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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This weekend, Americans will observe Veterans Day, honoring the 20.9 million men and women who have served in our nation’s armed forces. Over the last several years, many of these veterans have seen their job opportunities improve as the economy recovers from the Great Recession. Unfortunately, a large number of veterans are working in low-wage jobs. In fact, 1 out of every 5 veterans would benefit from raising the federal minimum wage to $15 an hour by 2024. In addition to raising the minimum wage, Congress should ensure that workers who have fought to preserve our freedoms return to workplaces where they have the freedom to join together to bargain for better wages and working conditions. On average, a worker covered by a union contract earns 13.2 percent more in wages and is much more likely to have health and retirement benefits than a peer with similar education, occupation, and experience in a nonunionized workplace in the same sector. A testament to the importance of union for wages and working conditions, veterans are disproportionately more likely to work in a unionized workplace. Compared to a 12 percent coverage rate overall, 16 percent of veterans—or 1.2 million veterans—are in a union or covered by a union contract.

Despite the benefits of collective bargaining for workers, unions have been under increasing attack. Since 2010, legislators in more than twenty states have introduced so-called “right-to-work” bills barring unions from requiring workers in the private sector who are represented by unions to pay the cost of that representation. In 2011 and 2012 alone, over a dozen states passed laws restricting public employees’ collective bargaining rights. It is worth noting that nearly 1 in 5 employed veterans, including 1 in 3 with a service-connected disability, work in the public sector. Private employers, too, have intensified their opposition to collective bargaining. During the union election process, it is standard practice for workers to be subjected to threats, interrogation, harassment, surveillance, and retaliation for union activity.

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With today’s release of the Republican tax plan, the debate over tax policy has finally officially begun. The Trump administration’s Council of Economic Advisers (CEA) has been doggedly campaigning for corporate tax cuts by claiming, unconvincingly, that these cuts will off a cascade of economic changes that lead to higher wages for American workers. Earlier this week the CEA released a second report claiming to marshal evidence showing the benefits of corporate tax cuts for economic growth and wages. This post first notes a key flaw that undermines much of the CEA’s review of this evidence, and then moves on to data from U.S. states that demonstrates (yet again) that there is no reliable link between cutting corporate taxes and raising wages.

The key flaw undermining much of the CEA report from earlier this week is that they completely ignore how their tax cuts will be financed in the long-run. The economic theory relating corporate rate cuts to higher wages rests on these cuts leading to a drop in interest rates (or a related concept, the “user cost of capital”, or UCC) which in turn spurs businesses to invest in productivity-enhancing plants and equipment. The new report cites a number of papers that estimate the effect of a lower user cost of capital (UCC) on economic outcomes.

The first thing to note about these claims is that the size of the effect of a lower UCC on economic outcomes is a contested issue in macroeconomics. But even if it was not, and even if there were universal agreement that a lower UCC significantly boosted growth, there is no reason to believe that enacting the Republican tax plan announced today would result in a lower UCC.

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Yesterday, Democratic lawmakers released another plank in their “Better Deal” agenda. The policy proposals included focus on strengthening workers’ collective voice and ability to negotiate for better wages and working conditions. These are critical components of any meaningful attempt to reform an economy that is rigged against working people. They are essential to creating a fair economy. And they stand in stark contrast to Republican efforts to further advantage those at the top with a tax proposal that would provide 80 percent of its benefits to the top 1 percent—households that currently have incomes of around $730,000 or more.

While the Republican tax proposals will do nothing to help boost workers’ wages or overall economic leverage, today’s “Better Deal” agenda would help to address these issues by promoting workers’ freedom to organize and bargain collectively. The steady decline in unionization over the last 40 years has led to rising inequality and stagnant wages for the American middle class. Not only do union workers earn higher wages, unions have strong positive effects on the wages of comparable nonunion workers, as unions help to set standards for industries and occupations.

Figure A

Union membership and share of income going to the top 10 percent, 1917–2015

Year	Union membership	Share of income going to the top 10 percent
1917	11.0%	40.3%
1918	12.1%	39.9%
1919	14.3%	39.5%
1920	17.5%	38.1%
1921	17.6%	42.9%
1922	14.0%	42.9%
1923	11.7%	40.6%
1924	11.3%	43.3%
1925	11.0%	44.2%
1926	10.7%	44.1%
1927	10.6%	44.7%
1928	10.4%	46.1%
1929	10.1%	43.8%
1930	10.7%	43.1%
1931	11.2%	44.4%
1932	11.3%	46.3%
1933	9.5%	45.0%
1934	9.8%	45.2%
1935	10.8%	43.4%
1936	11.1%	44.8%
1937	18.6%	43.3%
1938	23.9%	43.0%
1939	24.8%	44.6%
1940	23.5%	44.4%
1941	25.4%	41.0%
1942	24.2%	35.5%
1943	30.1%	32.7%
1944	32.5%	31.5%
1945	33.4%	32.6%
1946	31.9%	34.6%
1947	31.1%	33.0%
1948	30.5%	33.7%
1949	29.6%	33.8%
1950	30.0%	33.9%
1951	32.4%	32.8%
1952	31.5%	32.1%
1953	33.2%	31.4%
1954	32.7%	32.1%
1955	32.9%	31.8%
1956	33.2%	31.8%
1957	32.0%	31.7%
1958	31.1%	32.1%
1959	31.6%	32.0%
1960	30.7%	31.7%
1961	28.7%	31.9%
1962	29.1%	32.0%
1963	28.5%	32.0%
1964	28.5%	31.6%
1965	28.6%	31.5%
1966	28.7%	32.0%
1967	28.6%	32.0%
1968	28.7%	32.0%
1969	28.3%	31.8%
1970	27.9%	31.5%
1971	27.4%	31.8%
1972	27.5%	31.6%
1973	27.1%	31.9%
1974	26.5%	32.4%
1975	25.7%	32.6%
1976	25.7%	32.4%
1977	25.2%	32.4%
1978	24.7%	32.4%
1979	25.4%	32.3%
1980	23.6%	32.9%
1981	22.3%	32.7%
1982	21.6%	33.2%
1983	21.4%	33.7%
1984	20.5%	33.9%
1985	19.0%	34.3%
1986	18.5%	34.6%
1987	17.9%	36.5%
1988	17.6%	38.6%
1989	17.2%	38.5%
1990	16.7%	38.8%
1991	16.2%	38.4%
1992	16.2%	39.8%
1993	16.2%	39.5%
1994	16.1%	39.6%
1995	15.3%	40.5%
1996	14.9%	41.2%
1997	14.7%	41.7%
1998	14.2%	42.1%
1999	13.9%	42.7%
2000	13.5%	43.1%
2001	13.5%	42.2%
2002	13.3%	42.4%
2003	12.9%	42.8%
2004	12.5%	43.6%
2005	12.5%	44.9%
2006	12.0%	45.5%
2007	12.1%	45.7%
2008	12.4%	46.0%
2009	12.3%	45.5%
2010	11.9%	46.4%
2011	11.8%	46.6%
2012	11.2%	47.8%
2013	11.2%	46.7%
2014	11.1%	47.3%
2015	11.1%	47.8%

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The data below can be saved or copied directly into Excel.

The data underlying the figure.

Sources: Data on union density follows the composite series found in Historical Statistics of the United States; updated to 2015 from unionstats.com. Income inequality (share of income to top 10 percent) data are from Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913–1998,” Quarterly Journal of Economics vol. 118, no. 1 (2003) and updated data from the Top Income Database, updated June 2016.

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