The Atlantic‘s Derek Thompson had a nice write-up on the Future of Work paper that EPI released April 27. In his article, Thompson included a bar chart illustrating “where poverty lives,” showing the 10 states with the highest share of workers making less than poverty-level wages, as defined in the paper. Thompson’s chart also included the share of workers in these states making between 100-200 percent of poverty wages. His bar chart clearly demonstrated that in these states, between 70-80 percent of workers earned less than twice the official poverty threshold for a family of four in 2010, or around $46,000 annually. (As a side note on poverty measures, my colleague David Cooper did a nice blog post explaining how a more dynamic method of assessing poverty—the Census Bureau’s Research Supplemental Poverty Measure—both defines millions more Americans as being impoverished and shows a far greater proportion of people living at very modest means, when compared with the official measure.)

A few commenters on Thompson’s piece brought up a good point in regards to comparing wages by geographic location (in this case by state). Some were quick to point out that the 10 states with the highest shares of workers earning at or below poverty level wages were “red states,” while others pointed out that the analysis did not take into account purchasing power parity—that is, the fact that the purchasing power of a dollar may be different in Manhattan than it is in rural Kansas. Their point was simply that a worker earning $10 per hour in Kansas may actually fare better than someone earning far more who has to pay rent and buy goods and services in a traditionally pricey market such as New York City, San Francisco, or Washington, D.C.

The table below adjusts for this by inflating the poverty wage used in the paper—$10.73 per hour in 2010—by a regional price parity index calculated by the Bureau of Economic Analysis (I actually averaged their measures for 2005 and 2006 that come from a BEA Research Spotlight titled Regional Price Parities: Comparing Price Level Differences Across Geographic Areas). The table shows the adjusted poverty wage level by state and the share of people in each state earning at or below that level. While Hawaii is somewhat of an anomaly due to its geographical separation from the lower 48 states by 2,500 miles of ocean, the next three states with the highest shares of workers earning less than the adjusted poverty wage are New York, California, and New Jersey; all states that contain very large metropolitan areas (as well as more rural areas). An even more accurate breakdown of regional purchase parity would show differences between rural and urban areas, as well as safety net services available for low-wage workers by region, but that is beyond the scope of this blog post.

Table 1

Adjusted share of workers earning poverty wages by state, 2010

State	0-100% poverty wages	Adjusted poverty wage
Hawaii	40.6%	$14.04
New York	38.4%	$14.10
California	37.8%	$13.75
New Jersey	31.8%	$13.42
Rhode Island	31.6%	$12.24
Nevada	27.7%	$10.74
Connecticut	27.5%	$13.20
Illinois	26.3%	$10.81
Michigan	26.3%	$10.04
Massachusetts	26.2%	$12.99
New Hampshire	26.2%	$12.21
Florida	25.2%	$10.59
Oregon	25.0%	$10.29
Arizona	24.5%	$10.22
Texas	24.5%	$9.81
Virginia	23.8%	$10.96
Delaware	22.5%	$11.44
Vermont	22.2%	$10.80
Maryland	21.7%	$11.38
Pennsylvania	21.4%	$10.06
Washington	21.2%	$11.08
Tennessee	20.6%	$9.00
Colorado	20.6%	$10.46
Alaska	19.8%	$11.24
Ohio	19.5%	$9.42
Indiana	19.0%	$9.16
Minnesota	18.8%	$10.20
Georgia	18.3%	$9.48
North Carolina	18.2%	$9.41
Louisiana	18.2%	$8.76
Maine	18.0%	$9.92
Utah	17.6%	$9.37
Mississippi	17.5%	$8.42
Wisconsin	17.4%	$9.82
Kentucky	17.4%	$8.69
Alabama	17.0%	$8.50
Oklahoma	16.5%	$8.67
Idaho	16.5%	$8.87
New Mexico	16.4%	$8.91
Nebraska	15.6%	$9.39
Missouri	15.5%	$8.79
South Carolina	15.3%	$8.92
Kansas	14.8%	$8.97
Wyoming	14.6%	$9.31
Montana	14.4%	$8.87
Arkansas	14.2%	$8.34
Iowa	14.0%	$8.95
District of Columbia	13.1%	$10.61
South Dakota	12.4%	$8.67
North Dakota	10.7%	$8.28
West Virginia	6.9%	$7.33

Source: Author's analysis of Current Population Survey Outgoing Rotation Group microdata, Bureau of Economic Analysis data
Note: Data were calculated using poverty data for a four-person household

Share on Facebook Tweet this chart

Embed

Copy the code below to embed this chart on your website.

<iframe width="100%" height="460" src="https://www.epi.org?p=27827&view=embed&embed_template=charts_v2013_08_21&embed_date=20260607&onp=27833&utm_source=epi_press&utm_medium=chart_embed&utm_campaign=charts_v2" frameborder="0"></iframe>

Download image

The bottom line in this state-by-state comparison is not whether the states that show a high share of low-wage workers are red or blue; it’s rather to illustrate the often-enormous shares of people earning very low wages. As this National Low Income Housing Coalition report points out, for full-time individuals earning what they call the “renter wage,” a two-bedroom unit is unaffordable in nearly every state. The report also has some really interesting data, broken down by state, metropolitan area, and county, that shows how many full-time minimum wage jobs a household would need to hold to afford at two-bedroom fair market rent (FMR) unit. The data shows that whether or not low-wage workers are living and working in New York County (3.8 full-time minimum wage jobs to afford a FMR two-bedroom) or Wichita, Kan. (1.7 full-time minimum wage jobs to afford a FMR two-bedroom), their wages are likely not sufficiently covering their expenses.

From 2007 to 2011, 70 percent of the jobs lost in the state and local public sector were jobs held by women. This amounts to roughly 765,000 jobs. Since 2011, we have continued to see public-sector job losses, and, unfortunately, it is a good bet that the declines will continue.

The Obama administration has provided aid to state and local government in a variety of ways. For example, the American Recovery and Reinvestment Act (ARRA) injected more than $180 billion into state and local government. This aid has helped preserve significant numbers of jobs held by women. Women can be found in all types of public-sector jobs, but they are overrepresented in the public sector, in part, because they are more likely to be teachers. So far, $90 billion from ARRA has gone to education.

Out of a desire to appeal to women voters, Mitt Romney’s campaign has been making misleading statements about President Obama’s record. One way for Romney to show legitimate support for working women is to promise that, if elected, he will provide ample federal aid to state and local government. Unfortunately, Romney’s current commitment to shrink government means that he will put even more women out of work.

As readers of this blog are well aware, the labor market remains in terrible shape in the aftermath of the worst downturn since the Great Depression; this is evident in a wide array of economic data and is not disputed in the economics profession. Graduating into said labor market (in which the level of voluntary quits remains weak) with little to no work experience or wage history isn’t an enviable position, as my colleagues Heidi Shierholz, Natalie Sabadish, and Hilary Wething detail in their new paper The Class of 2012: Labor market for young graduates remains grim. Which is why I was flabbergasted by Abigail Johnson’s and Tammy NiCastro’s recent Forbes.com blog post Get Over It: The Truth About College Grad ‘Underemployment.’ Their title is plenty revealing, but here’s the gist of their argument:

“In recent weeks, there have been a slew of articles that reported how difficult things will be for this year’s college graduates because they can expect to be unemployed or “underemployed” … It’s not clear where the concept of being “underemployed” came from. But it’s damaging and counterproductive.”

The Bureau of Labor Statistics’ (BLS) U-6 Alternative Measure of Labor Underutilization—often referred to as the underemployment rate—is not a myth. It’s defined as such: “Unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.” EPI’s State of Working America website even tracks it on a monthly basis across educational attainment, gender, and race and ethnicity. Here’s what it looks like by educational attainment:

Not a pretty picture. Since the onset of the recession more than four years ago, underemployment has roughly doubled across all educational attainment levels (a clear indicator that the economy suffers from a sheer lack of aggregate demand—the economy is running $853 billion below potential output—rather than “structural” employment problems). With so much excess slack in the labor market, employers have all the bargaining power, hence anemic wage growth and the “employed part time for economic reasons” (i.e., involuntarily) part of the underemployment rate. Horatio Alger can’t set his hours worked—there simply aren’t enough hours of work being demanded in the depressed economy.

And as Shierholz, Sabadish, and Wething detail, it looks much, much worse for recent high school and college graduates entering the labor market. Over the last year, the unemployment rate averaged 31.1 percent for recent high school graduates and 9.4 percent for recent college graduates. The underemployment rates averaged 54 percent and 19.1 percent, respectively. High unemployment and underemployment, and accompanying depressed earnings early in career, will result in long-term economic scarring, particularly diminishing lifetime earnings. Beyond underemployment as measured by the BLS, skills/education-based underemployment (so called “cyclical-downgrading”) will contribute to lifetime earnings scarring; as my colleagues note, “entering the labor market in a severe downturn can lead to reduced earnings, greater earnings instability, and more spells of unemployment over the next 10 to 15 years.”

In suggesting that college grads should be grateful to take a job at Starbucks because they aren’t “entitled” to anything more, the authors blithely overlook that recent college graduates working at Starbucks part-time for economic reasons are likely displacing hours from someone with lower educational attainment. This is in no way an indictment of any such recent graduates. This is to say what’s truly damaging and counterproductive is economically illiterate “thought pieces” breeding complacency about the state of the labor market and the policy response to the Great Recession. Neither a college degree nor government can guarantee recent grads “good jobs” or full-time employment, but between the Great Depression and the Great Recession, government prioritized stabilizing the economy and targeting full employment—to the benefit of workers of all educational attainment levels. Underemployment of recent graduates is not a myth being cooked up to breed entitlement as the authors imply; it’s a reality and tragic failure of policymakers to address the jobs crisis.

Yesterday, Nobel-winning economist and New York Times columnist Paul Krugman spoke at EPI about his new book, End this Depression Now! A key point of the book and his speech is that there’s a common and very wrong belief that the economy is like a morality play: Lots of people made irresponsible decisions in the run-up to the economic collapse, and, like a hangover, they must now suffer the consequences of their actions.

As Krugman points out, the majority of the people who have been hurt by this crisis do not deserve the blame. Over eight million people lost their jobs and, with an unemployment rate of more than 8 percent for more than three years now, many of those same workers, along with new entrants to the labor market, have been unable to find jobs. Their jobs disappeared through no fault of their own, and the pace of their return is nowhere near sufficient to get everyone back to work anytime soon.

More importantly, Krugman points out that, unlike a hangover that needs to be waited out, we could easily fix the economy now and put these millions of people back to work. First, we should halt the fiscal austerity efforts that recently doomed the British economy. Second, we should embark on aggressive fiscal expansion to boost consumer and business spending, stimulating demand for goods and services and creating jobs. As Krugman notes, this is basic Econ 101. All we need is the political will.

Michael Gerson’s recent op-ed in the Washington Post hailed Rep. Paul Ryan (R-Wis) as the champion of “Reform Conservatism,” largely out of admiration for Ryan’s budget. In doing so, Gerson displayed a remarkable misunderstanding of both Ryan’s budget and fiscal policy at large. This adulation of Ryan—totally divorced from the policy specifics supposedly legitimizing Ryan—is exactly the inside-the-Beltway nonsense driving Jonathan Chait apoplectic (see his New York Magazine piece on Ryan).

Gerson’s major offenses are twofold, but he manages to hit both in the same sentence: “[The Ryan budget] deals seriously with the fiscal crisis — which, driven by demographics and cost increases, is a health entitlement crisis.”  Let’s take these one at a time.

First off, Ryan’s budget is not serious—it’s gimmicky above and beyond the point of credibility. The Ryan budget proposes $4.5 trillion in tax cuts financed with a giant asterisk that wouldn’t come close to raising that much revenue and then simply “assumes” its desired revenue level (and forces the Congressional Budget Office to do the same in their long-term analysis). Under more reasonable assumptions about feasible “base-broadening,” the Ryan budget would push public debt north of 74 percent of GDP by the end of the decade, and roughly 84 percent of GDP if the tax cuts were entirely deficit-financed. (Ryan claims to hit 62 percent—we’re not talking rounding errors.)

Secondly, our long-run fiscal challenges overwhelmingly stem from the dual problems of escalating national health care expenditure and an addiction to tax cuts. Demographic change and health care inflation will certainly drive up federal health expenditure, but these trends are a broader national economic challenge with ramifications for the federal budget, not vice versa. And demographic change can’t be reformed away—it compels more revenue, not less.

So how seriously does Ryan deal with these underlying economic challenges? Not at all: He offers an accounting solution for the federal government—turning Medicare into a voucher system and slashing Medicaid—that would exacerbate national health expenditure. Economists Dean Baker and David Rosnick estimated that Ryan’s FY2012 budget would increase national health expenditure by $30 trillion over 75 years if seniors purchased Medicare-equivalent plans on the private market; that’s because Medicare is 11 percent cheaper than an equivalent private plan and is projected to be 28 percent cheaper by 2022. (The more likely result is more health expenditure as well as worse coverage and care.) Forsaking the economies of scale and purchasing power of Medicare would shift costs from the federal balance sheet to businesses, households, and state governments, while worsening the economic challenges at hand. Incidentally, the Affordable Care Act took the opposite approach—using government’s market share to lower costs—and it’s showing early signs of working; as the New York Times reported last week, national health spending has slowed markedly over the last few years. While much more can be done on this front, the latter is a serious approach to an economic problem, unlike slashing health care for the impoverished and disabled as the Ryan budget proposes.

Furthermore, long anticipated demographic change is a reality that compels looking at both sides of the budget ledger and viewing historical benchmarks as poor guides for setting policy. Gerson even acknowledges that revenue must realistically rise above a post-war historical average of around 18 percent of GDP (versus 17.8 percent under current policy and 18.3 percent magically assumed in the Ryan budget, over the next decade); but he then turns a blind eye to the reality that, short of unspecified offsets, the Ryan budget would drop revenue to 15.5 percent of GDP over the next decade according to the Tax Policy Center. Deficit-financed tax cuts also increase spending on debt service, which—like Gerson argues of health care—threatens to crowd out other government functions (under current policies, net interest spending—swollen by deficit-financed tax cuts—will exceed nondefense discretionary spending by the end of the decade). Gutting health care spending to partially finance massive, regressive tax cuts in no way equates to “addressing the fiscal crisis,” as Gerson adamantly claims Ryan is doing.

Gerson wants to believe the Republican Party cares about deficits, but their diametrically opposed focus is reducing taxes—overwhelmingly for those at the top of the income distribution. Ryan’s budget would indeed deeply cut health care spending, but it is neither focused on deficits nor serious; it’s about doubling-down on the Bush-era tax cuts. And the only serious things about the Bush-era tax cuts were the hole they blew in the federal budget and their dismal economic legacy.

I had the privilege of attending the W.K. Kellogg Foundation’s America Healing Conference last week. The America Healing initiative promotes racial healing to address racial inequity, and, in doing so, works “to ensure that all children in America have an equitable and promising future.”

At the conference, the honorable Mitchell J. Landrieu, the mayor of New Orleans, gave a moving, passionate, and brave speech about homicide in black communities. He challenged us to consider whether we devalued black lives by not paying sufficient attention to the more common forms of homicide in black communities, and instead reserved our activism for homicides that could be conceived of as involving racism.

Landrieu made an important point, but I think he also missed a number of other significant points. The black homicide victimization rate is six times the white rate, so this is clearly a worthy issue to address. But, it is important to note that the black homicide victimization rate was cut in half from 1991 to 1999. It declined 49 percent while the white rate declined 39 percent. Too often we assume that things are always getting worse. It is beneficial to acknowledge this dramatic positive change, while also acknowledging that there is much more to be done. Since the 1990s, however, the black and white homicide rates have basically been flat.

Landrieu failed to acknowledge that much of the work done by the participants of the conference, if successful, is likely to reduce homicide rates. Homicide rates are driven by a very complex mix of psychological and sociological factors that are not yet completely understood by criminologists. Probably the majority of the conference attendees work in areas that have the potential to reduce homicide rates.

Some of the participants work to improve educational outcomes for blacks. Research suggests that increases in the educational attainment, particularly of males, will reduce homicide rates. (Males are more likely to commit homicide, and it is likely that their social and economic circumstances may play a big role in homicide rates.)

Healthy children do better in school and also have lower rates of criminal offending. All aspects of health, especially in the early years, probably matter, but we should be especially concerned about the very high rates of black children’s exposure to lead. There are strong links of lead exposure to violent crime. Thus, the participants who are concerned with reducing racial disparities in children’s health can also be seen as working to reduce homicide rates.

Concentrated economic disadvantage, poverty, and unemployment have all been found to be predictors of homicide rates. Participants working to improve the economic conditions of black communities can also be said to be working to reduce homicide rates.

A number of other aspects of racial inequity that the attendees to the conference work on are also likely to be drivers of higher black homicide rates. Thus, it is not accurate to say that the participants of the conference were not regularly working to address homicide.

Finally, while the mechanisms to reduce homicide rates are not yet completely understood, the response to bad policing, bad laws, and racial-biased individuals is clearer. In part, it may be for this reason that there can be highly visible mobilizations around these issues. A relatively quick mobilization might change bad police practices, undo a bad law, or change the behavior of a specific racially-biased person. Undoing racial inequity in all of the factors found to drive homicide rates—health, education, economics, and more—will require a longer and deeper struggle. Read more

That the incomes of the top 1 percent have fared fabulously is well known, and deservedly so. But it was not until the analysis of tax returns by Jon Bakija, Adam Cole, and Bradley Heim that it could be documented that the doubling of the income share of the top 1 percent could be directly traced to executive compensation and finance-sector compensation trends. The new EPI paper, CEO pay and the top 1%: How executive compensation and financial-sector pay have fueled income inequality, which previews some of the findings from the forthcoming State of Working America, does exactly that.

Between 1979 and 2005 (the latest data available with these breakdowns), the share of total income held by the top 1.0 percent more than doubled, from 9.7 percent to 21.0 percent, with most of the increase occurring since 1993. The top 0.1 percent led the way by more than tripling its income share, from 3.3 percent to 10.3 percent. This 7.0 percentage-point gain in income share for the top 0.1 percent accounted for more than 60 percent of the overall 11.2 percentage-point rise in the income share of the entire top 1.0 percent.

The increases in income at the top were largely driven by households headed by someone who was either an executive or in the financial sector as an executive or other worker. Households headed by a non-finance executive were associated with 44 percent of the growth of the top 0.1 percent’s income share and 36 percent in the growth among the top 1.0 percent. Those in the financial sector were associated with nearly a fourth (23 percent) of the expansion of the income shares of both the top 1.0 and top 0.1 percent. Together, finance and executives accounted for 58 percent of the expansion of income for the top 1.0 percent of households and an even greater two-thirds share (67 percent) of the income growth of the top 0.1 percent of households.

The paper also presents new analysis of CEO compensation based on our tabulations of Compustat data. From 1978–2011, CEO compensation grew more than 725 percent, substantially more than the stock market and remarkably more than the annual compensation of a typical private-sector worker, which grew  a meager 5.7 percent over this time period.

One way to illustrate the increased divergence between CEO pay and a typical worker’s pay over time is to examine the ratio of CEO compensation to that of a typical worker, the CEO-to-worker compensation ratio, as shown in the figure. This ratio measures the distance between the compensation of CEOs in the 350 largest firms and the workers in the key industry of the firms of the particular CEOs.

Figure A

CEO-to-worker compensation ratio, with options granted and options realized,1965–2011

Note: "Options granted" compensation series includes salary, bonus, restricted stock grants, options granted, and long-term incentive payouts for CEOs at the top 350 firms ranked by sales. "Options exercised" compensation series includes salary, bonus, restricted stock grants, options exercised, and long-term incentive payouts for CEOs at the top 350 firms ranked by sales.

Sources: Authors' analysis of data from Compustat ExecuComp database, Bureau of Labor Statistics Current Employment Statistics program, and Bureau of Economic Analysis National Income and Product Accounts Tables

Share on Facebook Tweet this chart

Embed

Copy the code below to embed this chart on your website.

<iframe width="100%" height="460" src="https://www.epi.org?p=27234&view=embed&embed_template=charts_v2013_08_21&embed_date=20260607&onp=27851&utm_source=epi_press&utm_medium=chart_embed&utm_campaign=charts_v2" frameborder="0"></iframe>

Download image

Apple’s latest “blowout” quarterly report, as well as an examination of its executive pay levels, underscores how easy it would be for the company to improve the working conditions of the Foxconn workers in China assembling Apple products. As Ross Eisenbrey and I summarized recently: “Apple workers in China endure extraordinarily long hours (in violation of Chinese law and Apple’s code of conduct), meager pay, and coercive discipline.”

Apple could insist that Foxconn pay these workers more and treat them fairly, and could easily pay for any additional costs. (The workers in question are employed in factory lines dedicated only to producing Apple products.) To offset these costs, Apple could modestly raise the price of its products to be sure, but it could also readily offset these costs through some combination of tiny reductions in profits, small trims in its cash balance, or adjustments in its pay to executives.

• The total compensation of the investigated Chinese workers making Apple products amounts to just 3 percent of Apple’s profits. In its most recent quarter Apple’s after-tax profits equaled $11.6 billion. By comparison, over an overlapping three-month period, the total compensation of the 288,800 Foxconn workers making Apple products equaled an estimated $350 million – or 3.0 percent of its after-tax profits. (I calculated this figure based on the average monthly pay of all Foxconn factory employees, including supervisors, found by the Fair Labor Association; the number of workers are those working in the three factories investigated.) This finding parallels a finding in a recent blog by Ross: labor costs at Foxconn are a “miniscule part of the iPhone’s costs.”
• The total annualized compensation of the investigated Chinese workers making Apple products amounts to just 1 percent of Apple’s cash/securities surplus. At the end of the most recent quarter, Apple had $10.1 billion in cash and cash equivalents, $18.4 billion in short-term marketable securities, and $81.6 billion in long-term marketable securities, for a total balance of $110 billion. By comparison, the total annualized compensation of the 288,000 Foxconn workers making Apple products is about $1.4 billion – or 1.3 percent of Apple’s cash/securities surplus.
• In 2011 and 2012, the top nine members of Apple’s executive team had total compensation equal to about 90,000 Chinese factory workers making its products. My just-released analysis found that in 2011, Apple’s nine-person executive leadership team received total compensation of $441 million. This was equivalent to the compensation of 95,000 factory workers at Foxconn assembling Apple products (making an estimated $4,622 per year).

In 2012, the executive team is on track to receive compensation of at least $412 million. This conservative estimate is equivalent to the compensation of 89,000 of the Chinese factory workers making Apple products.

As I wrote in an earlier blog, Social Security’s projected shortfall is around 20 percent larger than last year, though still less than one percent of GDP over the 75-year projection period. This doesn’t change the basic story that costs are rising from around 5 to 6 percent of GDP before leveling off after the Baby Boomer retirement, with costs at the end of the period slightly lower as a share of GDP than in the peak Boomer retirement years.

Raising Social Security taxes on both employers and workers from 6.2 percent to around 7.6 percent would close the projected shortfall.1 But there are better ways to raise the necessary revenue. The fairest and simplest is eliminating the cap on taxable earnings, which is currently set at $110,100. Though people pay income and Medicare taxes on all earned income (and will soon pay Medicare tax on unearned income as well), earnings above $110,100 aren’t subject to Social Security tax. Scrapping the cap would close 71-87 percent of the shortfall, depending on whether or not you increase benefits for high earners to reflect their higher contributions. Other no-brainers include covering newly-hired public-sector workers who currently aren’t in Social Security (closing 6 percent of the shortfall) and subjecting Flexible Spending Accounts and other salary-reduction plans to Social Security taxes (closing 9 percent).

Another option that has more mixed support among Social Security advocates is gradually increasing the contribution rate to offset increases in life expectancy. This would increase taxes very slowly—by 0.01 percentage points per year, much more slowly than projected wage growth—and would close around 15 percent of the shortfall if the increase began in 2025, after the gradual increase in the normal retirement age from 65 to 67 had been fully implemented. The advantage of this option is that it might take the issue of life expectancy, a favorite of Social Security alarmists, off the table. The disadvantage is that everyone would pay more, even low-income workers and others who’ve seen little or no increase in life expectancy. It’s also worth noting that it doesn’t raise that much money, because, contrary to myth, rising life expectancy is a relatively small factor in the emergence of the projected shortfall. A much bigger factor is slow and unequal wage growth, which has increased corporate profits and pushed a growing share of earnings above the cap, eroding Social Security’s tax base (see chart).

Putting these together—scrapping the cap, covering public sector workers, taxing FSAs, and offsetting life expectancy through a gradual increase in the contribution rate—would be more than enough to close the projected shortfall. You can come up with your own plan by looking at the first column of figures in the table starting on p.8 here and dividing by 2.67 (the projected shortfall expressed as a share of payroll).

Thanks to blog reader “Susan” and my friend Liz, whose questions prompted this follow-up post.

Endnotes

1. The combined increase (1.4 percent multiplied by two, or 2.8 percent) is slightly more than the size of the actuarial deficit measured as a share of payroll (around 2.7 percent) because some compensation would likely shift to untaxed benefits. This measure also conservatively assumes the trust fund should have enough at the end of the period to pay for a year of benefits without additional contributions, even though Social Security is primarily a pay-as-you-go program. Strictly speaking, the unfunded obligation is closer to 2.5 percent of payroll according to the trustees report.

I thought I’d never say this, but I think my colleague Andrew Fieldhouse is being soft on Glenn Kessler, writer of the Washington Post‘s Fact Checker column. Long story short, Mitt Romney and the Republicans are criticizing the Buffett Rule for only raising $47 billion. Democrats say that score is bogus because it’s measured against a current law baseline in which the Bush tax cuts expire, and instead are using a $162 billion score that is measured against current policy (all the Bush tax cuts are assumed to continue). Kessler ends up defending the current law score and criticizing Democrats and other Buffett Rule supporters for using the current policy score.

Kessler’s wrong on both points. For conservatives to claim that the Buffett Rule only raises $47 billion over a decade is simply nonsense. The only groups that measure policy impacts with the assumption that the Bush-era tax cuts will expire are those that are legally required to do so: the Joint Committee on Taxation and the Congressional Budget Office. In contrast, Wisconsin Rep. Paul Ryan, President Obama, and even Romney, all use an adjusted current policy baseline that assumes the Bush tax cuts will be extended.

Second, Kessler, argues that progressives are wrong to use the $162 billion score against current policy because it overlaps with other tax policies they support, namely expiration of the upper-income Bush tax cuts. This is ridiculous, but complicated, so bear with me.

Let’s start with the very basic point that most policies have interaction effects with other policies. That’s why it’s important when creating a budget to consider the order in which you want to layer policies on top of a baseline. In other words, each policy is scored against a changing baseline in which all the previous policies have already been adopted. It doesn’t matter to your top-line deficit impact, of course, but the scoring of many policies depends on whether they are preceded by other policies with which they interact—particularly when it comes to tax policy.

But scores for individual policies outside of the context of a larger comprehensive package are always scored against the same baseline. Kessler is implying that the Democrats and Republicans should use different baselines reflective of their policy preferences. But this would undermine the entire purpose of a baseline, which is to make sure that everyone’s numbers are calculated using the same assumptions so that the differences reflect only the policy differences. In other words, Kessler is defending Romney and the GOP for using a baseline that they use in no other circumstance, and criticizing progressives for using a baseline that they—along with everyone else—use consistently.

Since Kessler is seemingly the closest thing our political system has to a court of law, let’s examine the legal holding he’s just created: Scores must be measured against a baseline that reflects your other policy proposals. This creates a number of problems. First off, not everyone that supports the Buffett Rule supports all the same policy proposals. Let’s say I’m a congressman who opposes letting any Bush tax cuts expire—am I allowed to use the $162 billion score? What if I’ve been vague on the subject of the Bush tax cuts but strongly support the Buffett Rule, what score would I use then without violating Kessler’s rule?

Second, as I mentioned earlier, the order of the policies matter. Kessler argues that the $162 billion overlaps with the $849 billion from the top two rates, so the $162 billion is wrong. But that assumes that Democrats intend to layer the Buffett Rule on top of the rate increase—if they do the Buffett Rule first, then the $162 billion score is accurate.

See how complicated this gets? Heck, I probably lost most of you once you read the word “baseline” in the third sentence. So let’s make it simple. Right now, pretty much everyone uses a current policy baseline. They may differ around the margins—for example, should the baseline assume tax provisions like the research and experimentation credit get extended?—but they’re mostly the same. Generally, when people  are using scores that aren’t against this baseline, they’re intentionally being misleading. And rather than encouraging that behavior, Kessler should call it out. After all, isn’t that his job?