Likeliest outcome of tax reform is a deficit-financed tax cut for the rich that will expire in a decade
Undeterred by their failure to repeal the Affordable Care Act (ACA), Republicans look set to move on to the next item in Paul Ryan’s “Better Way” agenda—tax reform. This post helps set the stage for the upcoming tax reform debate and explains why “tax reform” will in the end likely just become a deficit-financed tax cut for the rich and corporations that expires in 10 years—a decade of free money for groups that don’t really need it and a problem for policymakers to deal with in the future.
Understanding why this deficit-financed, 10-year tax cut is the most likely outcome requires some understanding of the “budget reconciliation” process (apologies). Budget reconciliation allows the Republicans to avoid the Senate’s 60-vote threshold for a filibuster, and hence will almost surely be needed to pass any tax cut. To begin the reconciliation process, Congress first passes a budget resolution with topline spending numbers that includes reconciliation instructions. These instruct the relevant committees to make changes to mandatory spending or revenues in order to achieve some budgetary target—for instance, decreasing revenues or the deficit by so-many billion over a specified time period.
Here, Republicans in Congress face a choice. They originally planned to use the fiscal year 2017 budget to repeal the ACA, and so wrote reconciliation instructions that were basically deficit neutral over the 10-year budget window. They could do this because, although repealing the ACA would mean large tax cuts for the top 1 percent, these could be paid-for with cuts to Medicaid and subsidies that helped people afford insurance in the ACA marketplace exchanges. If Republicans wanted revenue-neutral tax reform—perhaps following through on the popular mantra of “broaden the base, lower the rates”—they could simply repurpose those instructions. But this is unlikely to work for them.Read more
President Donald Trump recently told the Wall Street Journal that his administration won’t label China a currency manipulator in a semi-annual U.S. Treasury report that is due this week. Crucially, he has also forwarded no alternative mechanism to deal with the misaligned U.S.-China exchange rate. This essentially means that Trump has turned his back on working Americans who have lost millions of manufacturing jobs since China entered the WTO in 2001, and have experienced growing competition with imports from China and other low wage countries that reduced the wages of all non-college graduates by $180 billion per year in 2011 alone.
In a campaign speech in Monessen, PA last June Trump outlined a 7-step program that he “would pursue right away to bring back our jobs.” In step five, he promised to “instruct my Treasury secretary to label China a currency manipulator,” a commitment he repeated many times last year.
There has been some debate over whether or not the Chinese is currently actively manipulating its currency. What there is no debate over is whether or not the U.S.-China exchange rate is severely misaligned, and that this misalignment costs jobs in U.S. manufacturing. While China has been a net seller of foreign exchange reserves over the past two years (meaning that it has not engaged in direct manipulation over this time), it maintains well in excess of $3 trillion in total reserves, which have a depressing effect on the value of its currency.
H-2A visas by the numbers:
• 165,741: Number of H-2A jobs certified in 2016
• 14%: Increase in H-2A jobs since 2015
• 160%: Increase in H-2A jobs since 2006
• 134,368: Number of H-2A visas issued to workers in 2016
• 167: Average number of days H-2A jobs were certified for in 2016
• Approximately half of H-2A jobs in 2016 were certified in 5 states: Florida, North Carolina, Georgia, Washington, and California
• 7%: Percentage of the crop workforce that H-2A workers represent
The H-2A visa program allows farmers anticipating shortages of U.S. seasonal workers to be certified by the U.S. Department of Labor (DOL) to recruit and employ foreign workers with temporary, nonimmigrant visas. DOL certified 165,700 jobs to be filled by H-2A workers in fiscal 2016, up 14 percent from 145,900 in fiscal 2015.1 The H-2A program in 2016 is two-and-a-half times larger than it was a decade ago in 2006, when 64,100 jobs were certified.Read more
This article was originally posted on Confined Space.
The fact that most OSHA chemical standards are old, outdated and don’t protect workers very well is something that government, labor and industry can generally agree on. There is less agreement, however, on what needs to be done about that problem. But it’s a question that needs to be addressed, as an estimated 50,000 workers die every year from occupational disease, mostly related to chemical exposure, and almost 200,000 are sickened.
Rachel Cernansky, writing in the New York Times today about “America’s Toxic Workplace Rules” asks “Why does the [Labor] department’s Occupational Safety and Hazard Administration allow workers to be exposed to dangerous chemicals at limits far higher than those set for everyone by the Environmental Protection Agency” and what will Trump’s Labor nominee, Alexander Acosta, do about it?
Under current law, employers can give workers time off—paid or unpaid—whenever they want to, for any reason. They can, for example, reward employees who work overtime by giving them unpaid time off at a later date. The employer pays time-and-a-half for the overtime when it’s worked, and then can give an equivalent amount of unpaid time off to repay the employees for the extra time away from their home and family. That’s what a family-friendly employer can do now, with no legislative change required.
But Rep. Martha Roby wants a better, more “flexible” deal for employers. She wants them to be able to withhold the overtime pay until the employee takes compensatory time off (comp time), only paying it out if they can’t agree on a mutually convenient time to take the leave by the end of the year. Roby has introduced a bill, H.R. 1180, “The Working Families Flexibility Act,” to give employers that new right, while pretending to do something for employees.
Why should Rep. Roby stop there? I’d like to propose the “Working Families Super Flexibility Act.” My new bill takes the ideas of H.R. 1180 one step further, providing the greatest possible flexibility to employers and employees. Instead of receiving wages at the time they perform their work, employees can agree to receive credits toward future time off, which will be deposited in a “comp time bank.” The employees will have the freedom to use these credits whenever they want, as long as their employer agrees on the dates for leave. If no mutually convenient time is found before the end of the calendar year, the employees will finally get their earned wages—assuming that the company hasn’t gone out of business (as 400,000 do each year)—and the employer will collect all accrued interest.
The New York Times had an article recently about academics and financial advisers who want to bring back a Baroque-era investment vehicle—the tontine—where an annual dividend is split among surviving investors (the Washington Post had a similar story two years ago). The present-day appeal of the tontine is partly based on its supposed transparency. It’s unlikely, however, that potential investors would be able to accurately predict the payouts they might receive, which would depend on their health relative to that of others in the pool, among other variables. Still, it’s a morbidly interesting excuse to think about insurance markets and innovative retirement schemes.
Gambling on other people’s death isn’t unique to tontines. The AIDS epidemic created a secondary market in life insurance policies, allowing ill policyholders to tap some of their benefits to pay for health care and living expenses. Though this may have served a useful function in a country with inadequate social insurance—especially pre-Obamacare—it’s hard to feel sorry for investors who lost big after the discovery of antiretroviral drugs.
Tontines, like Social Security, traditional pensions, and life annuities, insure against the risk of living longer than expected in retirement. The problem of outliving one’s savings has gotten worse as Social Security benefits have been trimmed back and private sector employers have replaced traditional pensions with 401(k)-style savings plans. In theory, 401(k) savers can insure against longevity risk by purchasing life annuities, but few actually do. There are several reasons for this, starting with the fact that few have significant savings to begin with—a problem exacerbated by current low interest rates that lock annuitants into low annual payments. In addition, potential buyers must navigate complex and tricky insurance markets and face prices driven up by adverse selection and asymmetric information, the classic problem of markets for individual insurance whereby people at greater risk (of living longer, in this case) are more likely to purchase insurance and have an incentive to conceal information to avoid higher risk-adjusted premiums, leading to higher prices for all consumers and a shrinking market
Policy Watch: Amid a busy week, Congress and the president find time to roll back protections for working people
Congress will begin a two-week recess when the Senate concludes its business today. Leading up to today’s adjournment, the Senate spent much of the week focused on Supreme Court nominee Neil Gorsuch’s confirmation. Meanwhile, congressional Republicans found time to hold a legislative hearing on a bill that would provide employers a new right to avoid paying workers for overtime hours when the overtime is worked—letting them hold onto those wages for as long as an entire year. On Tuesday, President Trump’s Department of Labor announced that it will delay implementation of the fiduciary rule until at least June 9, costing retirement savers $181 million this year. And, on Thursday, the administration announced that it would delay enforcement of an Occupational Safety and Health Administration rule limiting workers’ exposure to silica dust, which has been linked to lung cancer. Roughly 2.3 million workers are exposed to silica dust in their workplaces. The rule, which was to be enforced beginning June 23, was projected to provide net benefits of $7.7 billion, annually and would have saved more than 600 lives and prevented more than 900 new cases of silicosis a year.
This week also marked the seventh anniversary of an explosion at the Upper Big Branch Mine in West Virginia killed twenty-nine miners. The Mine Safety and Health Administration concluded that the conditions that led to the explosion were the result of a series of basic safety violations that were entirely preventable. While President Trump offered no official statement commemorating the largest coal mine disaster in 40 years, his actions make clear that, for all of his rhetoric about bringing back lost jobs in the coal mining industry, he is not concerned with something he could actually deliver for miners and their families: making mining jobs safe jobs. Last Friday, his administration announced a proposed delay of a rule aimed at improving the health and safety of miners.
When Congress returns from recess they will deal with the confirmation of President Trump’s nominee to serve as secretary of labor. The position will have a significant impact on this nation’s workers and our economy. Congress will also have to quickly pass a funding measure to keep the government running. Currently, the government is being funded through a temporary spending bill that expires on April 28, 2017. If Congress is unable to pass an additional funding measure, President Trump’s 100th day in office may be the first day of a government shutdown. The Perkins Project Policy Watch will continue to track all of this and provide information on the impact on our nation’s workers.
What to Watch on Jobs Day: The Fed should keep their foot off the brake and let the economy reach genuine full employment
As we eagerly await the March employment numbers from the Bureau of Labor Statistics, I’m going to take a few minutes to set the context from the last month and reiterate why it’s so important to let the economy get to full employment. Although President Trump claimed to have inherited a “mess” of an economy, the fact is that the economy has been slowly but steadily headed ever-closer to full employment for years. Simultaneously, the president has claimed he will enact policies that will see us add 25 million new jobs over the next 10 years. This pace of job growth over a decade is pretty much impossible to envision. But we could in theory see 2-3 years of significantly faster job growth than what has characterized the recent past. Unfortunately, no sign of this theoretical possibility has shown up in the data yet.
As shown in the figure below, payroll employment growth in February came in at 235,000. This is very much in line with what we saw in January (238,000) or in February of 2016 (237,000). While sustained growth at this level is welcome, it is hardly a break with very recent past trends and cannot be rightly attributed to any new policy. EPI’s new autopilot economy tracker examines key labor market indicators to see where our performance going forward either diverges or doesn’t diverge from the trends inherited from recent years. We track payroll employment growth along with the unemployment rate, prime-age employment-to-population ratio, and nominal wage growth.
For decades, early childhood education advocates and the scientists, economists, and philanthropists who back them have been waiting for the federal government to step up to the plate and do what’s responsible, moral, and economically wise: make high-quality early childhood education a reality for everyone. With no indication that this is happening, even less so now, we need to focus on more promising pathways.
A smart path forward might combine adapting high-quality state-level strategies across more states and bubbling up lessons from pioneering districts. The latter help ensure a targeted focus on community-level needs and assets, and some offer timely lessons on how to link early childhood to the elementary years and beyond.
Recent presidents have all expressed support for investments in early childhood education. Still, even the strongest advocate, President Obama, left a legacy that includes higher standards and more funding but far too little of either to ensure all children a strong start. President Trump’s early childhood agenda consists so far of his daughter’s proposal to use tax deductions for the costs of child care to boost resources for the middle-class and wealthy families that can already afford it, while neglecting working-class and poor parents who can’t and expanding the budget deficit. Other policies he has advanced would compound problems for disadvantaged students. His “skinny budget” would strip public schools of key resources and, had the repeal-and-replace of Obamacare passed, it would have deprived millions of children of the physical and mental health care needed to succeed in them.
A recent study that I presented at the 2017 Federal Reserve Community Development Research Conference found that gaps in kindergarten readiness between high- and low-income children are enormous, and that they haven’t budged in the past 10-15 years—highlighting the need for more intensive policy responses. Other, more hopeful findings may point the way. Data from the same study indicate that parents are increasingly doing their part—reading to their children, singing with them, and playing games—regardless of their social class. So even though today’s low-social class parents are poorer and working odd hours at low-wage jobs, they are devoting the time and resources that science indicates are critical for child development.
Once again, a bill promoting comp time is being paraded out by congressional Republicans and will be the subject of a hearing in the House this morning. The bill would allow private sector employers to offer comp time at time-and-a-half in lieu of overtime pay when an employee works more than 40 hours in a week. It is being touted by congressional Republicans as a boon to worker flexibility, but do not be fooled—everything the comp time bill purports to provide for workers is actually already available under the overtime provisions of the Fair Labor Standards Act. The bill only provides a new employer right to avoid paying workers the overtime they have earned.
Here are a couple scenarios to show workers are never better off under the comp time bill.
First, the easy example: consider the very common case of the low- or moderate-wage workers whose paycheck is not enough for them to make ends meet, and who would always prefer to work extra hours to get extra pay. Under comp time, these workers give up their right to overtime earnings in exchange for future time off. This is not what they need or want and they are unambiguously worse off under comp time than overtime.
But what about a worker who doesn’t need or want the overtime pay and prefers the time—are they better off under the comp time bill than under current law which provides overtime pay for working more than 40 hours a week? Nope! At best they are back at neutral.
The Trump administration announced last week that it would sign two executive actions to launch a review of U.S. trade policy. A review of trade policy and its potential to harm U.S. workers is welcome and long overdue. However, the specifics of the review offered by President Trump mean that it is likely to fail to provide any help to American workers, in part because it asks the wrong questions.
The president’s first order requires Secretary of Commerce Wilbur Ross and White House Trade Council to “identify every form of trade abuse and every nonreciprocal practice that contributes to the U.S. trade deficit,” according to the commerce secretary. The report is to be completed within 90 days, with an analysis of the detailed cause of the deficit “by country and major product.” But the trade deficit is not a “product by product” or a “country by country” problem. We know what it is caused by and what should be done about it.
The trade deficit is not a bilateral problem between the United States and individual countries. The U.S. trade deficit is a result of global trade imbalances. There are ten to twenty countries that have developed large, persistent, structural trade surpluses that are distorting trade flows worldwide. The top ten surplus countries are shown in Figure A below. In 2015, these countries, led by China, Germany, Japan, Korea, and Taiwan, had a collective trade surplus of approximately $1.5 trillion. (The figures reported are current account balances, the broadest measure of trade in goods, services and income.) The United States’ current account deficit of $463 billion in 2015 accounted for less than one third of the total surplus accumulated by the big surplus traders. Other countries have also suffered from persistent, structural trade deficits, job losses, and downward pressure on wages, including Great Britain, Brazil, Australia, and Mexico. Attacking the root causes of global trade imbalances will benefit all deficit countries, and not just the United States.
Tuesday, April 4th is Equal Pay Day— the day that marks when a typical woman’s earnings catch up to what a man earned in the previous year. The gender wage gap is a measure of pay disparity between men and women. The research is conclusive: gender wage gaps exist across the wage distribution and among workers of every education level. The median woman worker (that worker in the exact middle of the distribution of women’s wages) is paid 83 cents for every dollar that the median man is paid. Among workers who have a college degree or advanced degree, the gap is even larger, with women being paid only 73 cents on the male dollar. Women of color face dual penalties of racial and gender-based pay gaps; black and Hispanic women are paid only 65 cents and 59 cents on the white male dollar.
Closing the gender wage gap is essential to helping women achieve economic security. We should use all the tools available to combat the factors contributing to pay disparities. Some of these tools include establishing standardized rates of pay, requiring more transparency in compensation data, strongly enforcing antidiscrimination laws, and allowing workers to earn additional benefits such as paid sick and family leave, which help enable workers to balance demands at home and at work.
For the vast majority of women, true economic security and a fair share of the economy’s growth will require combining progress in closing gender-based pay disparities with progress in linking their wage growth to economy-wide productivity growth, a linkage that has been severed in recent decades. The levers that will allow the wages of the vast majority of both men and women’s wages to benefit from overall economic growth include allowing the economy to reach and stay at genuine full employment, and raising labor standards such as updating the minimum wage and the overtime threshold.
Last week, the Perkins Project launched the Worker Rights and Wages Policy Watch, which tracks actions by the Trump administration, Congress, and federal agencies that affect working people and the economy. A review of Policy Watch posts to date shows President Trump and congressional Republicans’ commitment to advancing an agenda that favors corporate interests ahead of workers. Consider their actions just this week: on Monday, President Trump signed into law a measure blocking the Fair Pay and Safe Workplaces Rule which would have helped ensure that federal contracts were not awarded to companies with track records of labor and employment law violations. That same day, the Department of Labor announced a proposed delay of a rule aimed at improving the health and safety of miners.
Meanwhile, while most of the news coverage was focused on House Republicans’ inability to repeal and replace the Affordable Care Act, they have been quietly overturning important worker protections and in the first few months of this session, making it more difficult for federal agencies to enforce labor and employment laws. One of these measures mandates that agencies place compliance cost considerations above all else, relegating the benefits to workers and consumers to secondary status.
The administration has also repeatedly placed corporate interests ahead of workers. In addition to this week’s announcement of a proposed delay of a rule to enhance workplace safety standards for miners, the administration has proposed delaying the implementation of the “fiduciary rule,” which would require financial professionals to act in their clients’ best interests when recommending investment products or strategies to people saving for retirement. The Trump administration’s proposed delay of 60 days will cost workers saving for retirement $3.7 billion.
The Trump administration and congressional Republicans have already taken a number of actions that hurt workers and stack the deck for corporate interests. The Perkins Project Policy Watch will continue to track what they do and provide information on how their actions impact our nation’s workers.
Modern-day Braceros: The United States has 450,000 guestworkers in low-wage jobs and doesn’t need more
On César Chávez Day, lost in all the news about the Trump administration’s criminalization and scapegoating of immigrants and attempts to withhold federal funds from cities with policies that protect immigrants, are the 450,000 low-wage-earning migrant workers employed in the United States through the H-2A, H-2B, and J-1 visa temporary foreign worker programs. Many of the workers in these temporary visa programs are in a precarious situation and vulnerable to abuse and retaliation at the hands of employers and their agents.
These “guestworkers” often arrive in the United States in debt, and are tied to and controlled by their employers. Research shows guestworkers are often paid lower wages than similarly situated U.S. workers, and earn wages similar to those of undocumented immigrant workers. This is reminiscent of the Bracero Program—a large guestworker program in the 1940s, 50s, and 60s that admitted hundreds of thousands of Mexican workers to work temporarily on U.S. farms and in other low-wage occupations—and which César Chávez fought against. Chávez knew that exploited, indentured, and underpaid workers would degrade labor standards for all workers in the United States, including immigrants. After scandals, political pressure, and President John F. Kennedy campaigning against it, the program was terminated in 1964.
Sadly, America has not learned its lesson. The United States is repeating an historical mistake, once again admitting large numbers of guestworkers in low-wage occupations. With the possibility looming that the Trump administration will reduce enforcement and oversight in guestworker programs—which will be further exacerbated if Trump’s proposed 21 percent budget cuts to the Department of Labor (DOL) are enacted—the United States may once again face scandals like the one where the bodies of guestworkers who died in a traffic accident were not immediately claimed, because farm labor contractors and agricultural growers argued over who their employer was.
Over the last several decades, black workers have been offering more to the economy and the labor market to incredibly disappointing results in pay and unemployment. Some have argued that the disparity in wages between blacks and white is the result of white workers working longer and harder than black workers. They blame black workers for racial wage gaps, saying that they should do anything from getting more education to simply working harder. Such explanations minimize the role of racial discrimination on labor market outcomes, while perpetuating racial bias and stereotypes of black workers as unmotivated and lazy.
And the data show they are simply false: hours and weeks worked have increased for both races, with a larger increase for black workers over the last several decades. The increase in annual hours is particularly striking for workers in the bottom 40 percent of the wage distribution, where it has been driven almost entirely by women.
Table 1 provides data on annual hours worked in 1979 and 2015 for workers ages 18–64 years old who report non-zero earnings during the year (so the averages are conditioned on working. In forthcoming research, we explicitly address trends in labor force participation). Work hours include paid vacations and time off, and therefore represent paid hours. The table also presents the percent change from 1979 to 2015 in annual hours, weeks worked, and weekly hours. These data are shown by race and wage fifth, or quintile.
For more than 40 years, big business and the Republican party have teamed up to drive down the wages of construction workers by attacking their unions, passing so-called “right-to-work laws”, and weakening or repealing prevailing wage laws— which protect construction wages from downward pressure. They have, unfortunately, been very successful. Construction wages are lower today than they were in 1970, despite 40 years of economic growth and a higher national income.
The real average hourly earnings of production/nonsupervisory construction workers were $26.17 in 1970, $26.00 in 1980, and $23.91 in 1990. Construction workers’ hourly earnings bottomed out at $22.97 in 1993 but have never fully recovered from their 1970 peak and were only $25.97 in 2016.
On a bipartisan basis going back at least to the Reagan administration, the Occupational Safety and Health Administration (OSHA)—the Department of Labor agency that enforces the right of workers to have a safe workplace—has required employers to keep accurate logs of injuries and illnesses, and has fined them if they fail to keep those logs for five years. Every OSHA administrator has recognized the value of this record-keeping, as a way to make employers pay attention to unsafe practices and address them, as well as to ensure accurate statistics for research, to show progress or lack of progress in improving workplace safety, and to help target the most dangerous workplaces.
Nevertheless, in Volks Constructors v Secretary of Labor, a court blocked OSHA from fining employers for various record-keeping failures that occurred more than 6 months before the citation. The court ruled that OSHA’s regulations didn’t clearly establish that the duty to maintain accurate records is an ongoing duty rather than just a duty to record each incident accurately at the time it occurs. Thus, if OSHA finds that an employer has for many years been hiding the fact that workers have repeatedly been burned, for example, or has failed to record numerous forklift accidents and injuries, it can only cite the employer for inaccuracies arising within the past six months.
A report in the LA Times last week explored why farmers in the Central Valley are having a hard time finding enough workers, despite reportedly paying up to 40 percent more than the California minimum wage. “Today, farmworkers in the state earn about $30,000 a year if they work full time—about half the overall average pay in California,” notes the Times. “Most work fewer hours.” The second sentence here is key: most farmworkers are not employed 40 hours a week 52 weeks a year, so most earn far less than $30,000 per year. In fact, in 2015, workers who received their primary earnings from agricultural employers earned an average of $17,500—less than 60 percent of the average annual wage of a full-time equivalent (FTE) worker in California.
Many farmworkers are paid an hourly rate higher than California’s minimum wage—$10.00 or $10.50 an hour in 2017, depending on whether the employer has 25 or less, or 26 or more employees, respectively—and workers who are paid piece rates, which reflect how much they pick or prune, often earn $12 to $14 an hour. Many young male farmworkers aim to earn $100 a day, which is $12.50 an hour for an eight-hour day and $14.30 an hour for a seven-hour day. But farmworkers typically are not employed in agriculture year-round. Many farm jobs are seasonal, and few workers migrate between California farming regions—those who pick vegetables in southern California deserts between January and May rarely move to the San Joaquin Valley to pick fruit between July and September.
Yesterday, the Trump administration released its budget blueprint, which, while it’s unlikely to be passed in its current form by Congress, sets out the administration’s priorities for the years ahead. Simply put, the Trump budget transfers funds from programs that keep people fed and sheltered, protect them from disease and environmental threats, or educate them—and gives those funds to defense contractors to build more weapons, planes, and ships. But it also seems to have the purpose of making America more ignorant, less informed about the challenges and problems that face us, and less able to understand and develop solutions to those challenges and problems. It could be called a “lobotomy budget” because it effectively removes big pieces of the government’s brain.
Here are some examples of how the budget leaves students less educated and less prepared for the 21st century workforce:
- The budget eliminates the Federal Supplemental Educational Opportunity Grant, a need-based grant program that helps 1.6 million undergraduate students pay for college.
- The budget cuts $1.2 billion for the 21st Century Community Learning Center before and after school programs:
Today the White House laid out its priorities in its first budget blueprint. And these priorities are simple enough to describe: paying for increased spending on defense and border security with cuts across the board to nondefense discretionary spending (NDD). Among other reasons why these are bad decisions, they would have devastating consequences for public investment.
It’s worth looking at one specific cut that seems fairly telling. Despite campaigning on a $1 trillion infrastructure program, the president’s budget actually cuts the Department of Transportation’s funding by 13 percent. Coupling this cut with the fact that the campaign’s original proposal was simply not a serious plan, and the rumors that the president and Congress are punting infrastructure to next year, it starts to become increasingly clear that increased infrastructure investment isn’t a promise that the Trump administration is taking seriously.
The broader cuts in the budget blueprint foreshadow an even worse fate for overall public investment. NDD is only about 16 percent of all federal spending, but fully half of it is public investment. The Trump budget essentially puts a long-run decline in NDD spending on overdrive. NDD budget authority fell from almost 7 percent of GDP in 1977 to about 3 percent by 1990. It has hovered around 3 percent since then, beginning a slow decline in recent years. The administration’s budget intends to accelerate this decline, reducing NDD spending swiftly and sharply from 2.8 percent of GDP in 2016 to 2.3 percent by 2018.
Next week, the Senate Committee on Health, Education, Labor and Pensions holds its hearing on the nomination of Alexander Acosta to be secretary of labor. While Mr. Acosta has had several confirmation hearings in the past, and is expected to do well next week, it is important that he receive a thorough and tough vetting. In the context of an administration that has shown itself to be remarkably anti-worker, it’s more important than ever that the labor secretary be prepared to enforce our labor laws and advocate for all working people.
Senators should ask Acosta specifically about his views on labor and employment laws as they pertain to undocumented workers. For example, it’s been reported that a spate of raids by Immigration and Customs Enforcement have left undocumented workers—who are already easily exploited—unwilling to report wage theft and labor violations. Now more than ever, we need a labor secretary who will argue for a fair economy and a labor market that works for all workers.
As a member of the National Labor Relations Board (NLRB), Acosta once voiced his adamant belief that undocumented workers deserve the protection of our country’s labor laws. In Double D Construction Group, 339 NLRB No. 48 (2003), the board found the company’s owner had unlawfully terminated an employee, Thomas Sanchez, for his participation in union activity. Not only did Acosta join the board majority overruling the judge’s contrary finding, Acosta wrote a separate concurrence chastising the judge, who had discredited Sanchez’s testimony at the trial on the ground that Sanchez had once knowingly used a false Social Security number to obtain employment. The administrative law judge reasoned: “If Sanchez demonstrated a willingness to use a false government document to obtain work… he may also be willing to offer false testimony” at the trial.
The Federal Reserve’s announcement today that it would raise short-term interest rates is not surprising, but is disappointing. As always, the issue is less about the direct impact of today’s 0.25 percentage point hike, and more about what this hike means, especially given that it has come relatively hard on the heels of a hike in December. Today’s hike seems to signal that Fed policymakers think that we’re currently at or very near full employment, and that failing to slow the pace of economic growth in coming months would soon lead to accelerating wage and price inflation. They could be right, of course, but it is important to note that there is little in actual economic data to indicate this.
Even the headline unemployment rate (today’s healthiest economic indicator) remains significantly higher than what it reached in 1999 and 2000, when we saw 4.1 percent unemployment for a full two years without accelerating inflation. The share of adults between the ages of 25 and 54 with a job hasn’t even recovered to pre-Great Recession levels, which were, in turn, far below the peaks reached in the late 1990s. And, most importantly, no durable and significant acceleration of wage growth to healthy levels has happened yet. Finally, the Fed’s preferred price inflation indicator—year-over-year growth in “core” (excluding food and energy) prices for personal consumption expenditures— remains stubbornly below the Fed’s professed target and shows no upward trend at all.
The risks regarding the Fed’s interest rate decisions remain deeply asymmetric, and point strongly to erring on the side of continuing to prioritize further improvements in the labor market rather than forestalling possible future inflation, which would mean not raising rates. If the Fed is wrong and raises rates enough in coming months to keep unemployment from falling to the low 4s, this implies millions of potential workers who can’t find jobs or the hours they want, and likely implies tens of millions of workers who will receive lower wage increases than they otherwise could have had. This is especially important for low and middle-wage workers, who need low rates of unemployment before they have any serious chance to bargain for higher wages.
Yesterday, the Congressional Budget Office (CBO) released its analysis of the American Health Care Act (AHCA)—legislation designed to “repeal and replace” the Affordable Care Act (ACA). The AHCA makes substantial changes to current law, which have large effects on both the costs of care and the coverage rates. I’m going to walk through some key provisions and their effects on specific populations below, but the bottom line is that the number of uninsured Americans will grow by 24 million by the year 2026. This is the result of about 14 million fewer people on Medicaid, 2 million fewer with nongroup insurance coverage, and 7 million fewer with employer-sponsored health insurance. In addition to the outright losses in coverage, the law increases economic vulnerability and health insecurity for millions of Americans by disproportionately exposing those with low income to additional risk through the elimination of cost sharing subsidies in the nongroup market, forcing them to face higher out-of-pocket costs like higher deductibles and co-pays.
Some key highlights of the AHCA score can be found in one highly illuminating table and one brilliantly designed figure. Let’s start with the table. I’ve copied Table 4 below, highlighting some particularly interesting findings. (For full notes on this table, see page 34 of the CBO cost analysis.) The table constructs comparisons of various age profiles in two income groups for individuals seeking coverage in the health insurance nongroup market in 2026. Premiums, tax credits, net premiums, and actuarial value of plans for single individuals at age 21, age 40, and age 64 are constructed at income levels of $26,500 and $68,200 in the top and bottom panels, respectively.
Senator Baldwin is right: AHCA is particularly great for health insurance CEOs, bad for almost everybody else
There are plenty of outrageously bad things about the American Health Care Act (AHCA), the recently proposed Republican replacement for the Affordable Care Act (ACA). The 24 million people who will lose their health insurance coverage by 2016. The $12,900 increase in premiums for older, low-income Americans who will get much shoddier insurance coverage in exchange. The $275 billion in tax cuts aimed directly at the richest Americans. The 7 million decrease in even employer-sponsored coverage under the plan. The $880 billion cut to Medicaid over the next decade. To get a near-comprehensive look at what the AHCA does to taxes, spending and insurance coverage, check out the recent Congressional Budget Office (CBO) analysis of AHCA.
But maybe the most gratuitous way that AHCA coddles rich people is its repeal of an ACA provision that limited the deductibility of executive pay for health insurance companies. The rationale for this provision was clear—the federal government was providing an enormous windfall to private health insurance companies by mandating that all Americans have insurance and by providing subsidies for them to purchase it. In return, we wanted these companies to use that extra money from subsidies and new customers to actually provide health care, not just fatten corporate executives’ salaries. So, the maximum amount that a health insurance company could deduct in an executive’s salary from their corporate income tax bill was reduced to $500,000. Under the AHCA, these companies could deduct up to $1 million in cash pay, and could deduct unlimited amounts of “performance-based” pay.
Two quick things to note: the “performance-based” pay carve-out is a bad loophole that should be closed generally. And $500,000 is an awfully healthy salary; presumably, companies should be able to hire decent people at this salary or less. This sounds like a shocking thought in modern America, I know, but the president of the United States earns less than this (or, if you’re unconvinced that our current president counts as an example of having “hired decent people”, I’d note that the Chair of the Federal Reserve earns well under half of this amount).
Senator Tammy Baldwin of Wisconsin recently criticized AHCA and mentioned these top executive pay deductibility provisions, and argued that the proposed legislation would greatly enrich health insurance CEOs. PolitiFact Wisconsin took odd exception to this. They’re wrong and Baldwin is right.
First, AHCA slashes tax rates faced by the richest Americans. Health insurance CEOs are in this group, so they will make enormous amounts of money from the tax cuts in AHCA. For top 0.1 percent income households in America (and top executives at large companies are extraordinarily over-represented in this group), the AHCA tax cuts will deliver an average tax cut of $165,000 annually.
OK, maybe it’s a slight exaggeration, but almost everyone—99 percent of Americans and all members of Congress—will win if the GOP health plan fails.
Let’s start with Congress. Democrats win if they vote against a bad, unpopular plan. Republicans, meanwhile, minimize their losses if they vote it down—even for the wrong reasons. Basically, incumbents in both parties are better off if it goes away, though Republicans have to go through the motions since they’ve bluffed that they had a better plan than “Obamacare” since day one.
Win or lose, it’s obvious that Republicans don’t want to drag out the process of deliberating the American Health Care Act (which Case Western Reserve University Professor Joseph White has aptly dubbed the “Unaffordable Care Act”). That’s why they rushed committee votes ahead of a Congressional Budget Office review while web traffic to analyses of the plan has been so heavy that it crashed the Center on Budget and Policy Priorities’ website.
Until recently, railing against Obamacare played well politically, and Democrats lacked the party discipline to defend the Affordable Care Act (ACA) against attacks, especially after a botched rollout. The ACA slowed—but did not stop or reverse—excess health cost growth in the United States, and also did a good job of spreading these costs among sick and healthy and poor and rich to make health care affordable for most Americans, if not quite the fundamental right enshrined in the World Health Organization’s constitution. (House GOP leader Paul Ryan seems unaware that risk pooling is the whole purpose of insurance.) The CBO report, released this afternoon, confirms that the GOP plan will cause millions to lose coverage—an estimated 14 million next year and a whopping 24 million by 2026.
President Trump has recently claimed that he inherited an economic “mess,” calling the American economy a “disaster.” From a broad macroeconomic perspective, this is simply untrue. The overall unemployment rate has been steadily falling and is essentially back to where it was immediately before the Great Recession started. Recent years have even seen improvements in labor force participation as the labor market continues to firm up. And while other measures, such as the prime-age employment-to-population ratio and nominal wage growth, continue to lag, they have still shown continued improvement over the last several years. To be clear, the economy is still weak and still hasn’t reached genuine full employment like it did in the late 1990s and early 2000s. Many workers and their families are still struggling, and the lower unemployment rate is only now beginning to translate into broad-based wage growth. But the economy is on track to recover, and there are no obvious signs of any underlying weakness that would lead to a recession in the near term. Inheriting a “mess” would accurately describe what President Obama was handed in January 2009—with the economy having lost 3.4 million jobs just in the previous six months and with unemployment having risen 3.4 percentage points over the previous 18 months. President Trump has clearly inherited something quite different—a stable albeit too-slow recovery that is on extremely firm ground.
It’s important to keep this steady improvement in mind as we assess economic progress moving forward. No policymaker should be allowed to claim credit for improvements that are simply a continuation of a trend. To that point, I’m going to lay out some key labor market indicators, discuss their recent trends, and assess their likely progress over the next two years.
Tomorrow’s jobs report is notable, because it will cover the first full month that President Trump has been in office. While the president has recently claimed that he inherited a “mess” of an economy, the fact is that the economy has been recovering slowly but steadily, and I expect the February jobs numbers to reflect that. The unemployment rate has been ticking down, the prime-age employment-to-population ratio has been improving, and wages grew across the board in 2016.
To be clear, there is still room for improvement. While we are on the road to full employment, we are not there yet. But the economy is on track and there are no obvious signs of any underlying weakness that would lead to a recession. It’s important to keep this steady improvement in mind as we assess economic progress moving forward. No policymaker should be allowed to claim credit for improvements that are simply a continuation of a trend. Conversely, failure to deliver still lower unemployment in the coming years should be seen as a policy mistake—either by the Federal Reserve or by fiscal policymakers.
The average unemployment rate over the last three months was 4.7 percent, a fall of 0.3 percentage points from the average rate from the same three months last year (5.0 percent). At that rate, the unemployment rate will hit 4.0 percent sometime in 2019. This is not an unrealistic aspiration. The U.S. economy sat at roughly 4.0 percent for two solid years in 1999 and 2000, and policymakers should be aiming for that level today. Only when the labor market is tight enough to deliver sustained rising wages for all workers—regardless of gender, race, or educational attainment—should we say our work is done. Simply put, we want an economy where worker wages are rising, and in order to get there employers need to be competing for workers rather than workers competing for jobs.
Janet Yellen, not Donald Trump, is far more likely to decide whether or not we reach genuine full employment in 2017
In recent weeks, a number of stories have been written about the Trump administration’s excessively rosy projections for economic growth in coming years. And three weeks ago, Federal Reserve Board Chair Janet Yellen testified before Congress about the likely path of monetary policy over the next year. The Trump administration forecasts and Fed decisions are deeply intertwined. While the Trump administration’s precise forecasts are clearly unrealistic in the long-run, we should be clear in noting that the next couple of years could easily see a substantial pickup in economic growth. If this happens, however, we will have Janet Yellen and her colleagues at the Fed to thank, not Donald Trump.
The reason is straightforward: 2017 is the year when the Fed will finally decide whether or not to guarantee genuine full employment by giving the economy “room to run” by not raising rates aggressively. While Fed policy largely sputters when trying to spur growth with lower short-term interest rates, raising rates does reliably slow growth. So for all the chatter about the importance of Fed policy in recent years, their attempts to spur growth with low short-term rates were often futile. But once they firmly decide to start reining in growth with higher rates their policy choices will have real bite.
The metaphor used to describe the problem with using low rates to boost growth was that you can’t “push on a string”. Essentially, the Fed can lower rates to try to induce businesses and households (and even governments) to borrow and spend more, but they cannot force this spending to actually happen. If governments ignore low rates and indulge in spending austerity for ideological reasons, or if households do not respond to low rates because their housing wealth had been torpedoed and hence home refinancing is impossible, or if businesses do not take advantage of low rates to build new factories because they do not have customers for what their current factories are producing, then the Fed cannot do much about any of this.
It’s time we acknowledge women’s contributions to the economy—and how much bigger a role they would play in a more inclusive economy
Women hold 49.5 percent of payroll jobs. The health of the female workforce is hugely important to the health of the overall labor force. And yet—in crucial ways—lawmakers in the United States have avoided commonsense policy changes that have been shown to make it easier for women to balance paid work and their still disproportionate share of responsibilities at home.
Policies like paid parental leave and subsidized child care increase parental labor force participation, which would boost the economy. Many of our peer nations have such policies, and, not surprisingly, their employment rates are much higher than ours. The figure below shows just how far U.S. women have fallen behind some of our international peers. The graph shows the share of women age 25–54 with a job between 1995 and 2015 in Germany, Canada, Japan, and the United States. While women’s prime-age employment-to-population ratio (EPOP) rose over that 20-year period in those peer nations, it actually fell in the United States.
The share of prime-age women with a job has fared worse in the U.S. than in peer countries: Employment-to-population ratio of women workers age 25–54, select countries, 1995–2015
Source: EPI analysis of OECD Labour Force Statistics
Last week, Senator Warren, joined by her colleagues Senator Murray and Senator Sanders, asked Attorney General Sessions to open a criminal investigation into the deaths and serious injuries of workers employed by VT Halter Marine, Inc., a shipbuilder with United States Navy contracts. Senators argue that, while the Occupational Safety and Health Administration (OSHA) has assessed penalties against VT Halter, the fines “are clearly not a sufficient deterrent for VT Halter.” The senators’ request follows a report from the Center for Investigative Reporting documenting VT Halter’s history of violating workplace safety regulations. Despite the company’s track record, it has continued to receive hundreds of millions of dollars in federal contracts.
Today, the Senate is voting on a resolution of disapproval to block the Obama administration’s Fair Pay and Safe Workplaces rule that would help ensure that law-breaking employers, like VT Halter, do not receive federal contracts. The rule requires contractors to disclose violations of federal labor and employment laws, including the Occupational Safety and Health Act, and directs agency contracting officials to consider a company’s record of violations in awarding federal contracts. President Trump has already stated that he will sign the resolution and block the rule. This, as he announced his intention to increase military spending, leading to hundreds of millions in taxpayer dollars going to federal contractors for the development of new ships, planes, and technology in support of our military. By blocking the rule designed to reform federal contracting, the president and congressional Republicans have essentially ensured that taxpayers will continue to support contractors with a history of violating worker protection laws and regulations.