TCJA in recent weeks, they have also passed a budget resolution calling for steep cuts to key programs, in large part because they want this money to finance their tax cuts. Assessing the impact of tax cuts while ignoring likely spending cuts would lead to a radical underestimate of the effect of coming fiscal policy changes on typical Americans’ livelihoods. Given this, we also examine the likely distribution of the burden of financing the TCJA with spending cuts by income class and race.

The Urban-Brookings Tax Policy Center (TPC) has provided estimates of what share of the tax cuts would go to different income groups. The Survey of Consumer Finances (SCF) provides data on the share of households in each of various income groupings that are headed by white, African American, or Hispanic householders. The SCF is uniquely useful here because it has clear income percentile rankings all the way up to the top 1 percent. Merging the TPC and SCF data in this way is not a pure apples-to-apples comparison. The TPC data is arranged by “tax units” while the SCF data is arranged by households (while the SCF calls their unit of analysis “families”, it is much closer to the “household” definition used by surveys like the Census). A tax unit can contain more than one household. But, all this said, there still should be substantial overlap between the two data measures, and the TPC data on tax units should provide a useful overview of the distribution of tax cuts across households.

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On December 2, the State Department announced—and multiple news outlets reported—the decision of the Trump administration to end U.S. participation in the Global Compact for Migration (GCM), a non-binding international agreement that is in the process of being negotiated by 193 member states of the United Nations. The GCM is an attempt to improve coordination and governance on migration, seek new solutions to challenges posed by increased migrant flows, and strengthen the contributions of migrants to sustainable development. Numerous groups working to advance migrants’ rights have condemned the U.S. withdrawal from the GCM process.

The State Department’s statement came on the eve of an important intergovernmental meeting in Puerto Vallarta, Mexico, to prepare the world’s governments for the negotiations during most of 2018. The Trump administration’s statement pointed to the New York Declaration of 2016, which kicked off the process for UN Member States to negotiate a Global Compact, as containing “numerous provisions that are inconsistent with U.S. immigration and refugee policies and the Trump Administration’s immigration principles.” UN Ambassador Nikki Haley further noted that “decisions on immigration policies must always be made by Americans and Americans alone.”

The GCM is a historic opportunity to improve the governance of migration. The compact is likely to address issues such as deportations, the rights of child migrants, and labor migration—but no one knows what will be in the final compact because there is no initial first or “zero” draft. In addition, the United States could decide not to support the final text if it fails to improve the status quo, and the GCM will be a non-binding agreement, meaning the United States is not required to comply with it under international law. As a result, Ambassador Haley’s statement that “the global approach in the New York Declaration is simply not compatible with U.S. sovereignty” is misleading.

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Supporters of the Republican tax plan claim that business tax cuts, including cutting corporate tax rates and immediate expensing of non-structure investments will increase U.S. business investment and economic growth.  However, this one-sided analysis ignores the impacts of financing the tax cut package by adding $1.5 trillion to federal budget deficits over the next decade.  Past experience has shown deficit-financed tax cuts are associated with higher interest rates, an overvalued U.S. dollar and growing trade deficits.

A recent report from the Council of Economic Advisors claims that tax cuts and the immediate expensing of equipment (non-structural) investments will reduce the user cost of capital (UCC), “increasing firms’ investment, desired capital stock, and potential output.”  In addition, they claim that lowering the UCC will lead “multinational corporations and foreign capital…to invest in the U.S. economy.”  These arguments could have some merit if the plan were revenue neutral, and financed by closing loopholes and through other tax reforms.  However, domestic and foreign businesses are unlikely to invest in the United States if there is inadequate demand for domestically produced goods.  U.S. manufacturing and other traded goods industries (including agricultural products and other traded commodities) will be hard hit by the Republican tax plan, because it is financed through a large increase in the government budget deficit.  Further, real-world evidence indicates that the UCC facing American corporations is already incredibly low yet business investment remains quite sluggish. In short, the UCC is not a current constraint on American investment, so efforts to reduce it further will miss the point in aiming to boost this investment.

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Chad Aldeman at Bellwether Education Partners tweeted that my recent report on teacher pensions was “frighteningly bad.” Here’s what’s really frightening: a zombie lie about teacher pensions that won’t die.

Attacks on teacher pensions may not rank with global warming or mass shootings on the list of things keeping us awake at night, but they deserve way more attention than they get. Teacher pensions are the single most important tool for recruiting and retaining good teachers, and good teachers are the key to our future in a knowledge economy. Yet Aldeman is trying to mislead people into supporting Kentucky Governor Matt Bevin and others around the country who want to switch teachers to 401(k)-style plans.

Aldeman claims that “most teachers get a bad deal from teacher pensions.” Though my research, and earlier research from UC Berkeley, showed that the vast majority of teachers are well-served by their pensions, this recycled claim appears impervious to counter-evidence. As long as a billionaire with an agenda keeps funding the research, we’ll continue see elaborate variations on the same theme, all of which rely on the same statistical sleight-of-hand.

The average person understands “most teachers” to mean “most teachers teaching today” or at any given point in time. This is a commonsense interpretation, and the one used in my research. Aldeman’s methodology instead counts new teachers as they enter the system, giving them equal weight whether they teach for just one year or for a whole career. As I showed in my paper, even if slightly over half of new teachers leave before becoming eligible for employer-provided benefits, these short-term teachers, some of whom go on to earn pension benefits in different systems, represent only a tiny fraction of the teaching workforce.

Aldeman accuses me of callously ignoring the “lived experiences” of individual teachers to focus on a “snapshot” that ignores “anyone who was once a teacher and is no longer (a teacher).” This is nonsense. Aldeman is no more focused on individual teachers’ lived experiences than I am. He and I rely on the same experience studies based on the same pension participants—including teachers who leave. The only difference is how we weight participants. He gives equal weight to all new teachers who enter the system in a given period, and I give equal weight to all teachers active at any given point in time.Read more

In recent years we’ve used the tradition of arguing with cranky relatives over the holidays to arm people with evidence to bat back silly economic arguments that are made all year long. This year, most dinner table arguments will likely be about Roy Moore, Al Franken, and maybe Russia, and on those, well, you’re on your own.

But if debates do stray to economics, the topic is likely to be the tax bill being pushed by Republicans in Congress and the White House. If this bill becomes law, it would be a terrible shame. But until it does, the debate surrounding it is actually useful. It is by far the clearest sign that the Trump administration, while chaotic and unprecedented in many ways, is utterly conventional when it comes to making economic policy. The highest priority of Republicans in Congress in recent decades has been slashing taxes for rich households and corporations, and the Trump administration has thrown in completely with this effort.

The centerpieces of the bills passed by the House and voted out of the Senate Finance committee last week are large tax cuts for businesses, both corporate and non-corporate. The corporate rate cuts are by far the largest parts of both bills, and the corporate changes are the only parts of the Senate bill that remain permanent—almost all of the changes to the individual code phase out in 2025. Non-corporate businesses—or “pass-throughs”—receive very large cuts in both bills, but because pass-through income is taxed on individual tax returns rather than at the business level, these changes expire in the Senate bill in 2025, along with most other individual changes.

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Federal law requires that people working more than 40 hours a week be paid 1.5 times their rate of pay for the extra hours, but exempts salaried workers who make above a certain salary threshold and are deemed to have “executive, administrative, or professional” duties. The salary threshold is meant to help protect salaried workers with little bargaining power—for example, low- or modestly-compensated front-line supervisors at fast food restaurants—from being forced to work unpaid overtime. But, at $455 per week (the equivalent of $23,660 per year), the overtime threshold has been so eroded by inflation that it is now less than the poverty rate for a family of four. If the rule had simply been adjusted for inflation since 1975, today it would be well over $50,000.

In 2016, the Department of Labor published a highly vetted, economically sound rule that would have increased the threshold to $913 per week ($47,476 per year). However, a district court judge in Texas ruled that the new overtime threshold is invalid. While the Trump DOL plans to appeal the judge’s flawed ruling, they will not defend the $47,476 threshold. Instead, they intend to propose a new threshold, and have asked the court to stay the appeal while they engage in new rulemaking.

DOL officials have repeatedly indicated that they would prefer a salary threshold far below $47,476—rolling back protections for millions of workers. It is likely that they are considering proposing a new threshold of around $31,000.

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After the news that Hollywood producer Harvey Weinstein had been sexually harassing and assaulting women in the movie industry for decades, millions of women shared their stories with the hashtag #metoo. The social media campaign shined a light on a fact that to many women: sexual harassment is a daily fact of life in the workplace. Many American corporations foster—or at least tolerate—widespread, egregious sexual harassment of their workers, even all these years after U.S. law first recognized sexual harassment as a form of sex discrimination. As the Supreme Court considers the first case of its term, National Labor Relations Board v. Murphy Oil, we hope they have read the stories about Weinstein, Bill O’Reilly and other men, as well as the millions of people who spoke up online.

Just last week, a poll conducted by NBC News and the Wall Street Journal found that 48 percent of currently employed women in this country say that they have personally experienced an unwelcome sexual advance or verbal or physical harassment at work. And, while many corporations have announced zero-tolerance policies for harassment, employers are increasingly preventing workers who experience sexual harassment to join together to seek justice

Today, 24.7 million American workers have been forced to sign contracts that, as a condition of employment, require them to waive their rights to joining a class action lawsuit to address sexual harassment and other workplace disputes—instead these workers must act alone to resolve what is often systemic violations of employment protections. The National Labor Relations Board has determined that these arbitration agreements violate workers’ right under the National Labor Relations Act to join together for “mutual aid and protection.” Business interests—and the Trump administration—disagree. In Murphy Oil, the Supreme Court will decide whether workers have the right to come together to protect themselves from workplace issues like sexual harassment. The case could not be more relevant, or present the Justices with two more starkly divergent options.

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Economists Anna Stansbury and Larry Summers released a new paper today, “Productivity and Pay: Is the Link Broken?” which explores the relationship between economic productivity and compensation.

We welcome further inquiry into the relationship between productivity growth, inequality, and the ability of typical workers to benefit from a growing economy—and what policies are needed to do that. The Stansbury/Summers analysis adds some light but also some confusion and, ultimately, makes oversized claims about the role of productivity, especially since minor changes in specification of one of the three variables—unemployment—both substantially weakens some of their results, and also highlights just what is being missed in this investigation.

What are the issues?

The iconic chart (data here) that Stansbury and Summers are investigating is one showing a typical workers’ hourly compensation (measured as the compensation for production/nonsupervisory workers, roughly 80 percent of payroll employment) grew in tandem with productivity in the 1948-73 period but diverged thereafter. We have presented decompositions of the wedges between productivity and compensation for a typical worker that identifies the contribution to the divergence of: 1) changes of labor’s share of income (gap between average productivity and average compensation); 2) changes in wage/compensation inequality (gap between typical worker’s compensation and average compensation); and 3) differences in price deflators used for productivity and compensation. We find in the most recent period, 2000-2014, that rising inequality—both compensation inequality and reductions in labor’s income share—explains eighty percent of the gap between productivity and a typical workers compensation.

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