Mark Thoma does a terrific job explaining why the purported measure of tax progressivity favored by many conservatives doesn’t measure tax progressivity. Former George W. Bush Press Secretary Ari Fleischer, the inspiration behind Thoma’s post, insinuated that those lucky duckies at the bottom and middle of the earnings distribution should be paying more because their share of federal taxes paid has been falling while that of the top earnings quintile has risen substantially since 1979. As Thoma elucidates, Fleischer’s captious reading of the Congressional Budget Office’s series on average federal taxes by income group ignores the heavily skewed income trends of the last 30-plus years.

This State of Working America chart depicts just how lopsided those gains have been: The top 10 percent have captured 64 percent of economy wide income gains, while the bottom 60 percent of earners received only 11 percent of income gains.

Data compiled by economists Emmanuel Saez and Thomas Piketty show that this trend intensified during the Bush economic expansion, when the top 1 percent of households captured a stunning 65 percent of income gains, leaving just 13 percent for the bottom 90 percent of households. (The top 1 percent of households was simultaneously rewarded with 38 percent of the Bush-era tax cuts, when fully phased in.) These data don’t square with calls to shift the tax burden from capital to labor, and correspondingly from upper-income households to the middle class.

A progressive tax system embodies the principle that groups with more resources should pay a higher portion of their income in taxes than groups with fewer resources; taxes as a share of income—or effective tax rates—are intended to rise with income. Ignoring income necessitates disregarding this proper measure of tax progressivity. By Mr. Fleischer’s concept of tax fairness, Mitt Romney’s 15 percent preferential tax rate is a non-issue and there’s no need for a Buffett Rule. Similarly, ignoring effective tax rates is terribly convenient for conservatives attempting to shift the distribution of taxation down the income distribution, as proposed in many of the former and current GOP presidential candidates’ tax plans.

Without looking at taxes paid relative to income, one ignores ability to pay and progressivity, period. This may be politically expedient for those who want to abolish the Sixteenth Amendment and replace it with a regressive flat tax, but it’s intrinsically problematic when income inequality has returned to Gilded Age-levels. A greater degree of progressivity must be restored to the tax code, which must also raise more revenue for the realities of an aging population, spiraling health care costs, and a large structural budget deficit. Specious concepts of tax fairness cannot be condoned; they mask deep, growing inequities and provide cover for regressive tax plans that would further exacerbate income inequality.

The Wall Street Journal ran an article a couple of days ago implicitly arguing that accelerating productivity growth is a prime reason why labor market recovery from the Great Recession has been so sluggish. Another reporter asked me about it yesterday, so I figured I’d write up a couple of thoughts on it.

First, we should be clear that the pace of labor market recovery since the Great Recession has not been uniquely bad; since the trough of the recession, private sector employment growth has actually been exactly in line with the (admittedly too-slow) recoveries from the recessions of the early 1990s and 2000s. Overall employment growth has actually outperformed the recovery from the early 2000s recession. Figure A below shows the trends for private sector employment. Note that the jobs lost during the latest recession dwarf those lost during other recessions – but since the official recovery began, job growth has been on-par with recent recoveries. Note that policymakers should not be graded on this generous curve – it’s a disaster that we haven’t had a better recovery from that perspective. But one doesn’t need to generate new theories to explain this allegedly atypically bad recovery – it just hasn’t been atypically bad.

Second, and in line with Dean Baker’s response to the article, productivity growth has not been particularly fast since the Great Recession. Figure B below shows the behavior of productivity averaged over all recessions between 1947 and 1981, the average of the early 1990s and early 2000s recoveries, and growth since the Great Recession. So, again, one cannot argue that fast productivity growth presents unique challenges in the current recovery since its performance just hasn’t been all that unique.

Lastly, and maybe wonkiest, fast productivity growth doesn’t change the validity of Keynesian diagnoses of what the economy needs at all. In fact, it would just strengthen them. The root of the Keynesian diagnosis is that there is a large gap between aggregate demand and potential supply in the economy – or, a large “output gap.” Figure C below shows the problem – the large output gap between actual and potential GDP is the reason why we have such high unemployment today. Productivity growth just pulls the potential GDP curve upwards, which means, all else equal, that the output gap will rise (on the chart I illustrated this with the “actual, if productivity growth accelerated” line).

But, the obvious solution to this problem is simply to push up demand to make actual GDP equal potential GDP again. Basically, accelerating productivity growth would just make measures to boost demand more necessary, and would insure that no adverse supply-side response (say accelerating inflation or rising interest rates) would kick-in.

The root cause of today’s underperforming economy remains insufficient spending by households, businesses and governments to fully employ all those who want a job. And the cure for this is simply policy measures to boost spending. Yes, I’m sure this has gotten boring for many economy watchers who want newer and more exciting diagnoses and cures, but sometimes what’s true is pretty boring.

One quick thought on why explanations based on productivity growth can sound convincing: At any point over the past century you could have walked into a factory and been told about the big technological improvements that had been made over the past four years. If you’re a business writer who walks into a factory today looking for a root cause of the labor market’s doldrums, guess what? You’ll be told about the big technological improvements made over the past four years, and then you might think, “hey, that’s why the jobs aren’t here!” But, if you had walked into a factory in 2000 – when the unemployment rate reached 3.8 percent – You also would’ve been told about an amazing four-year run of technological advance. In the end, high rates of unemployment are about demand falling short of supply, period.

Former Massachusetts Gov. Mitt Romney has at long last revealed his tax rate, which he says is “probably closer to 15 percent than anything,” largely because his income “comes overwhelmingly from some investments made in the past, rather than ordinary income or earned annual income.”

Two points. One, generally speaking this isn’t a product of the ingenuity of Romney’s expensive tax accountants. Over the past 30 years, Congress has gradually lowered the top tax rate on capital gains from 40 percent in 1977 to the preferential rate of 15 percent today. In fact, the only significant increase in the capital gains tax rate in the last few decades was when it was paired with an even larger tax cut for high-income earners, a reduction in the top rate for ordinary income from 50 percent to 28 percent. (It should be noted, however, that Romney does benefit from the carried interest loophole, a defect in the tax code that allows private equity and hedge fund partners to reclassify their compensation as capital gains and thereby enjoy the 15 percent rate on all of their income, not just their capital income. But this loophole only exists because capital income enjoys a preferential tax rate in the first place.)

Second, this is a tax rate that most Americans would love to pay. According to the Tax Policy Center, an average family of four pays about 20 percent of its income in federal taxes (taking into account the employer-side payroll tax). This family’s tax rate will likely rise further if, as Romney’s tax plan calls for, the recent expansions of the EITC, the Child Tax Credit, and the Hope Credit (renamed the American Opportunity Tax Credit) are allowed to expire. Speaking of the Romney tax plan, 80 percent of its benefits would go to taxpayers like himself with income over $200,000—the same people that already disproportionately benefit from the preferential tax rate on capital income.

This gets to a more fundamental question: Why is the government favoring Romney’s income over that of most Americans? After all, it’s not like he’s been working recently—he’s been running for president for the better part of five years. And even if he did have the time to actively manage his investments, he’s not able to because they’re in a blind trust. As for the risk factor, sure he’s risking his capital, but he’s not bearing any more risk that most households in this economy face. So tell me again, why is it so important for the government to subsidize rich people like Romney at the expense of average American households?

Newt Gingrich has been using the fast exchanges of the Republican presidential debates to ignore facts, misdiagnose economic problems and then present wrongheaded solutions. The key fact that he is ignoring is the Great Recession—the greatest economic downturn the country has seen since the depression of the 1930s. It is amazing that anyone could miss this fact, but, apparently, Gingrich has.

Once we acknowledge the existence of the Great Recession, Gingrich’s ideas stop making sense. His statement that “more people have been put on food stamps by Barack Obama than any president in American history” is ludicrous. The recession began in Dec. 2007; President Obama took office in Jan. 2009, more than a year later. The Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) exists to reduce hunger in America. During this period of extreme economic hardship when the rate of hunger in America is high, our leaders should want the needy to turn to SNAP. Would a President Gingrich eliminate SNAP or prevent the number of SNAP recipients from rising during a recession?

Gingrich’s latest idea is to fire janitors in schools and “hire 30-some kids to work in the school for the price of one janitor, and those 30 kids would be a lot less likely to drop out.” It is true that teen (i.e., 16-to-19 years old) employment is correlated with positive student outcomes including high school graduation. But this is a horrible idea.

Think of a family where one parent is a janitor and one child is in high school. Gingrich is proposing to layoff the parent and replace the parent’s income with one-thirtieth the salary brought in by the child. Who knows how many hundreds of thousands of families would be plunged into poverty if this idea is ever implemented. We know that poorer children do worse in school, so any possible benefit from the increase in teen employment would likely be undone by the increase in poverty. One important reason that the teen unemployment rate is so high today is because of the Great Recession, the recession that began in the final year of the George W. Bush administration.

From Flickr Creative Commons by Gage Skidmore

It is great that Gingrich wants “to find ways to help poor people learn how to get a job, learn how to get a better job, and learn someday to own the job.” All Americans support these goals. But the real issue is this: What policies should we pursue right now to speed a full recovery from the Great Recession?

Gingrich wants to slash taxes. But we know that this is not the path to prosperity that Gingrich thinks it is. Mark Zandi, chief economist of Moody’s Analytics, tells us that tax cuts are among the weakest things we could do to stimulate the economy and that increased SNAP spending is among the best. The reason is simple. People on SNAP are experiencing economic hardship. They spend their benefits, circulating those dollars in the economy. Much of the added income produced by tax cuts to people who are well-off is saved and not spent.

We also know to be skeptical of the tax-cut strategy because we tried it during the George W. Bush administration and it failed. President Bush cut taxes and “the U.S. economy experienced the worst economic expansion of the post-war era.”

Further, after examining the Gingrich Jobs plan, Howard Gleckman of the Tax Policy Center reports that “Newt Gingrich is proposing a massive tax cut aimed at the highest earning American households. Gingrich’s plan would add about $1 trillion to the federal deficit in a single year.” It is hard to imagine worse economic policy than Gingrich’s economic ideas.

Once we begin the discussion with acknowledgement that the Great Recession, which began more than a year before President Obama took office, is the root cause of the massive loss of jobs we’ve seen since 2007, we can see that Gingrich’s economic proposals are disastrous for the U.S. economy. Apparently, he wants hungry Americans to stay hungry. He wants to lay off workers and replace them with children making a tiny fraction of the prior wage. During this period of high unemployment, this policy guarantees an increase in poverty. And, while he has increased hardship and misery for the poorest Americans, he wants to make sure that the richest Americans get even richer with massive tax cuts. Gingrich’s vision for America is an American nightmare.

At a Center for American Progress (CAP) event yesterday, Alan Krueger, chair of the president’s Council of Economic Advisers,  gave a presentation on the rise and consequences of inequality. As mentioned in a post by Ross Eisenbrey, Krueger dove into a lot of interesting statistics, many of which were compiled into a PowerPoint presentation, and many of which are also documented on our website.

One point in particular that merits highlighting is that the U.S. tax code isn’t terribly progressive compared to other OECD countries. This chart (Figure 10 in Krueger’s slideshow) shows the Gini coefficient – a measure of inequality – for OECD countries both before and after taxes and transfers. Contrary to conservative fears of the consequences of policies that promote any sort of redistribution, the U.S. tax code is actually uniquely modest in its attempt to reduce income inequality. As shown below, each of the tax codes of every OECD country save Turkey, Mexico, and Chile do a better job of promoting broadly shared prosperity than the U.S.

Krueger links this to the issue of income mobility—that is, the ability of people to move between income classes—which has been eroding over time. The graph he presents (below) shows the strong link between these two issues, showing that higher income inequality is associated with lower intergenerational mobility.

One of the fundamental tenets of the American Dream is opportunity and economic mobility, which have been moving in the wrong direction. As Krueger points out, one way to arrest this disturbing trend is by making the tax code more progressive. And as the first graph shows, we have a lot of room to improve.

In a speech today at the Center for American Progress, the Chairman of the Council of Economic Advisors, Alan Krueger, laid out a compelling argument that rising inequality is a danger not just to the middle class, but to the recovery from the Great Recession and to the long-term growth of the U.S. economy.  Krueger showed, with the help of some excellent charts, that the polarization in income in the U.S. has already shrunk the middle class dramatically and that the median household’s income is lower today than it was 10 years ago. Data from around the world support a connection between increased equality and increased economic growth and between income equality and economic mobility.

EPI has been sounding the alarm about the rise in inequality for many years, and a useful tool on our website shows the history of how national income has been shared between the bottom 90 percent and the top 10 percent, going back to 1917. As Krueger pointed out, the problem began in the late 1970s. From 1979 to 2008, income in the U.S. grew steadily – by an average of $10,401 per capita. But all of that income growth went to the top 10 percent, and the top 1 percent increased its annual income by more than $1.1 trillion. The nation grew substantially wealthier, yet the bottom 90 percent did not share in that increase at all – in fact, its income declined.

Krueger pointed to a number of contributing causes for this rising inequality, including globalization, which pits U.S. workers against a huge and more poorly paid labor force in the developing world, tax policy, the failure to increase the minimum wage, and a decline in unionization. We have no choice about whether our economy will be closely linked to the rest of the world, although we could manage the relationship better. But the other matters – tax policy, the minimum wage and unionization – are entirely within our control.

Tax policy should not advantage the rich, who have already taken a much bigger share of the national economic pie than they did when our economy was at its strongest and fairest. Krueger announced his adherence to the Buffet Rule, which holds that people making more than $1 million a year should not pay a lower share of their income in taxes than middle-class families.  He recommended repealing unnecessary tax cuts for the wealthy and returning the estate tax to its 2009 levels.

Mitt Romney and President Obama both agree that the minimum wage should be raised, but they surely disagree about how to reverse the decline in unionization – or even whether it’s a bad thing. Krueger cited evidence that the primary effect of unions on the wage structure is to lift lower class families into the middle class. That is clearly a positive outcome, and efforts to weaken unions, through “right-to-work” laws like one being debated in Indiana, or federal legislation to make it harder to organize new unions, will worsen income inequality and should be opposed.

Inequality in America is worse than in all but a handful of developed countries; and it is getting worse fast. Krueger and the Obama administration are absolutely right to focus public attention on it.

Ezra Klein asks a number of former chairs of the White House Council of Economic Advisors if presidents can create jobs. Since this allows me to channel one of the greatest Saturday Night Live skits ever, let me point out that the question is moot.

The right question is: Are the policies pushed by presidents or candidates appropriate to the economic problems and challenges actually facing the country?

So, was the Obama administration right to advocate for substantial fiscal support as soon as they entered office? Absolutely – the economy was losing around 750,000 jobs a month by the time they took the reins of policymaking, even as the Federal Reserve’s conventional recession-fighting tools were exhausted. Were they right in advocating for further substantial fiscal support this fall? Again, absolutely yes – the Fed’s recession-fighting tools remain ineffective even while unemployment hovered over 9 percent. The proper criticism of their actions is, of course, that they have not been aggressive enough in their advocacy for more fiscal support.

What does this mean for Mitt Romney’s job prescription to cut (spending and taxes) and deregulate? That it’s a fundamental misdiagnosis of what actually ails the U.S. economy. The mammoth job loss we experienced during the Great Recession didn’t occur because taxes went up or regulations proliferated in Dec. 2007 – the job-losses happened because spending by households and businesses collapsed in the face of the bursting housing bubble.

From Flickr Creative Commons by Secretary of Defense

Klein is right that many things besides presidential policy preferences and even policy actions determine job growth in the economy. But, this does not mean that they’re irrelevant to economic performance, and I fear far too many of Klein’s readers will come away from this column with the impression that they are; or even worse, that there’s little information available to voters to assess who would be the better economic manager. That’s not right – the president sets the agenda and it’s hugely important to know what this agenda is and whether or not it’s appropriate for the economic challenges facing us.

Klein’s also right that it would be nice if there was an easily-tracked single benchmark that reliably graded presidential performance, but that such a benchmark doesn’t exist. That said, answering the right question – are candidates proposing solutions consistent with the problems – isn’t really so hard.

Sometimes it seems like policymakers think that points are given for degree of difficulty. The Washington Post reports a number of policies are being considered by the Obama administration to “reward companies that choose to bring jobs home” and eliminate tax breaks “for companies that are moving jobs overseas.”

The impulse behind these ideas seems fine to me – the U.S. economy continues to “leak” too much demand to the rest of the world in the form of chronic trade deficits.

But, as the article notes, designing tax-based solutions to this problem will be quite complex and would take huge amounts of money to actually move the dial on this problem.*

If only there was a policy solution that was simple, could happen even without a gridlocked Congress, and would actually move the dial on the problem of large trade deficits dragging on growth.

But there is! Allow the dollar to fall in value sufficiently to move the trade deficit much closer to balance. Currently the biggest impediment to this happening is the policy of major U.S. trading partners (China is the linchpin) of managing the value of their currency to keep it from rising against the dollar – this results in Chinese exports gaining cost-advantages in both the U.S. and third-country markets where Chinese-produced goods compete against U.S.-produced ones.

Presumably this issue came up in Treasury Secretary Tim Geithner’s meeting with Chinese leaders yesterday, but this issue has “come up” between the U.S. and China for a decade with no movement. As Joe Gagnon and Gary Hufbauer have pointed out, however, there is no need to wait for China on this one – the U.S. could solve this currency management unilaterally.

Engineering a decline in the dollar’s value costs taxpayers nothing, can be done without moving through a gridlocked Congress, would actually provide significant help to the job market in coming years, and requires no Byzantine redesign of the tax code.

So, yes, one probably shouldn’t bet on it happening.

*_{Yes, there are ways that features of the U.S. tax code provide some incentive for production abroad rather than at home – and these should be removed. But this is surely a second- or even third-order driver of trade flows, at best.}

Catherine Rampell of the New York Times recently looked at job growth by education and interprets the data as suggestive of the “polarization” of employment where employer demand is growing at the most and least-educated categories but falling for those in the middle. Rampell uses this analysis to argue that “college is worth it.” My analysis of the employment trends in recent years, elaborated below, runs directly counter to a common interpretation of the “polarization” hypothesis, which is that we have a growing unmet need for college graduates. I’m all for giving everyone the opportunity to get the most training and education they want. And, I’m sure that there are plenty of economic and non-economic (i.e., health, citizenry) ways we’d be better off with more college graduates. I’m just not persuaded that economic data are screaming out that we need to greatly accelerate the supply of college graduates.

I’m not much of a fan of the hypothesis that recent technological change is leading to a “polarization” of wages. I’m especially suspicious when analysts lump all college graduates together in their analysis, combining those with four-year college degrees (22 percent of employment) and those with advanced or professional degrees (11 percent of employment). This is because college graduates (those with bachelor’s degrees only) have not fared well in the labor market for at least 10 years—real wages are no higher than 10 years ago—while those with advanced degrees have seen their wages grow strongly. I have covered this ground in Education is Not the Cure for High Unemployment or for Income Inequality. In fact, those economists who argue that employment and wages are polarizing, such as Larry Katz of Harvard or David Autor of MIT, are pretty clear that employment outcomes for about half of college grads are part of the “middle” that’s faring poorly. That’s why it is misleading to use those analyses to argue that having more people go to college is the answer to growing wage inequality or middle-class wage stagnation; getting onto the better wage track requires either getting an advanced or professional degree (not just a college degree) or joining a clear subset of college graduates. That being the case, the arguments of those seeing “polarization” in the data lay out a very narrow track to good earnings and, in my view, further raise the issue of the need to make sure that those without college degrees, and many with college degrees, have good quality jobs.

More extensive elaboration of these issues will have to wait for another time to explore. Now, it is worth digging into Rampell’s analysis, especially since it reaches conclusions contrary to two blog posts (read here and here) where I presented data showing that the falling unemployment among college graduates (unfortunately, because of data availability, using all college graduates, bachelor’s or higher) over the last two years was primarily due to labor force shrinkage rather than strong employment growth. For context, it should be noted that in earlier work I documented that the unemployment rate doubled for every educational group during the period of rising unemployment, including those with a college degree or further education.

Rampell presents the absolute employment growth over the last 12 months (December over December), noting college graduate employment was up over a million, high school graduate employment down about 550,000 and employment up by roughly 125,000 for high school “dropouts.” I take this a step further in Table 1 and look at changes over the last two years (from when unemployment peaked) and improve the analysis by using quarterly data (less volatile) and calculating percent growth in employment (necessary since the education groups are different sizes, “dropouts” being less than one-fourth the size of college graduates).

Table 1: Employment growth by education, ages 25+

Both years have a different pattern. Over the last four quarters there was weak employment growth for the middle two education groups and stronger growth at the top and bottom ends. The year before, however, saw weaker employment growth among college graduates (up 0.5 percent) than for those with high school (up 1.0 percent) or “some college” (up 0.9 percent). Looking over the last two years as a whole one finds employment growth better the higher the education level. This is not strong evidence of “polarization,” or even the bastardized version of the hypothesis (the one where all college graduates are presumed “winners”).

The best way to analyze these trends is to examine the employment rates (employment divided by population) of each group, as done in Table 2. This scales the changes to the size of the population involved. Overall, the employment rate has not changed over the last two years, rising just 0.1 percent. Unemployment fell by 1.2 percentage points, from 9.9 percent in 2009:4 to 8.7 percent in 2011:4, but that is entirely explained by a shrinkage of the labor force. Interestingly, the employment rate has declined for all but the “dropouts” and has declined the most for those with a college degree (or more) and those with “some college.” As observed at the start, these results run directly counter to a common interpretation of the “polarization” hypothesis, that we have a growing unmet need for college graduates and that one of our key challenges is to greatly accelerate the supply of college graduates.

Table 2: Changes in employment-to-population ratio, 2009-11

The National Labor Relations Board’s recent decision on D. R. Horton, Inc. and Michael Cuda is a great reminder that the NLRB protects much more than the right to organize a union – as important as that is. The National Labor Relations Act, which the NLRB enforces, gives employees the right to engage not just in collective bargaining through a union, but also in what it calls “concerted activity for mutual aid or protection” — actions taken by one or more employees in pursuit of a collective goal to address wages or working conditions.

In the Horton case, non-union employees wanted to enforce their right to overtime pay under the Fair Labor Standards Act, through a collective or “class” action. But the employer had required the employees to give up the right to bring any claims on a collective basis in order to keep their jobs. The NLRB found the employer guilty of an unfair labor practice by requiring employees to waive “their right to collectively pursue employment-related claims in all forums, arbitral and judicial.”

The NLRB protects the right of employees to join together and enforce their right to overtime pay, and employers can’t take that right away. The same is true for the right to receive the statutory minimum wage or to receive tips that employees have earned.

Similarly, employers violate the National Labor Relations Act if they punish employees who join together to complain about unsafe working conditions, or discrimination in the workplace, or being forced to commit illegal acts. The employees don’t have to join or form a union, they simply have to act together for mutual aid or protection regarding the terms and conditions of their employment.

President Obama’s bold and controversial recess appointment of three new members of the NLRB ensures that this vital agency will continue to function and protect the rights of employees, union and non-union alike. Congressional Republicans had tried to prevent these appointments, knowing that, with only two members, the NLRB would not have a quorum to decide cases. To his credit, Obama decided that the rights of working Americans are too important to sacrifice to congressional gridlock.