Looking ahead on the FY2014 budget

This week, the seemingly never-ending fiscal policy skirmishes on Capitol Hill revolved around proceeding to a conference committee to hammer out an FY2014 joint budget resolution compromise. Unlike recent years, this budget season has seen both House Republicans and Senate Democrats produce and pass budget resolutions. Now Congressional Democrats are interested in moving forward on discussions toward a budget for FY2014. The problem? After haranguing Senate Dems for not having produced a budget resolution since 2009—before Senator Patty Murray (D-WA) was chairwoman of the Budget Committee—and maligning President Obama for being late in producing his budget alternative, Republicans are refusing to appoint conferees and commence a budget conference committee. Instead of moving forward with the budget process, the GOP has insisted on conditioning the appointment of conferees with an insistence that any conference report not include any new revenue or raise the debt ceiling. In other words, a non-starter.

Given how broken the budget process has been of late, it’s worth a reminder on what a normal spring budget season should look like. Each year, Congress is supposed to develop a joint budget resolution that sets limits on spending, particularly appropriations, as well as targets for federal revenue. After the Office of Management and Budget publishes the president’s budget request in early February, the House and Senate Budget Committees draft and mark-up budget resolutions, which then go to their respective chamber floors for votes (assuming they make it out of committee markup). If adopted in both chambers, a conference committee is then convened between the two bodies to resolve differences between their budget resolutions. (While this notionally is supposed to take place by April 15, it often takes longer.)

Read more


What we read today

A roundup of what EPI experts found interesting in the news today:

Sequester cuts to Emergency Unemployment Insurance Compensation will likely cost around 30,000 jobs

As part of the sequester, roughly $2.4 billion is being cut from emergency unemployment insurance compensation (see page 40 of this OMB report (pdf)).

These cuts cause damage in two ways. Most obviously, they mean that unemployment insurance benefits now provide a weaker lifeline to the long-term unemployed and their families, despite the fact that job opportunities have improved very little since the unemployment rate peaked near the end of 2009.

Less well understood is the fact that cutting unemployment insurance benefits will reduce spending in the economy and thereby cost jobs. While the cuts save an estimated $2.4 billion in government spending on unemployment insurance, the loss to the economy is much greater because these cuts have a large “multiplier” effect. Long-term unemployed workers, who are almost by definition cash strapped, are likely to immediately spend their unemployment benefits. Unemployment benefits spent on groceries, clothes and other necessities increase economic activity, and that increased economic activity saves and creates jobs throughout the economy. For this reason, economists widely recognize government spending on unemployment insurance benefits as one of the most effective tools for generating jobs in a downturn. The flip side of this is that cutting spending on unemployment insurance benefits during a period of economic weakness is one of the most costly tools available for reducing the deficit. Reducing spending on unemployment insurance by $2.4 billion will pull about $3.8 billion in economic activity out of the economy—economic activity that would have been supporting around 30,000 jobs.1 In an economy that is generating jobs at a pace that won’t restore full employment for at least another five years, this is incomprehensible.


1. Calculated using methodology described here.

What we read today

Winning the intellectual debate on austerity while losing the policy debate

Recently, barely-perceptible cracks have started to appear in the political foundations of austerity. Prominent Democrats on Capitol Hill—not just progressives but moderates and those who have embraced the administration’s pursuit of a “Grand Bargain” on deficit reduction—have recently called for an implicit time-out on fiscal tightening. Some European policymakers have similarly argued that austerity has gone too far. And prominent financial market players have warned that the United Kingdom should reverse its rapid drive towards austerity. Perhaps most surprisingly, even John Makin from the conservative American Enterprise Institute has called for an end to tightening.

It’s about time. The intellectual foundations for austerity have always been fragile. The recent controversy that erupted over a group of University of Massachusetts economists highlighting the extreme weakness of an oft-cited justification (pdf) for keeping debt ratios below 90 percent is just the latest demonstration of this. The UMass paper was important, but is only the latest and most well-known of the many refutations (pdf) of the case (pdf) that contractionary fiscal policy would produce (pdf) anything but contraction in today’s economy.

Read more

Will Apple follow in Nike’s failed footsteps?

The latest issue of the Boston Review features a thought-provoking essay by MIT Professor Richard Locke entitled “Can Global Brands Create Just Supply Chains,” as well as a series of responses (including one I authored that this blog draws from). Locke surveys several decades of efforts to improve global labor standards. Using Nike as the primary case study, Locke concludes that private, voluntary regulation—the leading approach he says has emerged to address working conditions that fall short of basic labor standards—has essentially failed.

My response notes the many parallels between the Nike case study and the current situation regarding Apple. As with Nike, Apple’s elevated commitment to improving labor standards has been largely driven by the desire to mitigate what had become a public relations nightmare undermining its brand—in Apple’s case a series of New York Times and other high-profile stories describing the brutal living and working conditions faced by the workers making its products. As with Nike, Apple’s primary response has been private regulation, another way of saying that the company is pushing for reforms itself, through its Supplier’s Code of Conduct, expanded audits of its suppliers and conversations with its suppliers.

Read more


175,000 jobs a month won’t make us whole until 2020

Since late 2010, the U.S. economy has been adding an average of around 175,000 jobs per month. Because this pace has persisted for so long, there is a real danger that it’s beginning to be considered the “new normal,” the pace of growth people assume is the best the economy can do. It’s important to demonstrate just what this rate of job-growth implies for restoring the U.S. labor market to even conservative standards of health.

As of March, I estimate that the U.S. economy needs 8.8 million jobs to get back to the labor market health that we had in December 2007.

This estimate takes into account both how far we are below the Dec. 2007 jobs level (we’re still 2.8 million jobs short of what we had before the Great Recession hit) and the number of jobs we should have added since Dec. 2007 just to keep up with growth in the potential labor force (6 million jobs). Conceptually, this measure is what it would take to restore the labor market to the Dec. 2007 unemployment rate (5.0 percent) at today’s “structural” labor force participation rate, meaning it fully takes into account the fact that demographic shifts since 2007—like baby boomers hitting retirement age—and other “non-cyclical” factors mean that a somewhat lower share of the overall population should be seen as potential workers today than in 2007.1

Read more

Building a Tax Code for Today

As Congress pursues comprehensive tax reform, policymakers have made numerous references the 1986 Tax Reform Act, which has been the principle framework for overhaul to date.

The 1986 reforms are revered because they succeeded politically, passing a divided Congress and enacted by a lame-duck president. Comprehensive reform today similarly would have to overcome major political hurdles, particularly Republican intransigence over raising revenue. Yet many policymakers today seem unaware that 1986-style reform is no longer viable.

The 1986 model was designed to be both revenue neutral and distributionally neutral—meaning that average tax rates would remain roughly unchanged across incomes. Replicating these objectives today would imprudently disregard shifts in the economic and budgetary landscape. The Bush-era tax cuts enacted a decade ago violated the spirit of the 1986 reforms by lowering revenue and shifting the burden of taxation further down the income scale. In so doing, they contributed to sizable structural budget deficits and revenue levels inadequate to support the baby-boomers’ retirement (an outlook essentially unchanged by the lame duck budget deal). And today, rising income inequality—exacerbated by reductions in top tax rates—has surpassed Gilded Age levels.

Read more

What we read today

Reinhart and Rogoff couldn’t justify austerity before it was debunked

Last week, The Century Foundation hosted a Twitter chat forum in which Mike Konczal of the Roosevelt Institute, TCF fellow Mark Thoma and I discussed the Reinhart and Rogoff kerfuffle and its implications for the policy debate over austerity (here’s the Storified “transcript”). Nearly every facet of this incident has been thoroughly covered in the blogosphere—see Mike’s post for a summary of the Herndon, Ash, and Pollin (2013) paper debunking R&R; Arindrajit Dube’s post on reverse causation; my colleague Josh Bivens’ post on R&R’s response to reverse causation criticism; Paul Krugman on R&R’s obfuscating rebuttal; and Dean Baker’s post on R&R’s purported role in the policy debate.

But what’s gone entirely missing, as far as I can tell, and what I struggled to explain in sub-140-character increments, is that R&R’s reported finding—that “median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower [and slightly negative]”—couldn’t justify austerity even before it was debunked.

Back in early 2010, pundits and policymakers immediately seized on R&R’s now-invalidated results to justify austerity policies, so the paper’s methodological debunking has been correctly interpreted as a major defeat for the austerity movement. But the Beltway interpretation of R&R was based on a false premise from the get-go. Robert Samuelson’s predictably unhelpful addition to the R&R debate—his half-hearted defense of R&R’s “minor mistakes” is scattered with objectively inaccurate revisionist history—perfectly encapsulates this widely propagated false dichotomy: “It’s ‘austerity’ versus ‘stimulus.’ If debt exceeding 90 percent of GDP is hazardous, then the case for austerity seems stronger.” (Emphasis added.)

Read more

The missing workers: how many are there and who are they?

Jim Tankersley at the Washington Post and Ben Casselman at the Wall Street Journal are in a “wonkfeud” about labor force participation. It started when Casselman estimated that there are currently around 3 million “missing workers” in the US (workers who are not in the labor force but who would be if job opportunities were strong). Tankersley did not dispute that figure, but pointed out that because it only counts workers who are missing due to the weak labor market in the Great Recession and its aftermath, it is a substantial undercount of the total number of missing workers because labor force participation was also weak in the decade leading up to the Great Recession.

To Tankersley’s point I will just add that while I don’t have an estimate of the number of missing workers from the 2000-2007 business cycle, it was indeed the weakest full business cycle in terms of job growth in at least three generations, and the labor market had not yet come close to regaining the health of the late 1990s before the Great Recession began at the end of 2007. It is an important reminder that estimates like the one below of how many jobs we need to get back to the labor market health of 2007 are conservative indeed, since while 2007 was the last year before the Great Recession hit, it was no labor market paradise by any stretch.

Read more

Why do so many people want to only pursue the expensive ways to fix job-quality?

John Schmitt and Janelle Jones have written an excellent paper on what it would take to improve job-quality in the U.S., backed with actual data, rather than hand-waving about training-this and skills-that. I would, however, slightly tweak one line in the press release for the paper: “The authors note that restoring the link between economic growth and job quality will be a heavy lift.”

I think a distinction is in order between things that are a heavy economic lift versus those that are a heavy political lift. Schmitt and Jones, for example, show that increasing the share of U.S. workers represented by a union by 25 percent would have a larger impact on boosting good jobs (and reducing bad jobs) than would boosting the share of U.S. workers with a 4-year college degree by 25 percent.

But boosting the share of workers with a 4-year college degree is indeed a heavy economic lift—it takes real resources (books, labs, classrooms and most expensively teachers) to provide the skills and education needed to qualify for a college degree. But boosting the share of workers with union representation really doesn’t cost much at all—there is really no serious research linking economy-wide productivity declines to increased unionization. Instead, boosting the share of union workers in the U.S. would redistribute money, but would not cost the U.S. economy anything in the aggregate. And given that so much of the decline in unionization seems to be policy-driven (PDF), the real lever to make this increase happen is essentially the costless act of changing the policy stance towards unionization (there is no CBO score, for example, for the Employee Free Choice Act because it doesn’t cost anything).

But of course we’re not going to see a more hospitable policy/legal environment for unionization anytime soon—it’s too heavy a political lift.

Read more


What we read today

Here’s what we’re reading and talking about this afternoon:

(Final?) Notes on the Reinhart/Rogoff saga

Robert Samuelson and Anders Aslund have a go at defending the R&R results, and the authors themselves further respond. A couple of notes on all of this.

As pointed out elsewhere, the claim that the UMASS paper actually supports R&R’s alleged core finding of a significant relationship between high debt and slow growth is flat wrong.1 Yes, the midpoint average growth rate of high-debt countries (over 90 percent of GDP) is lower than the average growth of lower-debt countries, but the differences are not statistically significant. Really, people should give up on this one.

More importantly, the real argument all along has been two-way causality: data showing that there is lower growth at high debt levels does not show that high debt causes low growth. A finding of statistical association between high debt and slow growth would surprise precisely nobody, but there is a better case to be made that slow growth leads to high debt rather than vice-versa. Arin Dube demonstrated this very well in his note on Reinhart and Rogoff’s entire data-set, and for the U.S. John Irons and I did the same with Granger causality tests on the U.S. data in July 2010, nearly three years ago. Paul Krugman kindly referred to our results in his blog saying “John Irons and Josh Bivens have the best takedown yet of the Reinhart-Rogoff paper (pdf) claiming that debt over 90 percent of GDP leads to drastically slower growth.” So the causality problem has been well known for some time. By the way, we compiled the data we used ourselves because emails to Reinhart and Rogoff requesting their data went unreturned. Perhaps if they had shared their data at that time their actual weighting procedure would have become clear much sooner and even their spreadsheet error could have been corrected. Kudos to the UMASS authors for being more persistent than us and for the work they did.

Read more

Workers Memorial Day thoughts

How many times have you heard business lobbyists and spokesmen say: “Regulations are killing jobs”? Or how about, “Excessive regulations are driving manufacturers overseas”?

Well think about what’s been happening in Bangladesh, where so many US clothing retailers and garment makers, from Wal-Mart to L.L.Bean, have gone to escape livable wages and regulation. That lack of regulations is killing workers, not in ones and twos, as happens here in the United States several times every day, but hundreds at a time. Factory fires as devastating as the Triangle Shirtwaist fire of a century ago have now been followed by a building collapse that has so far claimed 300 lives, the workers crushed, bleeding to death or suffocating.

Several stories I’ve read report that only one business (a bank) heeded the warnings of police that the eight-story factory building was so unsafe that it had to be evacuated. The other businesses shrugged off the warnings and ordered more than 2,000 people to work in mortal danger.

Read more

How far from full recovery are we, Part II: Housing to the rescue?

I noted a while back that the uptick in residential construction was a genuine bright spot in the economy, and one that would all else equal make one expect better GDP growth in 2013 than 2012. But just how much should we realistically expect from residential investment in driving growth?

Not much. Residential investment is only about 2.7 percent of the overall economy (as of the first quarter of 2013), so even extraordinarily fast growth in this sector would not be enough to drag the rest of the economy with it. As a demonstration, look at 2012—the most rapid growth of residential investment in the past two decades—in the figure below (which shows a rolling 4-quarter average of growth rates of residential investment since 1989).

housing blog A

Read more

What we read (and watched) today

Here’s what we read (and watched) today:

$100 billion to Apple shareholders, any to Apple workers?

In conjunction with its April 23 quarterly earnings report, Apple issued a separate announcement that it is doubling its “capital return program” and will return $100 billion to shareholders by the end of 2015. This decision reflects the enormous size of the company’s existing cash reserve and, according to Apple’s chief financial officer, the fact that “We [Apple] continue to generate cash in excess of our needs….”

Missing from yesterday’s announcement, as well as from the last few months of discussion over what Apple should do with its cash reserve, was how those resources could also be deployed to make necessary improvements in the compensation and treatment of the workers making Apple’s products abroad, or selling its products in the United States. This neglect is unfortunate. These workers contribute directly to Apple’s enviable financial position, even though they frequently live and work under harsh conditions for meager pay. As I detailed in a previous analysis, Apple could also use its cash reserve to:

  • Fulfill its promise to retroactively pay the factory workers making its products for previously uncompensated work time
  • Boost the pay of the factory workers making its products to offset the reductions in excessive overtime Apple has (appropriately) helped spur
  • Ensure that all the workers making its products are paid a livable wage, a step Apple is theoretically obliged to take as a member of the Fair Labor Association
  • Reduce health and safety threats at the factories making its products
  • Provide compensation for the labor rights violations the workers making its products have endured
  • Narrow the gap between the pay of the workers at Apple stores and comparable college graduates

Read more

How far from full labor market recovery are we? Part I

Last year around this time, I wrote a blog looking at the behavior of the unemployment rate over and after the Great Recession. I found that relative to its past historical relationship with output growth, the overall unemployment rate rose too rapidly during recession and then fell too rapidly between 2011 and 2012. I then approvingly quoted Ben Bernanke, who noted: “further significant improvements in unemployment will likely require faster economic growth than we experienced during the past year.”

In last year’s blog post, I noted that going forward the historical relationship between output growth and unemployment suggested that two straight years of 2.7 percent growth would be needed to reduce unemployment by even 0.4 percentage points. The growth rate for 2012 came in well under this at 2.2 percent. And what happened to unemployment in 2012? It fell by 0.8 percentage points.

So, another year has passed where the overall unemployment rate significantly over-performed relative to most other economic aggregates. The figure below shows the two-year change in unemployment, both actual and what is predicted from a simple regression of the two-year change on the two-year difference in growth rates of actual gross domestic product versus potential gross domestic product as measured by the CBO.1 What this captures is that the economy must grow faster than underlying trend growth (or growth in potential GDP) in order for unemployment to decline. The figure confirms that the actual unemployment rate rose more rapidly than predicted during the Great Recession, but then fell more rapidly than predicted in 2011 and 2012. By the end of 2012, the actual unemployment was a nearly 1.5 percentage points below what it would have been had the simple Okun’s relationship between output growth and unemployment continued to hold.

Read more

What we read today

Fox News wannabe: Washington Post disses France

In a story headlined, “France Drowning in Rules and Regulations, critics say,” WaPo writer Edward Cody presents a caricature of a country with one of the highest standards of living in the world. Based on little more than interviews with disgruntled officials in one small town, Cody variously describes France’s regulatory regime as “strangling,” “smothering,” or “burying” the economy. For example:

“France and its southern European neighbors, such as Italy and Greece, are increasingly being buried in such norms, rules and directives. In the past two decades, the number of legal do’s and don’ts has become so great that businessmen and economists1 warn that it is smothering growth just as the continent tries to dig out of its worst slump in a generation.”

But France is not Italy or Greece, and the truth is almost the opposite of Cody’s claim that, compared with the Scandinavian countries, France discourages business. In fact, the World Bank measures the nations of the world on the ease of starting a new business, and France ranks well above all four of the Scandinavian countries. France also ranks about 80 places ahead of Europe’s economic powerhouse, Germany.

Read more

More on missing downward price pressure (hint, blame corporate profits)

Paul Krugman has been writing (and linking to helpful pieces) about the “missing deflation” of recent years. Despite lots of hand-wringing that activist macroeconomic policy (especially the large degree of easing done by the Federal Reserve) is laying the powder for an explosion of inflation, it’s clear that this is the wrong worry and that the extraordinary degree of economic slack actually argues that disinflation is much more likely, and is actually a problem (by the way, Ken Rogoff is totally right about this one).

But Krugman notes it’s actually a puzzle that disinflation (a reduction in the rate of price-growth) has not been ongoing and has not pushed over into outright deflation (falling prices) like in Japan. And even in Japan, prolonged economic weakness has not led to accelerating deflation, instead their deflation has been slow and steady. So what’s happening?

Krugman and others have usefully pointed to downward nominal wage rigidity as the key reason—for whatever reasons, workers seem to really not like, and employers seem to indulge their preference for, outright nominal wage cuts. Wages holding steady while inflation reduces their purchasing power? That happens—and it’s happening a lot these days. But outright nominal wage reductions are rare, and this rarity could well be providing a (useful) floor to disinflation.

Read more

Kids vs. seniors: an Urban myth

Are we spending too much on seniors and too little on kids? Many will recognize this as a classic either-or fallacy (what about tax breaks for the wealthy…?) But with Ron Brownstein, Ezra Klein and Charlie Cook all repeating the Urban Institute statistic that federal spending on seniors is nearly seven times that on children, the idea that seniors are crowding out children’s programs is catching on in Washington. Meanwhile, Urban’s estimate that state and local governments spend nine times more on kids than on seniors hasn’t gotten the same attention. Overall, it appears that government spending on seniors is roughly double (or less) that on children, though this measure includes Social Security, which is almost entirely funded through worker contributions.

Few progressives would dispute the need to spend more on children, especially low-income children. This should be the take-away from the Urban Institute’s “Kids’ Share” reports, the latest of which was published last July but is still frequently cited. Unfortunately, its findings are used mainly to justify cuts to Social Security and Medicare rather than expanding worthy kids’ programs.

Reporters love the generational warfare angle, which Urban isn’t above exploiting. The report is rife with selective comparisons to federal spending on elderly and disabled adults, as if there were only three groups of recipients of government spending and the size of the government pie was, by necessity, fixed or shrinking.

Read more

A slight bit of substance on the Reinhart and Rogoff 90 percent debt threshold

Three quick notes on the debate over the Reinhart and Rogoff kerfuffle.

First, in their response, they move far from what has been interpreted (often with their encouragement) as the key claim of their paper—that there exists a clear, well-defined threshold for a nation’s public debt (90 percent of total gross domestic product) above which debt exerts a “secular drag on growth.” In commenting on the Herndon, Ash and Pollin (HAP) paper which demonstrates that a few improvements to the paper’s methodology (including correcting a coding error) makes this well-defined threshold disappear, Reinhart and Rogoff (R&R, hereafter) point to the HAP finding that as debt ratios rise in their sample, growth rates are slightly (and not statistically significant) lower. R&R try to cast this as somehow supportive of their own original finding. But it’s really not. Nobody has denied that there could be a statistical association between high levels of debt and slow growth—the key argument was that the causality could easily run from slow growth to higher debt ratios. What R&R claimed, and more importantly what became crucially important in fiscal policy debates, was that 90 percent was a bright line of debt that policymakers dare not flirt with. In some arenas they have been more judicious than that, but in others they wrote things like:

“…we find that very high debt levels of 90% of GDP are a long-term secular drag on economic growth.”

This 90 percent line has been hugely influential—fears of debt stabilizing at some higher ratio essentially drive the now-ubiquitous calls for aggressive 10-year deficit reduction targets.

Read more

Gang of Eight bill delivers on bold, broad legalization of undocumented workers

Over the next several days and weeks, I’ll be reviewing the provisions of the 844-page comprehensive immigration reform bill, the Border Security, Economic Opportunity, and Immigration Modernization Act, with an eye on those elements that will particularly affect the operation and outcomes of the labor market.

Let’s start with the most important provision first. Secure Borders delivers on its most important goal: granting legal status to almost all of the eleven million immigrants currently here without authorization to work. Every undocumented immigrant who came before January 2012, who passes a criminal background check and pays $500 will be given a provisional status that will allow them to work.

That single, dramatic step will change their lives for the better, improve the labor market prospects of every other legal resident with whom they compete for jobs, and free their employers from the taint and guilt of an illegal employment relationship. It won’t make these immigrants full citizens or give them the full rights of other residents of the United States, but it will remove them from the precarious status of working illegally, with the terrifying threat of discovery and deportation always hanging over their heads. They will be free to join unions, to ask for, demand, or strike for higher pay, and will be free to quit and look for a better job with another employer. The job lock and fear that keep so many of the undocumented underpaid or underemployed will end immediately.

For that, I take my hat off to the Gang of Eight.

The Reinhart and Rogoff magical 90 percent threshold loses its magic?

One of the most influential findings in the never-ending debate over American fiscal policy came from a 2010 paper by economists Carmen Reinhart and Kenneth Rogoff—“Growth in a Time of Debt.” They claimed to have identified a clear debt ratio (total public debt divided by  gross domestic product) threshold above which countries’ economic growth would significantly slow. This 90 percent debt ratio has been referenced by budget writers, policymakers and others arguing for steep reductions in budget deficits soon.

We didn’t buy it. In the same year their paper was released, I co-authored a paper (along with John Irons) looking at the historical record for the U.S., and found very little evidence that such a threshold existed (and we weren’t alone in our skepticism). Further, we noted that the causality of any such finding was deeply in doubt—slow growth could lead to high debt as surely (actually, much more surely) as high debt could impede growth.

Most importantly (if not most thrillingly), we argued (in the first bullet-point!) that “there is no compelling theoretical reason why the stock of debt at a given point in time should harm contemporaneous economic growth.”

And it turns out that there is no longer any compelling empirical reason to think that the 90 percent threshold is operable any more either, as a new working paper by Herndon, Ash and Pollin makes clear. After receiving the original Reinhart and Rogoff data set (collegially provided by the original authors), they found a number of errors that, when corrected, essentially overturn the finding that debt ratios of over 90 percent are associated with slower growth. Mike Konczal reviews the paper in some detail here.

Read more

The Working Families Flexibility Act is a fraud

The Republican majority on the House Education and Workforce Committee could raise the minimum wage, cover more employees with overtime protection, pass paid sick days legislation, pass a paid family leave bill, or do a host of other things to make life easier for America’s working families. Instead, as Judith Lichtman of the National Partnership for Women and Families testified last week, they have chosen to weaken overtime protections and shift more power from employees to their bosses.

The Republicans have trotted out a bill introduced back in 1995 and unsuccessfully pushed again by business lobbyists in 2003. They call H.R. 1406 the Working Families Flexibility Act, apparently because it will bend and twist working families even more than they already are as they try to balance the needs of home and work. Rather than give employees the flexibility to take a paid day off when they or their kids are sick, the bill gives their employers the flexibility not to pay them overtime when it is earned.

Lichtman does a great job of pointing out what a sham the bill is, and the National Partnership has also published a good fact sheet that points out that the bill greatly increases the risk that employees will work overtime but never get paid for it. The chance that thousands of businesses will fail each year while holding millions of dollars of unpaid overtime credits in leave banks is very real. Half a million businesses fail in an average year.

Judy Lichtman politely calls H.R. 1406 “smoke and mirrors.” I think it’s fair to call it a fraud, for the truth is that the law already permits the only benefit the bill claims to provide, time off for employees who work overtime. Nothing in current law prevents an employer that makes an employee work overtime from paying for that overtime and then providing unpaid compensatory time off to the employee at a later date.

What we read today (Tax Day edition)

Happy tax day! Here are a few stories we found interesting in the past couple weeks:

Tax Day 2013: For the vast major, it’s all about the expired payroll tax cut

Around the enactment of the lame-duck budget deal, which permanently extended the Bush-era tax cuts and most  expiring income tax provisions for roughly 99 percent of households, policymakers were claiming to be preventing the largest tax hike in American history. Yet every worker saw their taxes go up between 2012 and 2013.

And during the “fiscal cliff” policy debates, some conservatives (wrongly) warned that full expiration of the Bush tax cuts would push the economy back into recession. Neither event occurred, but enough other fiscal retrenchment is slated for 2013 that the labor market will likely experience renewed deterioration—in large part because the expiring two-percentage-point Social Security payroll tax cut went ignored during the policy debate.

So with tax day upon us, here’s a brief overview of the budgetary and economic impacts of tax changes for 2013. Notably, the relatively well targeted payroll tax cut’s expiration is the tax change overwhelmingly felt by the vast majority of households, whereas other tax changes were rather progressively targeted. Correspondingly, the expiration of the payroll tax cut will exert a fairly sizable drag on economic growth in 2013, whereas tax changes more targeted to upper-income households pose only about one-fifth as much of a drag per dollar.

Read more

How High Should Top Income Tax Rates Be? Getting the Fight Right

A version of this post originally appeared at the Fiscal Times.

Over at Forbes, Tim Worstall didn’t take kindly to an op-ed I authored for The Fiscal Times pointing out that research by two economists, Peter Diamond and Emmanuel Saez, indicates that individual income tax rates are currently well below their revenue-maximizing rates. He accuses me of misrepresenting their work … by completely misrepresenting their work, as well as mine. The crux of his ire with my “propaganda” is this paragraph in my piece:

“Most importantly, recent economic research has shown that productive economic activity is relatively unresponsive to increases in the top income tax rate, and the top income tax rate is well below the levels where it maximizes revenue. Economists Peter Diamond and Emmanuel Saez estimate that the revenue maximizing income tax rate is 73 percent (combing federal, state and local taxes).”

Worstall: “No, that is not what that paper says. What it does say is that in a tax system with no allowances then that peak of the Laffer Curve, that revenue [maximizing] rate, is 73 percent. What it also says is that the peak in a system with allowances is more like 54 percent.”

Nope, that’s totally wrong. What the paper says — it’s on page 7 — is that in today’s system the best estimate of the revenue-maximizing rate is 73 percent. Period.

Read more