Paul Ryan’s tax reform taps noted fiscal policy experts Donald Trump and Sam Brownback
Last Friday, Speaker Paul Ryan released his long awaited tax reform proposal, the final piece of the House GOP’s election year agenda, “A Better Way.” This agenda, as Ryan noted, is meant to highlight the policies Republicans are for, not simply what they are against. So what kind of tax reform are Republicans for?
It will come as no surprise that the consensus view of House Republicans is that tax reform means more tax cuts for the rich (a point I’ll highlight more in later posts). What is surprising, however, is how Paul Ryan and the House GOP propose cutting taxes for the rich.
Ryan has decided that the House GOP should take tax advice from noted fiscal policy experts Sam Brownback and Donald Trump. Specifically, Ryan’s House GOP tax reform agenda creates a new loophole for “pass-through” income. Pass-through entities are businesses whose incomes are not taxed at the corporate level, but instead “passed through” entirely to the business owners and then taxed at their individual income tax levels. Trump’s tax plan called for cuts to the top individual income rate that would reduce it from today’s 39.6 percent to 25 percent. But, on top of this already generous tax cut for the very top, he also introduces a special, lower rate for pass-through income—15 percent.
Brexit: The end of globalization as we know it?
The British vote to leave the European Union is a watershed event—one that marks the end of an era of globalization driven by deregulation and the ceding of power over trade and regulation to international institutions like the EU and the World Trade Organization. While there were many contributing factors, the 52 percent vote in favor of Brexit no doubt in part reflects the fact that globalization has failed to deliver a growing standard of living to most working people over the past thirty years. Outsourcing and growing trade with low-wage countries—including recent additions to the EU such as Poland, Lithuania, and Croatia, as well as China, India and other countries with large low-wage labor forces—have put downward pressure on wages of the working class. As Matt O’Brien notes, the result has been that the “working classes of rich countries—like Brexit voters—have seen little income growth” over this period. The message that leaders in the United Kingdom, Europe, and indeed the United States should take away from Brexit is that the time has come to stop promoting austerity and business-as-usual trade deals like the Trans-Pacific Partnership (and the now dead Transatlantic Trade and Investment Partnership) and to instead get serious about rebuilding manufacturing and an economy that works for working people.
Conservative austerity policies in Britain over the past two decades, which have slashed government spending and limited government’s ability to deliver public services and support job creation, fueled the anger towards elites that encouraged Brexit. At the same time, the neoconservative, anti-regulatory views of public officials in Brussels—who are disdainful of government intervention in the economy and who consistently pushed for the “liberalization of labor markets” and other key elements of the neoconservative model—left Europe unprepared for the Great Recession. It’s no surprise, then, that there has been a revolt against the EU. When the financial crisis hit in 2008, EU authorities, especially banking officials in Germany and other wealthy countries that have a dominant influence over the European Central Bank, reacted by blaming public officials in Greece, Spain, Portugal and other countries hardest hit by the crisis. The budget cuts they demanded led to further contractions in spending and soaring unemployment which still persists in much of southern Europe, putting further downward pressure on employment in the UK and setting the stage for widespread populist revolts from the left and right that have gained traction across much of Europe.
Supreme Court immigration decision means millions of workers will be deprived of crucial labor protections
This morning the Supreme Court of the United States issued its decision in United States v. Texas, the State of Texas’s challenge to the most significant of the executive immigration actions—known as the DAPA and DACA+ initiatives—which were announced by President Obama on November 20, 2014. The Court was deadlocked in a 4-4 tie, which results in the Fifth Circuit’s decision being upheld, which had affirmed the District Court’s preliminary injunction that prevented the president from moving forward with DAPA and DACA+.
At issue in U.S. v. Texas was the president’s authority to defer the deportation of unauthorized immigrants who are the parents of children who are either U.S. citizens or legal permanent residents, if the parents have resided in the United States for at least five years, and are not an enforcement priority for deportation. This is known as DAPA—Deferred Action for the Parents of Americans and Legal Permanent Residents. The president also would have updated and expanded DACA, the Deferred Action for Childhood Arrivals initiative (in place since 2012), which to date has provided deferred action to over 700,000 people who entered the country as minors without authorization. Combined, over five million people are eligible for DAPA, DACA, and expanded DACA (sometimes referred to as DACA+), out of a total unauthorized immigrant population of 11 million.
Since implementation of the DAPA and DACA+ initiatives has been prevented, millions of unauthorized immigrants will not be eligible to apply for and obtain an employment authorization document from the Department of Homeland Security that allows them to work legally. This means that millions of workers will continue to lack access to basic labor standards and employment law protections—a terrible outcome for both unauthorized immigrants and American workers.
A deficit of trust
The annual Social Security and Medicare trustees’ reports will be released today, prompting the usual scaremongering enabled by a widespread misunderstanding of how these programs operate and what deficits mean. As is always the case, it is helpful to separate out analyses of Social Security from Medicare, as they are different institutions facing very different challenges.
Turning first to Medicare, there’s no denying that Medicare is a large and growing contributor to federal budget deficits, since the dedicated premiums paid into the program don’t come close to covering costs. Nevertheless, the problem isn’t the design of Medicare itself, but rather health cost inflation. Shrinking or dismantling the program would only exacerbate Americans’ health insecurity, because Medicare does a better job of restraining costs than private insurers. This highlights a key theme in many debates about the budget deficit: reducing the deficit through any means possible should not be the goal. Instead, the goal should be to figure out how to boost Americans’ living standards. And in regards to healthcare, having the government collect taxes and pay for Medicare clearly boosts living standards relative to a scenario that sees Medicare gutted and taxes reduced.
Social Security, meanwhile, is still running a surplus, though this will change in a few years as the bulk of the Baby Boomers enter retirement. However, despite annual cash flow deficits that have appeared recently and will persist for some time, Social Security will be able to pay full benefits for much longer as it taps trust fund savings. Tapping the trust fund is not the sign of a crisis, instead it’s what’s supposed to happen. Policymakers in the early 1980s decided to build up a trust fund precisely to help smooth financing of Social Security in the face of the Baby Boomer bulge in the beneficiary population. This is analogous to the federal government running a deficit during a recession—it is not only appropriate but absolutely necessary. There is a crucial difference, however: unlike the rest of the federal government, Social Security is prohibited by law from borrowing—it can only “dissave” what it saved up in the first place. Unfortunately, many people associate running a deficit with borrowing, not spending down savings, and don’t understand that while Social Security can run annual surpluses or deficits the program cannot add to the federal debt over time.
The substance and impact of the H-2B guestworker program appropriations riders some members of Congress are trying to renew
On June 8, the Senate Subcommittee on Immigration and the National Interest held a hearing on the H-2B temporary foreign worker program—a guestworker program that allows U.S. employers to hire workers from abroad for lesser-skilled occupations like landscaping, hospitality, seafood processing, and construction. It is a well-known fact that the program is rife with abuses, and I’ve shown how employers can legally underpay migrant workers in the program. News reports have revealed that employers use it try to avoid hiring American workers and that enforcement is lacking. (For more background, see EPI’s FAQ on the H-2B program.)
The hearing was timely because H-2B is currently a live issue on Capitol Hill. By that I mean Congress is considering provisions (also known as riders) to the omnibus appropriations bill that will fund the government for all of fiscal year 2017, which would extend riders amending the H-2B program that are currently in force during fiscal 2016. These riders deregulate the program by making it easier to exploit and underpay migrant workers while restricting the access of U.S. workers to jobs in their own communities. The riders also expand the program, allowing it to as much as quadruple in size. Members of Congress who want to grow the H-2B program, while keeping wages low for migrant workers, are again trying to hijack the appropriations process because there isn’t enough political support to pass the H-2B riders as a standalone bill.
Until now, very little has been written about the the substance of the riders and the H-2B rules they affect, or the impact they are having on the program and on the wages and working conditions of U.S. and migrant workers in the main H-2B occupations. The following is an excerpt from my congressional testimony on the H-2B program, which has been updated and edited for clarity; it explains in detail what you need to know about the H-2B riders.
Connecting the dots on the divergence between pay and productivity
From time to time researchers have raised technical measurement issues with our research showing that the compensation of a typical worker has diverged from overall productivity. The Heritage Foundation’s James Sherk—a repeat player—has a new entry.
Last September, Josh Bivens and I published a paper that provides a comprehensive review of the measurement issues and presents our estimates showing that rising inequality, both from greater inequality of compensation and an eroding labor’s share of income, drives the productivity-pay divergence, especially in this century. It easy to get caught up in a myriad of technical issues, none of which, as Bivens ably shows in his recent analysis, actually change the overall finding that hourly productivity growth has generally far exceeded that of a typical worker’s hourly compensation since around 1973 or 1979. As Bivens points out, Sherk actually ignores that we highlight the gap between a typical (median or “bottom eighty”) worker’s compensation and productivity and not the average compensation (including that of CEOs and the top one percent), which sets aside the main driver of the gap.
Implications of globalization and secular stagnation for monetary policy
The following is a lightly edited transcription of a talk given by Josh Bivens at an AFL-CIO conference on the Implications of Globalization & Secular Stagnation for Monetary Policy.
The central question this presentation is “what are the implications of globalization and secular stagnation for monetary policy?” Let me tell you my final answer first and then I’ll work my way there.
My final answer is that globalization and secular stagnation make a sustained, coordinated fiscal expansion necessary for restoring growth to the global economy. Current politics in both the Unites States and Europe make this impossible in the short run. This means it’s likely to be a long time before we have a decent global economy, and that’s a real problem.
Let’s start out with some definitions. Secular stagnation is a chronic shortfall of aggregate demand that cannot be solved just by lowering short-term interest rates. It is obviously closely related to the problems of the zero lower bound (ZLB) on interest rates—it essentially says that this ZLB problem is not something that needs a one-time burst of policy activism to defeat, but that long-run forces (the rise of inequality, among other things) have lowered the long-term natural rate of interest that is consistent with full employment.
American pay and productivity for typical workers: Still not growing together
James Sherk at the Heritage Foundation has written a piece claiming that there has been no gap between growth in productivity and growth in pay. It’s written largely as an attempted debunking of our work, but since there’s not actually any bunk in this work, the attempt fails.
Sherk raises many issues. Some have a bit of validity to them, some do not. I’ll discuss some of the nitpickier bits of his piece a bit later. In the end, however, the difference between his findings and ours boils down to the fact that he ignores the effect of rising inequality in driving a wedge between productivity and pay. And it’s true that if you ignore inequality, you get a much sunnier view of American wage performance in recent decades. But that’s the whole point, no?
Past all the hand-waving, the difference between Sherk’s findings and ours is completely dominated by the same single point of contention that comes up in every debate about growth in productivity and pay: the difference between average versus typical pay growth. The title of our most recent piece on this topic is: Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay. That “typical” in the title is important. We look at two measures of hourly pay that we argue are relevant for typical American workers: average pay for private-sector production and non-supervisory workers from the Current Employment Statistics (CES) and the median worker from the Current Population Survey (CPS). Production and non-supervisory workers constitute 80 percent of the private workforce. We think that seems pretty typical. The median worker in the CPS is that worker who earns higher hourly pay that half of the workforce and lower hourly pay than half. This also seems broadly representative to us.
Math problems at the Education and Workforce Committee
The system-wide budget for the University of Tennessee is more than $2 billion a year. Rep. Phil Roe (R-Tenn.) claims that the new Department of Labor overtime rule, which requires time-and-a-half overtime pay for many salaried employees earning less than $47,476 a year, will add $9 million in new costs. This is less than half of 1 percent of the annual budget, yet Rep. Roe claims this will force a 2 percent tuition increase. That does not add up.
Rep. Roe has not presented any evidence that the University of Tennessee will actually experience $9 million in new overtime costs, and given his math problems, there is reason to doubt. But to put his claims in perspective, we should note that without any new overtime or minimum wage costs, the University of Tennessee has been raising its tuition in response to falling state appropriations. As a recent University of Tennessee trustees’ report declared:
State appropriations to higher education have been stagnant or declining for several years… Higher education has responded to the decline in state appropriations by increasing tuition, providing no salary increases to faculty and staff, not filling or eliminating vacant positions, and becoming more efficient in the delivery of instruction, research, and public services.
In 2014, for example, tuition for various classes of in-state and out-of-state students increased between 2 and 6 percent, even though salaries were frozen. The drivers of rising tuition costs have nothing to do with Department of Labor regulations. But with appropriations shrinking, one can imagine that the desire of university officials to get uncompensated overtime work from its employees is increasing, and the updated DOL rules will provide significant protection from excessive overwork.
Brexit would hit the UK economy much harder than its promoters expect
On June 23, British voters will accept or reject a proposal that Britain leave the European Union. The latest polls show the vote in favor of the British exit, or “Brexit,” narrowly ahead.
The case for getting out has largely been driven from the political right, on the grounds that dropping out of the EU would allow Britain to close off immigration and free British businesses from rules made in Brussels that protect labor and the environment. A liberated Britain, goes the argument, would have the freedom to pursue policies that would bring it more prosperity.
But after an initial shock, the prolonged economic uncertainty following a win for Brexit would hit the U.K. economy much harder than its promoters expect. It would take at least two years to negotiate the terms of the pullout with the remaining 27 countries, which are unlikely to give Britain anywhere near its current privileged access to member countries’ customers or financial markets. It will then take even longer for the U.K. to find and negotiate trade deals for other export markets at a time of spreading deflation and rising protectionism throughout the globe. Pile on the political complications of disentangling British business regulations from rules made in Brussels, and the adjustment process could take as long as a decade.