It was great to see President Obama challenge congressional Republicans to do something real about jobs. His jobs bill, submitted to Congress Monday, would support 2.3 million new jobs and provide continuing support for another 1.6 million jobs. But his plan requires congressional approval, which is about as likely as a World Series appearance for Washington’s sub-.500 Nationals this year.

With unemployment at 9.1 percent, our economy desperately needs at least 11 million new jobs now just to get the unemployment rate down to pre-recession levels. We cannot allow the political stalemate in Washington to stand in the way of a full set of bold job creation initiatives. The president should take immediate, executive action that will directly support the creation of up to 2.25 million export jobs by eliminating unfair currency manipulation by China and other countries.

The administration wants to stimulate exports, and that’s a good idea, but if and only if it improves the trade balance. Growing exports support domestic employment but growing imports displace domestic jobs; meaning that we need policy changes to boost net exports. The president included an oft-repeated promise in his speech last week that he will soon send legislation to Congress to implement Bush-negotiated free trade agreements with South Korea, Colombia and Panama. Passage of those FTAs would be a terrible idea because all past evidence indicates that FTAs are not an effective tool for improving the U.S. trade balance and stimulating net job creation.

If the president was serious about boosting net exports he would take significant action to stop the currency management of our trading partners that has hamstrung the competitiveness of U.S. producers. He has the authority to do this without Congress – and swift and independent action could help to create millions of new jobs over the next 18 to 24 months.

The best estimates are that currency intervention by our trading partners (i.e., buying U.S. dollar-denominated assets to boost the value of the dollar and keep their own currency artificially cheap) raises the cost of U.S. exports – both to the intervening countries (China is the most important one) as well as to  every country where U.S. exports compete with goods coming from there. China’s currency intervention has also compelled Hong Kong, Singapore, Malaysia and Taiwan to follow similar policies in order to protect their relative competitiveness and to promote their own exports.

In a recent report on the benefits of revaluation, I showed that full revaluation (28.5%) of the yuan and other undervalued Asian currencies would improve the U.S. current account balance by up to $190.5 billion, increasing U.S. gross domestic product by as much as $285.7 billion, adding up to 2.25 million U.S. jobs, and reducing the federal budget deficit by up to $857 billion over 10 years.

This revaluation done quickly would be a win-win – it would help workers in China and other Asian countries by reducing inflationary overheating and increasing workers’ purchasing power in those countries.

There are several different actions that can be taken by the Obama administration to put pressure on China. First, it can and should identify China and the other countries listed above as currency manipulators when the Treasury releases its Semiannual Report on International Economic and Exchange Rate Policies in mid-October. This would trigger mandatory negotiations which could result in sanctions if the issues are not resolved. Secretary Tim Geithner has consistently refused to name China or any other country as a currency manipulator, despite all available evidence to the contrary. The administration could also file complaints with the World Trade Organization (WTO) about China’s currency manipulation and request dispute resolution.

The administration could also endorse China currency legislation that has been introduced in both the House and the Senate. The Currency Reform for Fair Trade Act (HR 639, S 328) was passed by an overwhelming majority of both Democrats and Republicans in the House in 2010, but the bill died in the Senate. The scope of the bill is a bit limited – only 3 percent of Chinese imports would be affected – making it something of a rifle shot; larger artillery may be needed to persuade China that it’s in its own interests to revalue.

The mere threat of a large, across-the-board tariff on imports from China may be sufficient to persuade China that the time has come for a major revaluation that would benefit both countries. In 2005, Senators Charles Schumer and Lindsey Graham introduced legislation (S. 295) that would have imposed a 27.5 percent tariff on all imports from China if it failed to revalue within 180 days. This legislation was approved by the Senate (by a veto-proof margin of 67-33) but not by the House. Even so, shortly after its passage, China allowed its currency to rise for the first time in more than a decade. The currency ultimately appreciated by 20 percent, until the onset of the great recession in late 2007, when it was again tied to the dollar. China will respond to the threat of severe external pressure – especially since their policy of intervention has clear downsides for them as well.

The U.S. needs at least 11 million jobs to eliminate excess unemployment. Fiscal policy, if it can be enacted, is a good start, but the task before us is huge. We need a job strategy that pulls every available policy lever. The best place to start is with exchange rates—a lever that can be pulled by President Obama even if Congress refuses to help.

Progressives believe the highest-income households should contribute more revenue; conservatives counter that the bottom half of earners should be paying more. When pressed about the need for revenue and shared sacrifice, House Majority Leader Eric Cantor recently lamented that nearly half of Americans don’t pay federal income taxes. Texas Governor Rick Perry went further, decrying this result of the tax code an “injustice.” This is a misleading grievance demonstrating a misunderstanding of the tax code: more than four in five households pay federal taxes and the role of the income tax is to adequately fund government without pushing more families into poverty.

While 46 percent of Americans won’t pay federal income taxes this year, 82 percent of households will pay federal income taxes and/or social insurance payroll taxes—predominantly Social Security and Medicare contributions. Payroll taxes are a tax on earned income and cannot be ignored because they are both regressive and substantial. Lower-income households pay higher average social insurance tax rates than upper-income households and these taxes brought in $865 billion last budget year (40 percent of all revenue).

A recent Tax Policy Center report explains that the basic structure of the tax code accounts for half of the 46 percent of households owing no income tax, while tax expenditures (preferences and credits) eliminate remaining income tax liability for the other half. The income tax code intentionally spares subsistence levels of income from taxation, hence the standard deduction ($5,800 for single filers and $11,600 for married joint filers) and personal exemption ($3,700). Of the households made nontaxable by tax expenditures, 44 percent pay no income tax because of special tax treatment for the elderly and 30 percent pay no income tax because of credits for children and poor workers.

Of the narrow 18 percent of households paying neither income nor payroll taxes, 57 percent are elderly households and 38 percent are non-elderly households with less than $20,000 in income. There simply isn’t much income here for taxes to collect: the lowest earning 20 percent of households (earning under $20,500 in 2007 dollars) received only 4 percent of pre-tax income in 2007, compared with 19 percent captured by the top 1 percent of households (earning above $352,900).

Broadening the tax base so that substantially more tax filers pay income taxes would require reducing the personal exemption, standard deduction, extra standard deduction for the elderly, exclusion of some Social Security benefits from taxation, child tax credit, or earned income tax credit. (Alternatively, higher employment and more evenly shared income gains would raise the number of households paying income taxes).

Forcing a higher tax burden on those with little to live on is a twisted concept of shared sacrifice, particularly when poverty has climbed to a 17-year high and recent income losses have been most pronounced at the bottom of the earnings distribution (see Figure H in this EPI analysis). Tax policy should instead focus on where the income gains have been concentrated over the last three decades.

Oregon Senator Jeff Merkley deserves praise for his effort to keep the focus on America’s job crisis. His suggestion that the Joint Select Committee on Deficit Reduction (aka the “super-committee”) request the Congressional Budget Office to score the committee’s proposals for not only their budgetary impact, but their impact on unemployment is brilliant in its simplicity.

If this were to happen, folks would be able to see the impact of the committee’s proposals on both the deficit and the labor market. They would also see the foolishness behind the deficit hawks’ repeated assertions, here, here, and here, that reducing the deficit will reduce unemployment.

The vast majority of across-the-spectrum respected economists, including my personal (non-EPI) favorite, Paul Krugman, have made the case quite convincingly over, and over, and over, that cutting spending in a time of high employment is the height of foolishness.

As for EPI, we said it here, and here, as well as plenty of other places. I’m convinced and I’m not even an economist. Here’s to hoping that we’ll see some common sense come out of the so-called super-committee.

On Tuesday, Sept. 13, after the U.S. Census Bureau presented the latest data on income, poverty, and health insurance coverage for 2010, many wondered whether we’d see any effects of the Patient Protection and Affordable Care Act, commonly know as health reform, in this release.

Health and Human Services Secretary Kathleen Sebelius argued that we did. In her piece, “Affordable Care Act in Action,” published in the White House blog, Secretary Sebelius pointed out the significant increase in coverage rates for young adults, ages 18-24, as a sign that health reform is working. Sara Collins, Tracy Garber, and Karen Davis of the Commonwealth Fund argued as well that young adults are already benefiting from the Affordable Care Act, using as evidence the 2.0 percentage point decline in the uninsured rate for young adults. Writer Jonathan Cohn with the telling title “Gosh, Could Obamacare Be Working” makes a similar argument, using a nice graphic as well.

All three articles rightfully point to the fact that the uninsured rate for young adults, 18-24, fell between 2009 and 2010 and, in fact, this was the only age group with a statistically significant decline in their uninsurance rate. They argue that the provision of health reform allowing young adults up to age 26 to stay on or join their parents’ employer-sponsored health insurance policy, is to credit for this up-tick in coverage.

An alternative explanation for the rise in insurance coverage among young adults could be that they are simply faring better in the labor market than other age groups. This is simply not the case – in fact, their simple employment rates deteriorated more than any other age-group.

In this figure, I compare changes in the employment rates and the rate of employer-sponsored health insurance for various age groups between 2009 and 2010. As you can see, the job-market didn’t do the younger group any favors between 2009 and 2010. Their employment rate actually fell further than any other age group. On the flip side, their rate of employer-sponsored health insurance actually rose.

To me, this is strong evidence in support of the argument that health reform is beginning to work.

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The Obama administration’s proposed American Jobs Act is heavily weighted towards payroll tax cuts – more than half of the total cost is accounted for by cuts on either the employee or employer side. And it’s widely assumed that the direct spending provisions (about $100 billion in mostly infrastructure spending) have the least chance of making it out of the legislative process. Should this worry us?

At least a little. From an “old Keynesian” perspective, payroll tax cuts should work pretty well. Money in peoples’ pockets should probably boost their spending. There’s microeconomic work suggesting that people do respond pretty robustly to increased cash-on-hand and the macroeconomic multipliers tend to show that payroll tax cuts are pretty decent stimulus – far outpacing most other tax cuts, though falling well short of direct spending and transfer  payments.

However, from a “new Keynesian” perspective, payroll tax cuts may be not only less effective than advertised, but actually outright contractionary.

Gauti Eggersston has written a number of papers about how to think about the effects of macro policy when the economy is “at the zero bound” of short-term interest rates – like today’s American economy. In one paper he warns specifically about the contractionary possibility of payroll tax cuts. The (very) simplified intuition is that these tax cuts increase take-home wages and hence provide incentives to workers to increase the hours of work they supply the labor market. This increase in labor supply puts downward pressure on overall wages which pushes down prices. This price decline increases real interest rates (which are simply nominal rates minus inflation), which slow economic activity as well, thereby reducing aggregate demand.

As unemployment is simply the difference between labor supply and labor demand, payroll tax cuts exacerbate this gap on both sides – increasing labor supply and reducing economy-wide demand. During normal times, the Federal Reserve can short-circuit this vicious cycle simply by cutting nominal rates – but the short-term rates controlled by the Fed already sit at zero.

How seriously to take this warning?

On the one hand, John Taylor, an economist at Stanford and a vociferous critic of the Obama administration’s American Recovery and Reinvestment Act (ARRA), claims to have found no effect at all of temporary tax cuts on household consumption.

On the other hand, Taylor claims that even policies that are very well-targeted to cash-strapped households had no effect on spending – essentially arguing that even unemployment insurance and food stamp increases were saved dollar-for-dollar by recipient households. This seems implausible.

And, Dean Baker and David Rosnick re-examine Taylor’s results and show that temporary tax cuts do boost consumption by an amount greater than zero once one allows for a structural break post-2008 in the effect of stimulus on consumption (and, the rationale for assuming that the post-2008 economy is behaving very differently from what came before seems solid for pretty apparent reasons – Great Recession, Lehman Brothers, etc.).

Lastly, one should note that the payroll tax cuts of 2011 have not been accompanied by an obvious surge in labor supply – labor force participation rates fell by slightly more between January and August of 2011 than they did between the same months of 2010, even as the payroll tax cut should’ve induced more labor supply than the Making Work Pay tax credit it was frequently cited as “replacing”.

So where does this leave us on the question of payroll tax cuts? They probably do some good – even Eggersston notes that if they go to cash-strapped households that the “old Keynesian” effects may dominate the “new.” But it should be clear that a fiscal jobs bill weighted more than half towards payroll tax cuts is one clearly tailored at least as much for political traction as economic impact.

If the choice is “payroll tax cuts or nothing,” I’ll take the cuts. But, there are clearly more effective measures to spur job growth (the direct spending components of the American Jobs Act, for example) and the economy will be better off if these are part of any final legislation.

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.

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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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.

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

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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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