Racial inequality and the black homicide rate
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
It’s executives and the finance sector causing surging 1% income growth!
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.
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
Though lower than in other years in the last decade, the CEO-to-worker compensation ratio in 2011 of 231.0 or 209.4 is far above the ratio in 1995 (122.6 or 136.8), 1989 (58.5 or 53.3), 1978 (29.0 or 26.5), and 1965 (20.1 or 18.3). This illustrates that CEOs have fared far better than the typical worker over the last several decades. It is also true that CEO compensation has grown far faster than the stock market or the productivity of the economy.Read more
Apple’s executive pay, profits, and cash balance show ability to assist its factory workers
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.
The Social Security trustees report—now what?
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).
Source: Social Security Administration
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.
Glenn Kessler’s wrong call on Romney’s Buffett Rule chicanery
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?
Understanding the wedge between productivity and median compensation growth
One of the key dynamics of our economy for more than 30 years has been the divergence between productivity growth and compensation (or wage) increases for the typical worker. This divergence between pay and productivity has been increasingly recognized as being at the heart of the growth of income inequality. I am proud that Jared Bernstein (yo, Jared!) and I were the first ones to call attention to this, which we did in the introduction to The State of Working America 1994/1995, which was published on Labor Day in 1994. At that time, we were responding to the oft-repeated claim that wage stagnation experienced by most workers was caused by the post-1973 productivity slowdown. Get productivity up and all would be OK, we were told. Bob Rubin told us reducing the deficit would help accomplish that. By plotting productivity and median wage growth together, we were able to demonstrate that even though productivity growth was indeed historically slow in the preceding two decades, the growth of the median wage had substantially lagged even this anemic productivity growth. As it turns out, productivity growth accelerated in 1996 and has remained higher than in the 1973-1995 period since. Interestingly, the gap between productivity and median hourly compensation growth has grown at its greatest rate over the 2000-11 period despite productivity growth that continued to outpace the 1973-95 rates.
Understanding the driving forces behind the productivity-median hourly compensation gap is the subject of a new paper, The wedges between productivity and median compensation growth, that previews a portion of the analysis in the forthcoming State of Working America. This research reflects the results in a more technical paper, Why Aren’t Workers Benefiting from Labour Productivity Growth in the United States, that I co-authored with Kar-Fai Gee, an economist at the Canadian Centre for the Study of Living Standards (CSLS). The paper is in the spring 2012 issue of the International Productivity Monitor(edited by Andrew Sharpe and published by CSLS, on whose board I am proud to serve).
During the 1973 to 2011 period, labor productivity rose 80.4 percent but real median hourly wage increased 4.0 percent, and the real median hourly compensation (including all wages and benefits) increased just 10.7 percent. These trends are shown in the table below. If the real median hourly compensation had grown at the same rate as labor productivity over the period, it would have been $32.61 in 2011 (2011 dollars), considerably more than the actual $20.01 (2011 dollars). Consequently, the conventional notion that increased productivity is the mechanism by which living standards increases are produced must be revised to this: Productivity growth establishes the potential for living standards improvements and economic policy must work to reconnect pay and productivity.
The objective of our new paper is to provide a comprehensive and consistent decomposition of the factors explaining the divergence between growth in real median compensation (note the paper focuses on median wages while I have simplified the analysis here to focus on median compensation) and labor productivity since 1973 in the United States, with particular attention to the post-2000 period. In particular, the paper identifies the relative importance of three wedges driving the median compensation-productivity gap: 1) rising compensation inequality, 2) declining share of labor compensation in the economy (the shift from labor to capital income), and 3) divergence of consumer and output prices.
The following table is based on this paper and will be in the new edition of State of Working America that will be released on Labor Day. This decomposition is of economy-wide productivity growth, real average hourly compensation growth of all workers (including the self-employed), and the median real hourly compensation of workers age 18-64. See the paper for technical details.
Reconciling growth in median hourly compensation and productivity growth, 1973-2011
| Sub-periods | |||||
|---|---|---|---|---|---|
| 1973-79 | 1979-95 | 1995-00 | 2000-11 | 1973-11 | |
| A. Basic trends (annual growth) | |||||
| Median hourly wage | -0.26 | -0.15 | 1.50 | 0.05 | 0.10 |
| Median hourly compensation | 0.56 | -0.17 | 1.13 | 0.35 | 0.27 |
| Average hourly compensation | 0.59 | 0.55 | 2.10 | 0.95 | 0.87 |
| Productivity | 1.08 | 1.29 | 2.33 | 1.88 | 1.56 |
| Productivity-median compensation gap | 0.52 | 1.46 | 1.21 | 1.53 | 1.30 |
| B. Explanatory factors (percentage point contribution) | |||||
| Inequality of compensation | 0.02 | 0.72 | 0.97 | 0.59 | 0.61 |
| Shifts in labor’s share | 0.03 | 0.23 | -0.40 | 0.69 | 0.25 |
| Divergence of consumer and output prices | 0.46 | 0.51 | 0.64 | 0.24 | 0.44 |
| Total | 0.52 | 1.46 | 1.22 | 1.52 | 1.29 |
| C. Relative contribution to gap (percent of gap) | |||||
| Inequality of compensation | 4.8% | 49.6% | 80.0% | 38.9% | 46.9% |
| Shifts in labor’s share | 5.5% | 15.4% | -32.5% | 45.3% | 19.0% |
| Divergence of consumer and output prices | 89.7% | 35.0% | 52.5% | 15.8% | 34.0% |
| Total | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
Austerity in the UK — losing the argument and the economy
New data from the United Kingdom indicates that its economy has seen six consecutive months of economic contraction—the rule of thumb definition of recession.
The lesson here should be pretty plain: this is the utterly predictable (and predicted in real time) result of these policies.
Let’s be even more concrete: If the U.K. had just followed the fiscal stance of the United States over the past two years, they would not have re-entered recession. Adam Posen of the Bank of England recently estimated that the U.S. fiscal stance has contributed about 3 percent extra to overall GDP growth compared to a scenario where they had followed the U.K. stance. And this gap has actually widened in more recent years (and is projected to widen even further for 2012).
Posen’s estimate crucially includes the drag from state and local governments in the U.S., so it’s not like this overall fiscal stance in the U.S. over this time has been wildly expansionary. Just matching the U.S. fiscal support over this time period would have been a pretty modest goal.
But of course, this goal was rejected by the conservative government elected in mid-2010, and instead the U.K. has followed a plan based on austerity.
There is plenty to lament in policymaking responses to the crisis of the past four years, but the U.K. fiscal tightening may well be the single most avoidable own-goal over the period. Greece, for example, really can’t run expansionary fiscal policy right now (at least not without help from the core countries of the eurozone) without getting savaged by bond markets that will push up interest costs on debt.
The U.K., on the other hand, faces no such constraints. They print their own currency so they cannot be forced into default by bond markets, and there has been no upward pressure at all on their debt-servicing costs since the Great Recession began (see chart below). There is, in short, no actually-existing macroeconomic problem that austerity addresses. Instead, the swing towards it has been driven by ideology. And it has not turned out well.
Attempt to block labor election modernization goes down in flames
For most of the last year, Washington business lobbyists and various right-wing organizations have been engaged in an all-out war against the National Labor Relations Board, the agency that protects the right of employees to join a union if they want to. The NLRB has been excoriated for an enforcement action against Boeing, for requiring employers to post a notice letting employees know what their basic rights are under the law, and for trying to modernize its 65-year-old procedures for union representation elections. In addition, congressional Republicans have taken extraordinary steps to block President Obama from appointing a full five-member board to lead the agency and decide cases.
Yesterday, Republican senators failed in an effort to block the NLRB’s election modernization rule. The Senate defeated a resolution of disapproval 54-45, with all Democrats opposed and all but one brave Republican, Sen. Lisa Murkowski of Alaska, crossing party lines. The resolution would have repealed the new rule and prevented the NLRB from adopting a new one to replace it.
One of the ironies of these right-wing attacks on the NLRB’s attempt to streamline representation election procedures is that it belies conservatives’ supposed dislike of excessive bureaucracy and frivolous litigation. Typically, business leaders and anti-government activists charge that government processes are plagued with unnecessary delays, for example in FDA approval of new drugs or medical devices. When it comes to rushing a product to market that might cause disabling injuries or even death, conservative critics usually side with speed over lengthy review.
Likewise, when the issue is the prevention of illegal immigration and the preservation of jobs for American citizens, leading businesses and trade organizations call for limited review and speedier determinations. Recently, for example, 40 multinational corporations wrote President Obama to complain that the State Department takes too long to issue visas to companies that want to bring foreign workers to the United States. The companies object to having government officials ask for evidence about the need for particular foreign computer techs, even though the Inspector General has found widespread fraud and abuse in visa applications. And nothing is more common than to hear officials of the Chamber of Commerce complain about frivolous litigation and laws that enrich attorneys–“full employment for attorneys!”–when the purpose of a law is to allow average citizens to sue after their health or safety has been jeopardized by corporate misbehavior.
So here, in the case of a regulation designed to reduce the opportunities for lawyers to delay representation elections through frivolous litigation, the Chamber is showing its real agenda. Efficiency no longer matters; the more time bureaucrats spend reviewing legal arguments that add nothing to a decision, the better.
Here’s a recent example involving T-Mobile: A union petitioned to represent a unit of 14 technicians in Connecticut. T-Mobile argued that five engineers should have been added to the unit. The law is clear that an employer cannot require that professional employees be added to a unit of non-professional employees, and engineers are regularly found to be professional employees. T-Mobile claimed that these engineers were different, forcing four days of hearings that wasted government resources. The new rules would have given the NLRB’s Hearing Officer the authority to require the employer to make an offer of proof as to how its engineers were “different” from the hundreds of cases in which engineers with college degrees were found to be professional employees, thus eliminating at least three of the four days of hearings and needless legal expenses.
Why are business lobbyists suddenly in favor of inefficiency and delay? Because delaying the date of the election gives the employer more time to harass and intimidate workers who otherwise might vote for a union.
Cornell researcher Kate Bronfenbrenner and her colleague Dorian Warren examined thousands of union representation cases and documented that employers engage in intense campaigns of abusive anti-union activity. They also found, as the NLRB put it, “a longer period between the filing of a petition and an election permits commission of more unfair labor practices with corresponding infringement upon employee free choice, while a shorter period leads to fewer unfair labor practices.”
Employers call the NLRB’s new election rules the “ambush election” rules because they remove various automatic appeals and such built-in delays as an arbitrary, automatic 25-day delay after the board issues an order for an election. This waiting period alone gave an extra three weeks to employers to hold captive-audience meetings (even to require employees to attend them outside of normal work hours), to subject employees to repeated one-on-one sessions with their supervisors, and to figure out which employees support the union and which do not.
The NLRB has realized that its old rules tilted the playing field toward anti-union employers and ultimately discouraged employees from exercising their right to choose without interference. An honest assessment and a modest amount of consistency would lead most observers to agree that the new rules are fair and sensible.
Sequestration will slow the recovery and job growth, period
Wednesday morning, the House Budget Committee is holding a hearing on “Replacing the Sequester”—the sequester being the automatic spending cuts established by the debt ceiling deal that are scheduled to kick in next year. It’s a safe bet that Republicans will scream about defense cuts being bad for jobs, but let’s just remember that ALL these cuts are bad for joblessness in the short-run. (Defense and nondefense spending are split roughly evenly on the sequester chopping block.) We’ve been asked many times “how much” of an impact sequestration would have on near-term employment and here are our best estimates:
These estimates reflect the impact of sequestration on total nonfarm payroll employment at the end of each fiscal year. They assume a fiscal multiplier of 1.4 for general government spending, which is Moody’s Analytics most recent public estimate of the government spending multiplier. While we use the same multiplier for all cuts, we’d guess that these likely slightly overstate the adverse economic impact resulting from defense spending cuts and understate job losses from domestic spending cuts. Budgetary programs for lower-income households in the discretionary budget—such as housing assistance and the special supplemental food program for women, infants, and children (WIC)—as well as infrastructure spending have particularly high multipliers. And to the extent that cuts to spending by the Department of Defense come from capital-intensive weapons acquisitions rather than reductions in personnel strength, the impact on employment would be milder. Regardless, any cuts in the near-term (unless they are ploughed into more spending somewhere else) are going to constitute a drag on the still-weak recovery.
Cutting government spending reduces aggregate demand and worsens joblessness while the economy is running well below-potential output. Conservatives’ selective Keynesianism—which pops up in their advocacy for defense spending and tax cuts, among other priorities—applies to the rest of government spending and the national income and product accounts, too.
Romney opposes the Buffett Rule? Why would that be?
Via the Washington Post‘s Fact Checker by Glenn Kessler, I see that Mitt Romney has adopted the specious “if it doesn’t fix the entire problem, it’s not worth doing,” objection to the Buffett Rule. Romney brushed aside the Buffett Rule because the $5 billion in revenue it would raise for fiscal 2013 relative to current law would only fund government for 11 hours.
First, it’s interesting to note that Romney and other individuals deriving the vast majority of their income from investments benefit tremendously from the lack of a Buffett Rule (which is more accurately characterized as the Romney Rule). The Paying a Fair Share Act—the Senate’s legislative version of the Buffett Rule that was filibustered last week (in spite of 72 percent public support)—would serve as a millionaires’ alternative minimum tax. When fully phased in, it would apply a minimum tax rate of 30 percent on adjusted gross income less charitable contributions (modified by the limitation on itemized deductions—temporarily repealed as part of the Bush tax cuts—if reinstated).
Mitt Romney’s 2010 tax return showed $21.6 million in adjusted gross income and $3.0 million in charitable giving. Had the Paying a Fair Share Act been fully in effect, Romney would have paid roughly $5.6 million in taxes for an effective tax rate of 25.8 percent, instead of the $3.0 million in taxes and 13.9 percent effective tax rate he paid for the year. That’s because the Buffett Rule is an indirect way to close the preferential rates on capital gains and dividends, as well as the carried interest loophole, that produced Romney’s rock-bottom tax rate.
Second, there’s an enormous amount of hypocrisy and insincerity going on here. As I recently noted, this ice-thin defense against popularly supported progressive tax policies is often used by the same people who spend inordinate amounts of time on defunding the National Endowment for the Arts, National Public Radio, Planned Parenthood, or other small budgetary line-items. Romney himself devotes eight full pages in his economic plan to his proposal to cut job training programs, which together represent one-half of 1 percent of the budget.
Furthermore, the Buffett Rule would raise far more than advertised. The cited estimate by the Joint Committee on Taxation (JCT) is based on current law, meaning that the Bush-era tax cuts are assumed to expire. Kessler notes that liberals have been pointing to a different JCT score based on current policy showing $162 billion in new revenue. But Kessler dismisses liberals’ use of the current policy score because other tax policies they support—namely expiration of the upper-income Bush tax cuts—would overlap with the $162 billion. True. But then you need to talk about the entire package and give the Democrats $47 billion in addition to the $849 billion that would be raised over the next decade by letting the upper-income tax cuts expire. Conversely, if we’re adjusting baselines for stated policy preferences, conservatives should be citing the $162 billion figure with regard to the Buffett Rule, reflecting continuation of all the Bush tax cuts.
Regardless of revenue scores, conservatives will again trot out the “if it doesn’t fix the entire problem, it’s not worth doing” line—but it’s ludicrous to argue that $896 billion is such a trivial sum that it’s not worth pursuing. That’s more than the first round of Budget Control Act spending cuts and caps conservatives’ extracted by hijacking the statutory debt ceiling. Accounting for net interest savings, the Buffett Rule coupled with expiration of the upper-income Bush tax cuts would save more than $1 trillion over a decade and reduce the debt-to-GDP ratio by 4.2 percentage points by 2022, relative to current budget policies. By all objective accounts, this is serious deficit reduction that would seriously improve fairness in the tax code. Strange, how purported concerns about the public debt fade into the ether when tax increases—or tax cuts—are on the table.