On International Migrants Day, remember that guest worker programs aren’t the solution for immigration reform

Although few in the United States have heard about it, Dec. 18 is known around the world as International Migrants Day. It began in part as a way to commemorate and remind governments to adopt the International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families, an international treaty created to protect the basic human rights of those who cross international borders—whether by choice or by force—in search of a better life. But it is also a day to recall the economic contributions of immigrants, by reminding us that most immigrants in the United States are workers—workers who toil alongside their native-born counterparts on agricultural lands, in factories, and in engineering labs. On this International Migrants Day, I am particularly hopeful that positive reforms to our immigration system may soon be enacted—reforms that will benefit and protect both immigrant and U.S. workers alike—thanks to the renewed discussions on comprehensive immigration reform that are taking place among the public, the media, on Capitol Hill and in the White House. And these discussions finally include skeptics, who until recently, considered legalization of the vulnerable unauthorized immigrant population to be unthinkable.

However, my optimism is tempered by the disturbing and uninformed comments being made by traditionally anti-worker sources like Read more

The unkindest cut

If news reports are accurate, the worst part of the tentative budget deal reportedly being hashed out between President Obama and House Speaker John Boehner is a proposed cut in the cost-of-living adjustment (COLA) for Social Security. This is a travesty, not least because Social Security is required by law to operate in long-term balance and therefore does not belong in budget talks ostensibly aimed at reducing long-term budget deficits.

We at EPI and our allies in the Strengthen Social Security coalition have written at length about the downsides of a COLA cut. It would have the biggest impact on the oldest retirees, who are often the poorest retirees. It would disproportionately affect disabled beneficiaries, including veterans, many of whom will see the cut cumulate over decades. And it would break the pledge made by many would-be Social Security reformers to shield current retirees, who cannot retroactively save more for retirement.

Let no one be fooled by the pretense that this is a technical adjustment. If COLA cut advocates truly believed that the chain index was more accurate (and the current measure inappropriately provided a real benefit increase over time), there would be no talk of a “birthday bump” to temporarily offset the cut after 20 years.

A lower “chained” COLA is supposed to better account for consumers’ ability to substitute cheaper goods and services in response to price increases. But Social Security beneficiaries spend a greater share of their incomes on necessities such as rent and utilities, so it is not even clear that the current measure understates the ability of beneficiaries to make such adjustments.

Even if it does, it is unlikely that a chained measure that also accounted for beneficiaries’ greater spending on out-of-pocket medical expenses would produce cost savings. The Bureau of Labor Statistics produces an “experimental” index, the CPI-E, which roughly tracks the spending of elderly consumers and has risen faster than the current measure. But neither the current index nor the CPI-E are based on the actual spending patterns of Social Security beneficiaries. Along with some 300 other Ph.D. economists and social insurance experts, we think the Bureau of Labor Statistics should construct one. In the meantime, leave the COLA alone.

Social Security has no place in ‘fiscal cliff’ negotiations

If reports are correct, Congress and President Obama are currently considering resolving the fiscal showdown by, among other things, cutting Social Security benefits through changing the cost of living adjustment. It is ridiculous. It is outrageous.

Historically, Social Security, defined-benefit (DB) pensions, and private savings successfully formed the foundation of middle-class retirement security. But DB pensions have declined in the private sector: only 18 percent of workers are covered, compared to nearly 40 percent in 1980. And since the early 80s, stagnant wages have caused the net worth of the bottom 60 percent of households to decline; the typical household approaching retirement age has less than the equivalent of two years’ worth of income saved in a retirement account—if they have retirement savings at all. Social Security remains the most reliable and effective part of the nation’s provision of retirement security, and for many households, retiree benefits averaging less than $15,000 a year are their sole source of income.

Our current deficits largely stem from the economic downturn, the Bush tax cuts, overseas wars, an unpaid-for expansion of prescription drug benefits, and a failure to control the excesses and abuses of the financial industry. In fact, over the last few decades, Social Security was running a surplus, providing cover for ill-advised revenue and spending decisions that Republicans now refuse to rescind. And over the long run, Social Security is legally prohibited from adding to the deficit.

So why are Republicans insisting that resolving the fiscal showdown include Social Security benefit cuts? Read more

If you’re writing about the ‘fiscal cliff,’ you need to read The State of Working America

Earlier this week, we released the old-school version (i.e., printed book instead of website) of The State of Working America, 12th Edition. All things economic that are not “fiscal cliff” related are having a hard time getting a public hearing these days, which is understandable. But we think that The State of Working America really should be a required reference for anybody writing about fiscal policy debates.

A key point we at EPI have tried to make over and over again in fiscal discussions is that approaching these issues only within the framework of “spending” and “revenues”—with no sense of the broader economic context— will lead to all the wrong questions being asked and solutions being offered. And The State of Working America provides this crucial broader context.

Take the debate over taxes, particularly tax rates on the highest-income households. The first thing the data in SWA help illuminate is just how modest the changes currently under discussion are, and how low taxes paid by the highest-income households are in historical perspective. For the top 0.1 percent, for example, the average effective federal tax rate in 2011 is only about half as high as it was in 1970, and the changes under discussion would only give these rates the gentlest nudge (see the effect of these cuts starting in 2000) back towards these 1970 rates. Read more

What we read today

Here’s a sampling of links that EPI’s research team found insightful today:

Reading the tea leaves on financial markets and fiscal austerity

By now, it’s (finally) becoming well-recognized that the term “fiscal cliff” confuses more than it clarifies. The worst problem with it is that it presents the sharp fiscal contraction baked into current law for 2013 as a single monolith, when in fact it’s the result of a bunch of separable tax increases and spending cuts. Given that our previous effort at renaming the “cliff” clearly failed, I now officially nominate “à la carte austerity” as a new entry.

A second problem with the “cliff” metaphor is that it carries the strong implication that if this à la carte austerity is not solved by Jan. 1, then economic chaos will ensue. This is clearly wrong. If nothing is done to address the fiscal contraction throughout the entire first half of next year, then yes, the economy will re-enter recession. But we will not be slammed back into recession Jan. 2 if this isn’t solved by then. I should note one important caveat to this: fiscal austerity will be very “cliffy” indeed for about two million of the most vulnerable Americans, as extended unemployment benefits will see a hard cutoff by the end of December. So if policymakers are trying to manage this situation with maximum efficiency and compassion, it seems that extending the longer unemployment benefits is an obvious place to start, even if other elements of the à la carte austerity are not solved. Yes, I’m not holding my breath either. Read more

American Immigration Council is wrong about H-1B fraud rules

The American Immigration Council (AIC) has a new blog post that makes some troubling claims regarding certain aspects of the H-1B guest worker program. In her piece, “Lawsuit Uncovers USCIS’ Double Standards in H-1B Program,” AIC attorney Emily Creighton discusses what she believes to be the significance of a number of revealing internal documents AIC obtained from U.S. Citizenship and Immigration Services (USCIS) through a Freedom of Information Act (FOIA) request and subsequent litigation. I admire and applaud the lawyers at the AIC’s Legal Action Center for their hard work to force the release of the documents, because the action has brought another element of much-needed transparency to the flawed and much-abused H-1B guest worker program for temporary foreign workers with at least a college degree. However, the conclusions Creighton draws regarding AIC’s new discoveries are off the mark.

Creighton describes the substance of her findings:

According to fraud referral sheets [obtained from USCIS], a fraud investigation may be triggered when a business asks for an H-1B employee if the business has a combination of the following characteristics: 1) a gross annual income of less than $10 million, 2) fewer than 25 employees, or 3) has been in business for fewer than 10 years.

In her opinion, this means Read more

Ease of doing business in U.S. and record corporate profits contradict Chamber’s regulatory complaints

After years of hearing the Chamber of Commerce and certain other business groups complain about the regulatory burden government imposes, far too many Americans (and politicians) are probably convinced that regulations are excessively burdensome to businesses. Not so, according to two important new pieces of information.

First, after examining 185 nations on 10 key factors, the World Bank’s latest “Ease of Doing Business” study ranks the U.S. No. 4 overall and No. 1 among the 25 largest economies. In the words of the World Bank, “A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm.” Unlike so many business trade associations and lobbyists, the World Bank recognizes that the regulatory environment includes many rules that enhance and protect business activity, and the U.S. ranks especially high in protecting investors, enforcing contracts, and getting credit.

A second fact that contradicts business complaints about burdensome regulations is that corporate profits, which were $1.75 trillion in the third quarter of 2012, are at an all-time high (higher as a percent of GDP than at any time in our history). That corporate America’s bottom line is doing extraordinarily well should, at a minimum, make one skeptical of the seemingly endless studies by business groups which somehow find that regulations are damaging them.

That leads to the central question: Given that the U.S. has one of the most welcoming regulatory environments in the world, why aren’t U.S. businesses creating more jobs instead of hoarding the historic profits they’ve accumulated? The answer, as most economists know, is slack demand. Without customers able and willing to spend, businesses won’t invest. The solution is the same as it was at the start of the recession: because financially squeezed consumers can’t spend and businesses won’t, it is the responsibility of the federal government to make large enough investments in infrastructure and human capital to lift the economy and protect our future prosperity.


Right-to-work-for-less passes in Michigan

The Wall Street Journal’s owner and editors hate unions, so it is no surprise that the newspaper published an editorial on Tuesday gloating over Michigan’s enactment of “right-to-work” legislation to ban contracts between labor unions and employers that require all employees covered by the contract to pay union dues or their equivalent. The editorial is so full of untruths, half-truths and right-wing extremist ideology that a full response would wear out both author and reader. But let’s take a brief look at how the 1 percent defends this ugly attack on employee rights and economic security.

The heart of the editorial is the contention that right-to-work-for-less laws are good for workers, families and state economies, which it supports with various pseudo-scientific studies, including one by the Taxpayers Protection Alliance that—ludicrously—claims the typical Michigan family of four would have had annual income $54,224 greater in 2008 if Michigan had enacted a right-to-work-for-less law in 1977. In 2008, median income for a family of four was about $78,000, so the Journal is proposing that it would have been roughly $132,000! Curiously, only four states had median household income over $100,000 in 2008, and not one was right-to-work-for-less. Read more

What we read today

What we read today

Here’s some thought-provoking content that EPI’s research team enjoyed reading today:

Latinos lead in insufficient work hours

This month, the National Council of La Raza’s (NCLR) Monthly Latino Unemployment Report focuses on the important issue of underemployment. “Underemployment,” as The State of Working America states, is “a more comprehensive measure of slack in the labor market than unemployment.”

The book goes on:

Underemployment includes workers who meet the official definition of unemployment as well as: 1) those who are working part time but want and are available to work full time (“involuntary” part timers), and 2) those who want and are available to work and have looked for work in the last year but have given up actively seeking work (“marginally attached” workers). While this is the most comprehensive measure of labor underutilization available from the Bureau of Labor Statistics, it does not include workers who are underemployed in a “skills or experience” sense (as in, say, a mechanical engineer working as a barista).

African Americans generally have the highest rates of underemployment among the major racial and ethnic groups. However, for much of 2009, Latinos had a slightly higher rate. This year, the Latino underemployment rate has averaged about 20 percent, while the black rate has averaged about 23 percent, and the white rate about 12 percent.

NCLR’s report also pulls apart the underemployment rate to examine the rate of involuntary part-time work. The share of workers who want full-time work but only have part-time work out of all workers is another important measure of hardship. Many of these individuals are struggling to make ends meet.

If one examines this involuntary-part-time rate from Nov. 2011 to Oct. 2012, Latinos have the highest rate. The share of Latino workers who only have part-time work but desire full-time work is 10.3 percent. For blacks, it is 7.7 percent, and for whites it is 5 percent. We need much stronger job creation to put these part-time workers in full-time jobs.

What we read today

Here’s some of the interesting content that EPI’s research team browsed through today:

The black birth rate converges on the white rate

Among the U.S.-born, black women had the strongest birth-rate decline from 1990 to 2010, according to a recent report from Pew Social and Demographic Trends. The birth rate—the number of births per 1,000 women aged 15 to 44—declined 29 percent for blacks, 25 percent for Asians, 21 percent for Hispanics, but only 5 percent for whites.

In 1990, the black birth rate was 26.1 points higher than the white rate. In 2010, it was only 4 points higher. If this trend continues, the black birth rate will soon equal the white rate.

Don’t be fooled, Michigan: ‘Right to work’ is just plain wrong

Michigan’s Republican-controlled House and Senate forced through “right-to-work” legislation on Thursday, making the Great Lakes State the latest battleground over worker rights. The move, of course, comes after recent GOP-led anti-union measures were passed in Wisconsin and Indiana. Michigan stands to join 23 other states with RTW laws, which make it illegal for collective bargaining agreements to require nonunion employees to pay fees (even though these nonunion employees get all of the same benefits as their unionized peers under negotiated contracts). Since the actual effect of RTW laws is to restrict workers’ rights—by making it illegal for them to enter voluntary contracts with unions to collect union dues—the name is misleading. Even more misleading, however, are claims that these laws boost a state’s economy.

RIGHT-TO-WORK 101: Why These Laws Hurt Our Economy, Our Society, and Our Democracy

Union members and their supporters are well aware of RTW’s consequences, which is why Read more

An economy that works for the middle class won’t happen on its own

A vital goal of economic policy should be to raise the living standards of the millions of American households who have seen their wages and living standards stagnate or decline over the last few decades. Fundamental to this is an economy that produces good, well-paying jobs. The biggest obstacle to this, currently, is the jobs crisis driven by a shortfall in aggregate demand. Additional factors though, written into our current policies, mean that even when the economy does recover, there is no reason to believe that the jobs it produces will actually be well-paying jobs.

The New York Times business section ran a story yesterday on low-wage workers and declining unionization rates, making the key points that:

  1. We are neither building an economy in which most workers earn enough to adequately support their families nor are we sufficiently using government tools to help subsidize the lower class
  2. The decline in unionization rates is adding to the woes of low-wage workers Read more

6 reasons why the debt ceiling should be scrapped

It’s true that the fiscal cliff poses a significant threat to the economy if left completely unaddressed deep into 2013. But although the two most well-known components of the cliff (which is better described as a “fiscal obstacle course”) are the expiration of the Bush tax cuts and the sequestration cuts, neither scheduled change poses nearly as large a danger to the economy in the immediate future as a failure to raise the debt ceiling.

Last year, President Obama allowed congressional Republicans to hold the economy hostage by refusing to raise the debt ceiling until their demands to cut spending were met. Obama eventually agreed to cut roughly $2 trillion in spending, including $800 billion from the discretionary spending caps and $1.2 trillion from the sequester (which includes discretionary and some mandatory spending). This set a dangerous precedent that the minority party could use the debt ceiling to extract policy concessions from the majority.

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

Appearing to recognize this dangerous precedent, the president has now proposed defusing the debt ceiling by allowing any president to raise the debt ceiling, with only a two-thirds vote in Congress able to prevent the increase. This is a positive development, as are Read more

Want jobs? Kill the Bush tax cuts and extend Emergency Unemployment Compensation

The American public wants Congress to get the economy moving and create jobs. Rightly so, given 7.9 percent unemployment and 23 million workers underemployed. So why is Speaker of the House John Boehner focused on something else? Why, for example, does he support continuing the Bush tax cuts for the very rich, which do almost nothing to boost the economy, and oppose continuing Emergency Unemployment Compensation for the long-term unemployed, which is a proven job creator, in addition to being financial life support for millions of families?

Extending just the upper-income Bush tax cuts would boost GDP growth by 0.1 percentage point, increasing nonfarm payroll employment in 2013 by only 102,000 jobs—far less than one-tenth the impact of continuing the temporary ad hoc stimulus measures. Continuing EUC would do three times as much in terms of GDP growth and support 300,000 to 400,000 jobs. In terms of jobs created per dollar of budget deficit, EUC is more than five times as effective as the Bush income tax cuts for the wealthy. Combine them with the Bush estate tax cuts and they are one-seventh as effective as EUC. Read more

Fixing a problem that doesn’t exist: Special interest STEM immigration bills are not needed

Business groups and their allies, including New York Mayor Michael Bloomberg and various non-profit advocacy organizations, have been arguing for years—without real evidence—that the United States is losing a race to attract the world’s best and brightest young scientists, engineers, computer techies and mathematicians. In a report entitled, Immigration of Foreign Nationals with Science, Technology, Engineering, and Mathematics (STEM) Degrees, Ruth Wasem of the Congressional Research Service (CRS) recently reviewed the statistics regarding these highly skilled migrants and concluded: “The United States remains the leading host country for international students in science, technology, engineering, or mathematics (STEM) fields.” The United States has been and continues to be extraordinarily welcoming to foreign students, and especially to those in the STEM fields. CRS reports that the number of foreign graduate students in the STEM fields increased by 50 percent since 1990:

“The number of full-time graduate students in science, engineering, and health fields who were foreign students (largely on F-1 nonimmigrant visas) grew from 91,150 in 1990 to 148,923 in 2009, with most of the increase occurring after 1999. Read more

What we read today

Here’s some reading material for you from items EPI’s research team skimmed through today:

What we read today

Here’s some good content that EPI’s research team browsed through today:

A good first step, but full recovery would still be far, far away

The leaked document that purports to show the Obama administration’s opening bid for resolving the “fiscal cliff” is deeply encouraging, on many fronts—as detailed by Andrew Fieldhouse. Given how strong a proposal it is, and how in-line it is with many of the principles for fiscal policy that we have laid out in the medium– and long-run, it seems churlish to raise any note of criticism. It needs to be said, however, that as good as this proposal is, it still does not look like strong-enough medicine to solve the most pressing problem of sluggish economic growth and chronic joblessness in the coming years.

To be sure, if adopted it would turn fiscal policy from dangerously contractionary to supportive of growth in the next couple of years. And the most basic contours of their proposal, as Andrew notes, are actually very much in line with the proposed strategy we recently outlined.

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

But, as our own paper noted, both our strategy and the Obama administration’s proposal start with the presumption that measures that are strong enough to reliably solve the crisis of joblessness in the near term are totally outside the bounds of political realism. Read more

Obama’s opening bid is both familiar and sound

President Obama’s opening bid for negotiations resolving the “fiscal cliff” has surfaced, and the contours are both familiar and sound. The Washington Post and an unofficial outline drafted by Republican aides both suggest that the administration has essentially proposed its budget request for fiscal 2013. And the president’s latest budget offers a solid framework for navigating the fiscal obstacle course, as it would substantially moderate the pace of deficit reduction while making a responsible down payment on longer-term deficit reduction. Relative to current policy, the contours are shaping up roughly as follows:

  • Allow the upper-income Bush tax cuts to expire (+$850 billion)
  • Restore the estate and gift taxes to 2009 parameters (+$120 billion)
  • Curb tax expenditures (+600 billion)
  • Stimulus spending (-$50 billion)
  • Extend emergency unemployment benefits (-$30 billion)
  • Extend or replace the payroll tax cut (-$110 billion)
  • Continue AMT patch, “doc fix,” and tax extenders (-$240 billion)
  • Defer sequestration (?)

Most critically, the Obama framework includes a variation of his American Jobs Act, proposing increased near-term government spending on infrastructure and state fiscal relief while maintaining the ad hoc stimulus set to expire at year’s endRead more

President Obama wants to cut domestic spending and protect public investments, but his budget only cuts

Last week, President Obama’s vestigial campaign sent out an infographic touting his plan to address the fiscal cliff. This plan would end the upper Bush tax cuts and cut spending by more than $3 trillion, including the cuts already signed into law since early 2011, and preserve nondefense public investments in areas like education and infrastructure.

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

There’s an irony in that the cuts already signed into law were never actually supported by the president, who only relented when the House GOP threatened to shut down the government (the spring 2011 appropriations showdown) and collapse the economy (the summer 2011 debt ceiling showdown). He was right then, because these cuts—particularly the half that come out of the domestic discretionary budget—are horrible policy. Domestic (non-security) discretionary spending is the portion of the overall budget that not only delivers the primary source of investment in our nation’s future, but also provides vital services to people in need, protects Americans from corporate abuses and environmental degradation, and keeps the government itself operating. (The nondefense budget includes all of non-security plus homeland security, veterans affairs, nuclear weapon security, and foreign affairs.) Bottom line, it’s important stuff. And yet over the last year, the president has begun touting the fact that his budget brings the non-security portion of the budget down to record low levels—“the lowest level since President Eisenhower,” as the president is fond of saying—as if this is somehow a good thing. Read more

In dispute of the ‘labor dispute’

In a year of professional sports lockouts, teacher strikes, and disappearing Twinkies, we’ve heard a lot about the “labor dispute.” The phrase implies unreasonable labor demands and stalled collective bargaining negotiations and has frequently provided cover for businesses that have failed to adapt to changing economic conditions. The Hostess bankruptcy is the latest example of workers bearing the blame for years of bad management and myopic business strategy. The language used to describe these events is indicative of the vilification of workers —from Detroit, to Irving, Texas, to Washington, D.C. Yet, in so many of these cases, labor is neither the provocateur nor the problem.

When Hostess executives (who recently treated themselves to 30–300 percent pay increases) proposed a plan to slash employee compensation by 30 percent, it wasn’t in response to labor demands. When the workers refused to accept management’s proposed compensation cuts, it was resistance to extortion, not a labor dispute. Employees sticking together to protect the compensation they’d earned, following recent sacrifices to the tune of at least $110 million, wasn’t “big labor” picking a fight or wanting more. Read more

True deficit hawks would be worried with jobs and recovery first

In a recent blog post, we made the point that the debate over the “fiscal cliff/obstacle course/austerity crisis” is fixated on the too-modest goal of avoiding outright recession in the coming year, rather than actually pushing the U.S. economy back to full economic recovery. This latter goal—actually ending the economic slump that began with the Great Recession in late 2007—is obviously politically unrealistic (which, by the way, should be sign one of just how deranged D.C. policymaking has become), but we should be clear that it’s the right thing to do.

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

The U.S. economy has already forfeited literally trillions of dollars in national income by not pushing the economy back to full health after the Great Recession. Knock-on effects of this policy failure include damage to future potential income from economic “scarring;” to put it simply, allowing productive economic resources (both people and capital) to sit idle and atrophy is exceptionally inefficient. A less important knock-on effect of this continuing slump is that it will predictably cause future projected budget deficits to balloon. Yet far too many self-proclaimed deficit hawks among D.C. policymakers seem strangely unconcerned about this particular driver (continued economic weakness and unemployment) of future budget deficits, and too many are instead advocating near-term fiscal contraction that will further delay recovery.

The U.S. economy is running $973 billion (5.8 percent) below potential economic output—what the economy could produce with higher (but noninflationary) levels of employment and industrial capacity utilization. Cumulatively, these output gaps imply that the U.S. has forgone roughly $3.6 trillion of national income over 2008—2011, projected to hit $4.6 trillion by the end of 2012.

Moreover, the Congressional Budget Office’s (CBO) economic baseline shows output gaps persisting into 2018: Under current law, another $3.5 trillion worth of cumulative output gaps are projected over 2013–2017. These forecasts are likely overstated in the near term, as Congress probably won’t actually allow all the fiscal contraction baked into current law to actually come to pass. Still, CBO’s current economic forecast indicates a decade-long economic slump, in which the United States will forgo $8.1 trillion of national incomeRead more

What we read today

Here’s some of the interesting content that EPI’s research team browsed through today:

Inequality is not just about taxes and education

Zachary Goldfarb wrote an interesting piece on President Obama’s commitment to fight rising economic inequality as president. Lots of it rings true—the president has indeed expressed concerns about rising inequality and many of his policy initiatives (particularly the coverage expansion included in health reform) will indeed do much to ensure that rising inequality no longer provides as daunting a barrier to low– and middle-income households’ living standards growth.

What’s consistently depressing in the inequality debate as waged around D.C. politics, however, is the telescoping of the debate into being all about tax rates and educational attainment.

Goldfarb repeats a piece of ossified conventional wisdom in his piece, writing, “The data show that rising inequality is largely the result of a changing economy that handsomely rewards people with better skills or credentials—a college education—and leaves people with a basic education at a disadvantage.”

This just isn’t right. Check out how wages for college graduates have fared in the past decade. Read more

For fairness and job creation, the Buffett Rule is a no-brainer

Warren Buffett wrote a great New York Times op-ed in which he illustrated the ridiculousness of the claims that higher tax rates on the rich will cause them to forego profitable investments. As he points out, the decline of tax rates on the rich over the last few decades have only served to further fuel their skyrocketing incomes at the expense—rather than to the benefit—of everyone else.

Making the highest income households pay a fair share of taxes is important for the principles of fairness itself: the concept of vertical equity stipulates that tax burdens should be proportionate to a taxpayer’s ability to pay, so as income rises, so too does the share of income paid in taxes (and thus effective tax rates). As my colleague Andrew Fieldhouse calculates, very high-income households start to see their effective individual income tax rate start to fall, as the preferential treatment of capital gains and dividends undermine the basic tenant of our progressive income tax that effective tax rates should rise with income. This implies the burden of taxation is being shifted from those best able to pay to those more burdened by higher effective taxation.

But it’s not just about fairness—raising taxes on the rich produces a lot of revenue, which we can then use to create jobs and Read more

WaPo ignores facts on Social Security COLA

The Washington Post lead editorial today claims that the chained CPI-U is a better measure of the inflation facing the elderly than the current estimate of consumer prices used for that purpose. The editors argue that using the chained CPI-U is therefore not just an effective way to get substantial budget savings from a major entitlement program, but also a fair way to do so.

If the current COLA is set too high because it is calculated using a measure that systematically overstates inflation, then we ought to change it. But in fact, it doesn’t. Contrary to the Post’s assertions, the chained CPI-U and the current unchained version probably understate inflation for the elderly and disabled because the mix of goods and services they purchase is much more heavily weighted toward medicine and health services, where inflation is very high, than it is for younger consumers. In addition, elderly and disabled beneficiaries spend a greater share of their incomes on necessities like rent and utilities, and are therefore less able to substitute cheaper goods and services in response to price increases.

It is possible that Alan Simpson and Erskine Bowles didn’t know this when they recommended Read more