Paying for job creation the right way

Earlier this week, Office of Management and Budget Director Jack Lew outlined a package of tax changes to pay for the American Jobs Act. These offsets are generally consistent with our criteria for financing an effective jobs plan: the president’s proposed jobs bill would add to the near-term budget deficit (as it should) and gradually be paid for over the next decade, largely when the economy is stronger and unemployment is lower. Furthermore, the proposed offsets are entirely on the revenue side (also beneficial, as permanent tax changes have substantially less impact on near-term economic activity than spending cuts) and these specific polices would have almost no impact on economic activity.

The White House proposed four policies that would save $467 billion over the next decade, slightly exceeding the $447 billion price tag of the job creation package, which is front loaded over the next two years. Most of these policies were proposed in the president’s 2012 budget and none of the proposals would decrease disposable income for working and middle class families.

At $400 billion, the largest of the proposed offsets would limit the rate at which tax expenditures–such as itemized deductions–reduce tax liability for households with adjusted gross income above $200,000 ($250,000 for joint-filers). The value of most tax expenditures increase with a tax filer’s marginal tax rate; limiting this value would make many preferences less regressive while maintaining incentives embedded in the tax code.

The president’s budget proposed limiting the value of itemized deductions to 28%, which would have only affected 1.8% of tax filers relative to current tax policies, according to the Tax Policy Center. The Joint Committee on Taxation estimated that this would save $293 billion over 2012-21. This policy has been scaled up to also limit the value of specified above-the-line deductions and exclusions for upper-income households. (In our budget blueprint for economic recovery and fiscal responsibility, we proposed limiting the benefit on itemized deductions to 15% for savings of $1.2 trillion over 10 years).

The other offsets include $40 billion from ending subsidies to oil and gas companies, $18 billion from ending the carried interest loophole for investment income, and $3 billion from ending a tax break allowing firms to gradually write off the cost of corporate jets. The carried interest preference, which allows investment bankers to reclassify a portion of their ordinary income as capital gains subject to a 15% tax rate, was recently highlighted when Warren Buffet implored Congress to stop coddling millionaires with lower effective tax rates than those paid by many middle-class families. The oil and gas subsidies are prime examples of corporate welfare embedded in the tax code benefiting a particularly profitable industry. Repealing these carve outs will have a negligible impact on employment; further, all pass muster as progressive improvements to the tax code.

Beyond picking offsets that would have little impact on economic activity, the timing seems appropriate. The budgetary offsets would be delayed until Jan. 2013, and the offsets combined with the jobs package would almost certainly increase the budget deficit for the next two years (the timing of infrastructure outlays is somewhat uncertain).

Budgetary offsets focused more heavily on spending cuts or the near-term deficit would compromise the positive employment impact of the American Jobs Bill, but these progressive revenue changes would have a negligible impact on employment. Allowing the near-term budget deficit to rise and at the same time putting the country on a stable fiscal path over the long run isn’t just possible, it’s necessary.

Deep poverty at all-time high

My colleague Algernon Austin rightfully points out how devastating this economy has been for children. One statistic he didn’t mention from today’s Census Bureau data release was the extent of deep poverty among kids. Nearly one-in-10 children live in deep poverty, or live below half of the poverty line. For a two-parent, two-kid family, half the poverty line is about $11,000. And, 9.9 percent of kids in this country live in such poor economic conditions.

A smaller share of the overall population live in deep poverty: 6.7 percent. As shown in the figure, the extent of deep poverty in 2010 was unprecedented (since the data for this statistic was collected in 1975). Besides last year, the closest deep poverty has gotten to the current rate was in 1993, at a rate of 6.2 percent.

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Recession continues to take its toll on America’s children

Even in relatively good economic times, the United States has an appallingly high rate of child poverty for a very rich country. In 2007, by international comparative standards*, UNICEF found that the United States had the highest rate of child poverty of 24 OECD nations. The poverty data released today shows the worsening living standards for America’s children caused by the recession.

Overall, the U.S. poverty rate for American children increased 4 percentage points from 2007 to 22.0% in 2010. African American children continue to have the highest rate of poverty at 39.1%. Hispanic children have the second highest rate at 35%. However, as the figure shows, Hispanic children have experienced the largest increase in child poverty since the start of the recession. Black children have had the second largest increase.

The economic distress of families hurts children and undermines their future. Only by putting their parents to work in good jobs can we lay the foundation for a prosperous future for our children.

Click the figure to enlarge

*In the UNICEF comparison, a poor household is one that earns less than 50% of the median household income.

Already a lost decade: Working-age household income down more than 10% since 2000

The labor market is the foundation of income for nearly all working-age families, so when the labor market deteriorates, household income drops.

As the figure shows, income for the median working-age household – where the householder is under 65 – dropped by $4,184 between 2007 and 2010.  Furthermore, the Great Recession came on the heels of one of the worst business cycles (2000-2007) on record in terms of job creation, one in which the income of the median working-age household fell $2,113.

Thus, the typical working-age household brought in roughly $6,300 less in 2010 than it did in 2000, a more than 10 percent decline. A lost decade, indeed.

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Click on the figure to enlarge

By the numbers: 2010 income, poverty, and health insurance coverage

This morning’s release by the U.S. Census Bureau of the 2010 data on income, poverty, and health insurance coverage is yet another reminder of the real and human consequences of the Great Recession and its aftermath.  A first take:

Poverty

15.1%: The share of the population in poverty in 2010
22.0%: The percent of children under 18 in poverty
46.2 million: The number of people in poverty in 2010
$22,113: The poverty threshold for a family of four
3.2 million: The number of people kept out of poverty by unemployment insurance
20.3 million: The number of people kept out of poverty by Social Security

Income

-11.3%, -6.6%, -4.5%: The change in family income between 2007 and 2010 for the bottom 20 percent, middle 20 percent, and the top 20 percent, respectively
$6,298: The decline in median working-age household income from 2000 to 2010
$5,494: The decline in median African-American household income from 2000 to 2010
$4,235: The decline in median Hispanic household income from 2000 to 2010

Health insurance coverage

49.1 million: The number of people under 65 without any health insurance
13.6 million: The decline in the number of people under 65 with employer-sponsored health insurance from 2000-2010
10.5 percentage points: The decline in the share of the under 65 population with employer-sponsored health insurance from 2000-2010

Obama’s ‘billion-dollar’ rules could provide annual benefits approaching $200 billion

On Aug. 30, 2011, President Obama sent a letter to House Speaker John Boehner responding to his request that the administration supply Congress with any planned new rules costing more than $1 billion. The president provided a list of seven such rules, noting the cost (but not the benefits) for each. One of these potential rules, the Ozone standard, has since been withdrawn by the administration.

This exchange generated substantial press coverage, despite the conspicuous absence of information provided on the potential benefits from these rules. This information, however, is readily available, and these benefits would be enormous. Tabulating information from the regulatory impact analysis for each proposed rule indicates that the monetized benefits from the remaining six rules could amount to $218 billion a year. If these rules are finalized, the final versions might differ from the proposed versions or the estimates may change, so the overall cost and benefit figures may differ from those described here.

The combined annual benefits from these rules range from $83 billion to $218 billion a year, dramatically exceeding the range of costs of $19 billion to $20 billion a year. This means net benefits could range from $63 billion a year to close to $200 billion a year.

All figures are expressed in 2011 dollars:

Potential rule Costs Benefits
Air toxics $11.5B $56-148B
Boiler MACT  1.8  21-57
Coal ash  .6-1.5  2.6-7.6
Rearview mirror  2  .7-.8
On-board recorders  2-2.5  2.8
Hours of service  1.1  .3-2.5
Total  $19-20B  $83-218B

The first three rules are from the Environmental Protection Agency, while the last three rules are from the Department of Transportation. The air toxics rule (designed to reduce emissions of hazardous air pollutants from the electric power industry, including mercury, other metals such as cadmium and arsenic, acid gases, and organics) and the major source part of the Boiler MACT rule (designed to limit large emissions of hazardous air pollutants from industrial, commercial, and institutional boilers and process heaters) have the largest benefits; these benefits primarily reflect attaching a monetized value to various health benefits. In combination, the benefits from these two rules alone would include the following:

— 9,300-23,500 lives saved (which EPA describes as avoiding ‘premature mortality’)
— 15,000 fewer heart attacks
— 16,500 fewer hospital and emergency room visits
— 303,000 fewer cases of respiratory symptoms
— 1.16 million more work days (because workers are not too sick to go to work)

This exercise underscores the folly of considering the costs of rules, even if the price tags come in at above a billion dollars, without considering their benefits.

Note on coal ash calculation:  The table above includes the benefit range for the scenario EPA considers most likely, in which the regulation of coal ash will increase the use of coal ash for other purposes. Opponents of this regulation typically cite another scenario, in which the regulation of coal ash stigmatizes its use. The Environmental Integrity Project and the Institute for Policy Integrity have separately advanced strong arguments against the application of the worst-case “stigma” scenario, in which the regulation of coal ash is assumed to undercut the use of coal ash for other purposes.  Still, even if that unlikely worst case scenario applies, the combined benefits from the six billion-dollar regulations examined here would equal between $80 billion and $193 billion, and net benefits would range from $60 billion to $174 billion.

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Boeing and House Republicans abuse their power

House Republicans intend to pass legislation this week to further weaken the National Labor Relations Board and leave it less able to protect workers from anti-union retaliation by companies like Boeing.

Almost everything you’ve read or heard about the National Labor Relations Board’s enforcement action against Boeing is wrong. Editorial boards were quick to believe Boeing’s line that the NLRB has abused its authority by ordering the company to shut down its Dreamliner production line in South Carolina and move it back to Washington State. Most of the media seem convinced that the NLRB and President Obama have decided to prevent companies from moving to right to work states as a favor to unions that supported the president. All of this is untrue. In fact:

— The NLRB hasn’t ordered Boeing to do anything. Its General Counsel filed a complaint, but the NLRB members haven’t heard the case or made any decision.  The administrative Law Judge hasn’t even scheduled a hearing.

— The case has nothing to do with right to work laws, and the General Counsel would have filed the same complaint if the company had moved production to Michigan or Massachusetts rather than South Carolina.

— No governmental power has been abused. The NLRB General Counsel is following established precedent. The GC under Ronald Reagan would have handled this case the same way. We know this because, faced with a similar case, the NLRB under Reagan in fact did order an employer (Century Air Freight) to return to the status quo, moving work back to a union plant after the employer broke the law by moving the work out.

— The remedy the General Counsel is seeking allows Boeing to maintain a production line in South Carolina. The NLRB complaint explicitly permits Boeing to move work to South Carolina for non-discriminatory reasons.

The only abuse in this case is the abuse of power by politicians like Rep. Darrell Issa and Speaker of the House John Boehner, who are intervening in an enforcement proceeding on behalf of a powerful corporation that has given hundreds of thousands of dollars to politicians, including Issa and Boehner. Is it any surprise that Boeing’s contributions tipped toward the Republicans this year and now favor them 60% to 40%, according to Open Secrets?

In the past, attempts by elected officials to influence ongoing investigations or enforcement were considered unethical, and politicians like the Keating 5 risked real damage to their careers when they intervened on behalf of campaign contributors. What a difference a few years and Citizens United have made.

In truth, there’s probably one other guilty party: the Boeing Corporation, which apparently intended to teach the Machinists Union a lesson by punishing them for exercising their legal right to strike. Boeing could legally move work to South Carolina for any number of reasons, including because it prefers to operate in a right-to-work state, it wants to find cheaper workers, or because the state gave it tax breaks to move. But it has been illegal for 76 years to move in order to retaliate against employees who chose to strike during their last contract negotiations, and it’s illegal to threaten employees with punishment for striking.

The right to strike is a fundamental human right, protected by the United Nations charter and the National Relations Act. And Boeing knows that. Even so, there’s plenty of evidence to support the NLRB complaint that Boeing violated the law. Now they want not just to avoid liability, but to cripple the NLRB’s ability to protect other workers in the future. And Boeing is so big and so politically connected, and has so much help from the rest of the organized business lobby, it might well succeed.

So don’t be misled. This isn’t a case of big government telling business where it can operate. It’s government of the people, by the people, and for the people defending a fundamental human right and middle-class workers who have nowhere else to turn.

A dire prediction: The achievement gap will grow

I make a discouraging prediction: academic achievement gaps between advantaged children and the various categories of disadvantaged children will grow in coming years, and education policy will be powerless to prevent this.

A recent Economic Policy Institute analysis suggests the impact of our stagnant employment rate on children’s welfare. Consider, for example, the unusually severe labor market adversity experienced by black families, and how this is likely to affect the black-white achievement gap that receives so much well-deserved attention in education policy.

— Although the national unemployment rate for whites is now 8 percent, for African-Americans it is 17 percent.

— Although the underemployment rate (including those who have given up looking for work, and those who have taken part time jobs because full time work is unavailable) for whites is now 13 percent, for African-Americans it is 25 percent.

— Although 8 percent of white children had an unemployed parent during an average month in 2010, 16 percent of African-American children had such a parent.

— Because African-American children are more likely to be in single parent homes than whites (67 percent vs. 24 percent), they are also more likely to have been in homes where no parent was working at some time during the past year.

Parental unemployment has a demonstrable impact on student achievement. When parents suffer unemployment, parents’ stress increases and they are more likely to discipline their children arbitrarily, leading to children themselves attending school in greater stress and less able to perform to the top of their ability.

When parents suffer unemployment, they are more likely to lose health insurance; their children are less likely to get routine and preventive health care, are more likely to suffer from untreated asthma, toothaches, and earaches, and uncorrected vision problems, all of which contribute to school absenteeism and less ability to perform in schools.

When parents suffer unemployment, they are more likely to lose their homes, or fall behind in rent, leading to more frequent moves and interrupted schooling for their children. When parents suffer unemployment, they are more likely to shift their youngest children from more expensive (and higher-quality) early childhood programs to less expensive (and lower-quality) programs.

Even children of employed parents are suffering from the weak labor market: 38 percent of families have suffered an erosion of wages, hours worked or benefits. Many have also lost health insurance in the last year. All of these adverse impacts of the recession disproportionately affect African-Americans, Hispanics and low-income families.

Even if the modest job creation policies now being advanced by President Obama were to be enacted, and unemployment were to fall somewhat, the accumulated effects of the economic crisis will permanently damage a generation of children. The first five are the most important years of a child’s development. When parents are in economic crisis during their children’s infancy and early childhood, the damage to children’s healthy maturation permanently diminishes their future prospects. Today’s disparate experience of unemployment by parental group will be reflected not only in their young children’s relative school readiness, but in an achievement gap of high schoolers a decade hence and then in disparate adult earnings throughout their working careers.

Education policymakers devote great time and effort these days to a variety of school interventions – improving teacher quality, creating common standards, offering greater school choice. These may make a difference, but will be overwhelmed by the immediate and long-term consequences of our failure to attack unemployment with sufficient vigor. As a result, our achievement gaps will grow and whatever positive effect new school interventions may have will be swamped by the array of calamities accompanying persistent high unemployment –  parental stress, housing instability, inadequate health care, and other impacts of reduced income on parental ability to nurture their children and deliver them to school ready to learn.

Looking ahead to next week’s Census release of income, poverty and health insurance data

On Tuesday morning, Sept. 13, the U.S. Census Bureau will release the newest data on poverty, health insurance, and annual income for 2010. This is the one data release in the year that gives us the most-quoted information on what happened to family income, poverty, and health insurance coverage over the preceding year. It’s a great window into why debates over the state of the economy and labor market have real, human consequences.

Unfortunately, we expect the bad news to continue. Why? Namely because of two factors. First, the unemployment rate increased from 9.3% in 2009 to 9.6% in 2010. Second, long-term unemployment, or the percent unemployed 27 weeks or more, grew from 31.2% in 2009 to 43.3% in 2010.

Here are the things to look out for:

Poverty:
– In 2009, the poverty rate hit a record high of 14.3%, a level not seen since 1994. The data will likely show a slight increase in poverty in 2010, a balancing act between higher unemployment and unemployment insurance extensions.
– In 2009, deep poverty hit a record high (since the data began being collected in 1975).  Again, given the poor labor market, there’s a good chance 2010 will break last year’s high as more Americans fall below half the poverty line.

Health Insurance:
– It’s likely that we’ll see a full decade of consecutive losses in employer-sponsored health insurance. As the job market remains weak (both lack of jobs and lack of bargaining power), Americans can no longer depend on their workplace for consistent affordable coverage.
– Losses in workplace coverage will lead many to become uninsured, with an expected small rise in the rate of uninsurance in the U.S. Kids will likely be somewhat insulated from these losses through public insurance, but working-age adults will continue their upward march towards nearly one in four working age adults uninsured.

Income:
– Income for the median, or typical, family, after adjusting for inflation, will have declined in 2010. Working-age households, who are most affected by deterioration in the labor market, will have seen the biggest losses.
– These losses will cap off a decade of deterioration: the median working-age household saw an income decline of nearly $5,000 between 2000 and 2009 due to both the extremely weak business cycle from 2000 to 2007 and the Great Recession from 2007 to 2009.

Check back on Tuesday for our live analysis of the 2010 data.

The long and winding road to the American Jobs Act

It is nice to see that good public policy research can make its way down the long and winding road of idea to proposal to … (dare to dream) legislation?

Last night, President Obama called for the passage of an American Jobs Act, which would spend nearly $450 billion on aid to unemployed workers and strapped state and local governments, infrastructure spending (with school renovations and improvements singled out for lots of this spending), and tax cuts for both workers and businesses.

The size and composition of the American Jobs Act looks a lot like the American Jobs Plan that EPI forwarded in December 2009. This is a good thing not just for EPI’s ego, but for the future of the American labor market. You see, the similarities in these plans aren’t evidence that EPI has some mammoth influence on the administration, instead both plans are simply based on a solid consensus of what applied economists know about what would actually work to reduce joblessness fast.

Now, we will pat ourselves on the back for a couple of things. We got the depth of the downturn and the stubbornness of the recovery right in real-time – before, unfortunately, most of our policymakers. We also have been calling all along for lengthy and generous unemployment compensation and for infrastructure spending – particularly on schools – to be a major part of stimulus. It’s extraordinarily efficient stimulus and the main strike argued against it (it’s too slow in being rolled out) never made much sense to us – because we knew early-on how long unemployment would remain elevated and how much job-growth would be needed to combat it. And, we argued that if you must make business tax cuts part of a jobs-plan to garner wide-spread support, you should at least tie these tax cuts directly to firm’s hiring decisions to maximize their bang-for-buck.

It’s a shame that policymakers’ attention drifted from job-creation for a year or more, but at least it’s back on the front-burner now. EPI was just one cog in the machine arguing for this renewed focus, but we’re happy it’s arrived and want to do what we can in the coming months to make sure that as much of this well-considered jobs-plan makes it through the (sure to be) brutal legislative process as possible.