A Bloomberg article from yesterday highlighted the fact that a trust set up by Mitt Romney to benefit his children and grandchildren relied heavily on tax loopholes for maximum returns. Romney was able to avoid gift and estate taxes by relying on a vehicle known as an “intentionally defective grantor trust,” or IDGT, which tax planners sometimes refer to as “I Dig It.” This type of trusts allow donors to gift unlimited amounts to their children and grandchildren free of gift or estate taxes (the top gift tax rate is scheduled to return to 55 percent in 2013, after being cut significantly by President George W. Bush). The value of the Romney family trust is not counted, according to the article, as part of the $250 million that Romney’s campaign cites as his net worth.

Tax avoidance such as this relies heavily on the preferential treatment of capital gains in the tax code. As the article highlights, when a trust such as the one set up by Romney sells assets at a profit, the donors are able to pay relatively low capital gains rates on behalf of the trust. A Tax Policy Center report earlier this year that looked at the distributional effects of tax expenditures found that “relative to the population as whole, high-income taxpayers would lose the most from eliminating special rates for capital gains and dividends.” Romney and his running mate Paul Ryan have ruled out closing this costly and lopsided loophole Read more

In a recent paper assessing the likely impact of President Obama and Mitt Romney’s budget plans if they became law, we applied standard macroeconomic multipliers to estimates of each plan’s fiscal impulse.

As always, the very term “multipliers” brings out critics, and the ones we used for this study (and have used often in the past)—those from Moody’s Economy.com—seem to bring out even more. This is all very odd.

We often use the Moody’s multipliers because they’re transparent and slightly more detailed than many others that have been published. But, what drives our results in determining whose budget plans provide a bigger economic boost is simply the relative ranking of these multipliers; specifically the estimate that tax cuts (particularly for high-income households) provide less dollar-for-dollar economic support than do spending increases. This is not controversial at all. Both the Congressional Budget Office and the Council of Economic Advisers make similar relative judgments (see the tables here), and the general view that government purchases’ multipliers will lie above tax multipliers during economic circumstances like the present is buttressed by a number of academic papers in recent yearsRead more

The recently released State of Working America, 12th Edition, documents in a variety of ways how the last decade in the United States has been a lost decade for all but the very well-off. One manifestation of this lost decade is the decline in the share of households owning stocks.

First, it’s useful to point out that even with the “401(k) revolution,” a surprisingly small share of households ever held any significant amount of stocks. As the figure shows, at its peak in 2001, just more than half (51.9 percent) of U.S. households held any stock, including stocks held in retirement plans like 401(k)s. Furthermore, many of that 51.9 percent held very small amounts—just over a third (37.8 percent) had total stock holdings of $10,000 or more. (Read this snapshot for more on the “democratization of the stock market” that never actually happened.) And even those modest shares have since lost ground. By 2010, less than half (46.9 percent) of all households had any stock holdings, and less than a third (31.1 percent) had stock holdings of $10,000 or more.

The strong rebound in stocks since 2009 amidst persistently high unemployment highlights the disconnect between Wall Street’s financial markets and most people. The stock market simply has little or no direct financial importance to the majority of U.S. households. Since 1989, the top fifth of households consistently held about 90 percent of stock wealth, leaving approximately 10 percent for the bottom four-fifths of households. If you want to assess how the economy is performing for most households in this country, don’t look to the stock market, look to the labor market, and measures of job opportunities like employment and wage growth.

Unemployment remains far too high, and the culprit is clearly deficient spending in the economy. Yet, a full-throated call for aggressive Keynesian remedies for this (i.e., something like another Recovery Act) is far from the top-shelf item on the agenda. Instead, most policy attention in the race centers on which candidate would more rapidly reduce projected budget deficits—a policy maneuver that, in the next couple of years, would be all but guaranteed to lead to higher unemployment rates. This move away from a defense of Keynesian cures for high unemployment started a long time ago and has codified by the 112th Congress (Jan. 2011–present), when federal budget policies pivoted sharply toward austerity.

Republicans have clearly led the charge away from Keynesianism, vociferously decrying the increase in budget deficits since the Great Recession began and demanding a dollar of spending cuts for every dollar increase in the statutory debt ceiling. Democrats have (generally) been more ambivalent—calling for (and passing) some fiscal support while often rhetorically privileging deficit reduction over other policy goals. Given this partisan pattern, it’s somewhat unexpected to hear some commentators speculate that a Mitt Romney administration Read more

Yet another right-wing organization is attacking public employees and their pay. This time, it’s Citizens Against Government Waste, a corporate front for tobacco companies, defense contractors, Microsoft, and anyone interested in contracting out government services. Today, they issued a report card at the National Press Club that purports to grade states on public employee pay and argued that overpayments are the cause of unfunded pension liabilities.

These claims are bunk, and study after study has rebutted similar claims. If anything, public-sector workers, most of whom have college degrees or higher, are somewhat underpaid compared to comparable private-sector workers. EPI collected a series of such reports in Jan. 2011, but this has also been the finding of research from the Center for Retirement Research at Boston College, the National Institute on Retirement Security, and the Center for Economic and Policy Research.

The CAGW paper also addresses public employee pension plans. Why are these plans underfunded? The biggest single reason is the stock market collapse of 2007–09. Read more

EPI’s recently released The State of Working America, 12th edition, explains in detail how the past 10 years have been a “lost decade” of income growth for the bulk of American families. How has this played out at the state level? Last week’s release of the American Community Survey (ACS) provides excellent data with which to see these trends by state.

According to the ACS, from 2000 to 2011, real median household income—i.e., adjusted for inflation—declined in 41 out of 50 states across the U.S. Figure A illustrates this change. The dark blue bars represent 2011 median household income values. The grey sections show what household income was in each state in 2000. (The light blue sections are the rare instances of median income growth.)

As the figure shows, household incomes rose in only a handful of states in the west-north-central region where the shale gas boom has been driving growth, and in the region surrounding Washington, D.C (which some attribute, in part, to growth in the lobbying industry). Of the 41 states where household incomes fell, 13 states had declines greater than 10 percent, with Michigan (-18.9 percent), Georgia (-14.7 percent), and Mississippi (-13.7 percent) experiencing the largest declines.Read more

The most pressing economic challenges facing the United States remain stubbornly high unemployment and underemployment rates, a legacy of the Great Recession that began at the end of 2007 and from which the labor market has yet to fully—or even largely—recover. In today’s liquidity trap environment, and with further depreciation of the dollar seemingly unlikely, economic growth and employment overwhelmingly hinge on fiscal policy in the near term.

Both President Obama and Republican presidential nominee Mitt Romney contend that they have plans to accelerate job creation, but their two approaches are diametrically opposed. Relative to current budget policies, Obama is essentially proposing to temporarily increase federal spending and give tax credits for employers expanding payrolls to boost employment (i.e., the American Jobs Act, or AJA, provisions that have stalled in the House of Representatives) and raise taxes on upper-income households. Romney is proposing to cut both federal spending and taxes—overwhelmingly for upper-income households—by capping federal outlays at 20 percent of gross domestic product (GDP) while reducing corporate income and individual income tax rates, as well as repealing the estate and alternative minimum taxes (AMT) in entirety. Timothy Noah prognosticates in The New Republic  that, “If any of Romney’s tax stimulus remained [after possible “base-broadening” and legislative sausage-making], it would be erased by cuts in government spending. … At this point it’s fair to conclude Romney’s machinations would actually be worsening the economy.” Read more

Two new studies find that unemployment at older ages may shorten life and that the gap in life expectancy between less and more educated workers is widening. Though neither result may seem surprising, the first is at odds with some previous research, while the second reinforces earlier findings but provides shocking new statistics—notably the fact that the least educated white women have seen their life expectancy at birth fall by five years since 1990, as highlighted in a recent New York Times article.

A seminal paper by Christopher J. Ruhm (2000) found that recessions were associated with lower mortality rates, a counterintuitive result confirmed by later studies. Ann Huff Stevens et al. (2011) identified a possible reason: Reduced employment opportunities in the broader labor market appeared to leave nursing homes better staffed, explaining why the pro-cyclical mortality effect was concentrated among seniors.

In other words, while higher unemployment may be associated with lower mortality, this doesn’t necessarily mean working is bad for your health. Later research focusing on workers who lost their jobs (as opposed to economy-wide unemployment rates) found Read more

Ross Douthat, a very conservative New York Times columnist, rarely writes anything—even a sentence—that I agree with. So I was surprised to find myself nodding my head as he pointed out the danger of having a capital region so much richer than the rest of the country that policymakers lose touch with the lives of the people their decisions affect.

Douthat writes that seven of the 10 richest counties in America are in the Washington, D.C. region and that Fairfax, Loudoun and Arlington Counties, all in Northern Virginia, have higher median incomes than every other county in the United States.

To his credit, Douthat does not use this as an opportunity to bash federal employees. Instead, he correctly points out that the big growth in numbers and incomes has come from the private-sector firms that feed off the federal government:

“Whence comes this wealth? Mostly from Washington’s one major industry: the federal government. Not from direct federal employment, which has risen only modestly of late, but from the growing armies of lobbyists and lawyers, contractors and consultants, who make their living advising and influencing and facilitating the public sector’s work.”

Douthat tries to make the concentration of wealth in the capital region into a case for Romney’s electionRead more

Here’s some of the thought-provoking content that EPI’s research team came across today:

• “About the 47 Percent Who Don’t Pay Federal Income Tax: Mitt, Meet Andrea” (Tax Vox)
• “Five Myths About the 47 Percent” (Tax Vox)
• “Labor’s Declining Share of Income and Rising Inequality” (Federal Reserve Bank of Cleveland)
• “Obama vs. Romney on China” (Center for American Progress Action Fund’s Adam Hersh via CNN.com)
• “Small Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues” (Congressional Research Service)