In an executive order dated August 7, 2025, President Trump called for a reexamination of regulations and guidance for retirement plans. Trump asked regulators to encourage retirement plan administrators to include risky options like alternative assets (or “alts”) in 401(k) and similar retirement plans. Alternative assets could be funds invested in private equity and cryptocurrencies, assets that lack strict regulation and whose value and risk can be hard to assess compared with other types of investments. Because of this, many consider alts to be unsuitable for retirement plans. Trump’s executive order listed direct and indirect interests in private market investments, real estate, digital assets, commodities, infrastructure, and longevity risk-sharing pools.

Currently there are no explicit bans on offering these types of investments in participant-directed retirement plans, but employers and advisers who serve as retirement plan fiduciaries can be sued for including inappropriately risky and costly assets among investment options. (Fiduciaries are required by law to act in the best interests of retirement plan participants.) Outside of retirement plans, marketing private equity and other largely unregulated alternative assets to small investors is mostly prohibited by securities laws, regulations, and agency guidance—though cryptocurrencies and other digital assets can be sold to anyone.

Whether due to fiduciaries’ litigation fear or common sense, alts like private equity have so far made little headway in the 401(k) space, though some major players began marketing managed funds with alternative asset components to 401(k) plan sponsors even before Trump issued his executive order.

When workers join together in a union and collectively bargain with their employer, they can improve their pay, benefits, and working conditions. Union contracts provide workers with:

• Higher wages: Workers covered by a union contract earn, on average, 12.8% more in wages than those of nonunionized peers with comparable characteristics. When union density is high, nonunionized workers benefit too, because nonunion employers must raise wages to retain and attract workers they need.
• Reduced racial wage gaps: Black workers represented by a union are paid 12.6% more than their nonunionized Black peers, and Hispanic workers represented by a union are paid 16.4% more than their nonunionized Hispanic peers.
• Higher wages for women: Wages for women represented by a union are, on average, 9.8% higher than those of nonunionized women with comparable characteristics.
• Reduced income inequality: By directly raising wages for union members and indirectly lifting pay for nonunionized workers, unions play a crucial role in raising wages for working people and narrowing income inequality.

• Healthier and safer workplaces: Union workers are more likely to have access to employer-sponsored health care and paid sick leave compared with their nonunion counterparts. Further, unions foster safer workplaces by empowering workers to bring up unsafe working conditions without fear of retaliation.
• Secure retirement: Unionized workers are more likely to have access to employer-sponsored retirement plans (94% compared with 72% of nonunion workers). Further, union employers are more likely to contribute toward retirement plans compared to nonunion employers.

Unions do more than give workers a voice at work—high union density also shapes the strength and the health of our communities. For example, states with high union density experience:

Higher wages and income

• Higher minimum wages: The average minimum wage of high-union-density states is $13.70, compared with an average minimum wage of $9.30 in low-union-density states.
• Higher incomes: Median household incomes in high-union-density states are more than $12,000 higher, on average, than median incomes in low-union-density states.
• Greater access to retirement security: States with smaller declines in union density experienced smaller reductions in employer-provided retirement plans.

Healthier communities and stronger social insurances

• Greater access to health insurance: The share of people without any form of health insurance was 5.7% in states with higher union densities, compared with 9% in states with lower union densities.
• Greater access to paid sick leave: 70.6% of states with the highest union density have enacted paid sick leave legislation, compared with just 11.8% of low-union-density states.
• Greater access to unemployment insurance: Unemployed workers are twice as likely to receive unemployment benefits in high-union-density states than in low-union-density states.
• More spending on education: States with higher rates of unionization spend $22,777 per pupil on education, compared with $15,568 per pupil in low-union-density states. Further, states with higher unionization rates are less likely to have universal voucher programs.
• Safeguarding reproductive freedom: States with abortion protections have an average union density twice as high as that of states with varying degrees of abortion restrictions and bans.

Stronger democracy

• Fewer voting restriction laws: Since 2021, low-union-density states have passed 44 voter restriction laws, whereas high-union-density states passed six such laws. Further, 70% of states with the highest union density had not passed any voter restrictions between 2021 and 2024, while less than a quarter of medium-union-density states and low-union-density states can claim this distinction.

The evidence is clear: When unions are strong, workers have more power and communities thrive. Building union density is not just a worker or workplace issue, but it is also a mechanism to uplift families and communities. In the face of rising inequality and authoritarianism, unions organize, educate, and mobilize working people to defend voting rights, push back against disinformation, and expand civic participation. Rebuilding worker power by strengthening unions is not just good policy—it is a democratic imperative in the face of authoritarian backsliding.

The ban on state regulation of artificial intelligence (AI) contained in both the House and Senate versions of the Republican megabill is overly broad, dangerous to workers, and out of step with public interest. This provision – a ten-year blanket ban on state and local governments’ ability to protect their residents from the harms of AI – is a reckless giveaway to Big Tech that will have far-reaching consequences for economic fairness, worker power, and public trust. 

Both the Senate and House versions of the provision use an extremely broad definition of AI—including automated decision-making systems – tying the hands of state lawmakers from taking any meaningful role in how AI technologies are being rapidly rolled out in many sectors of society. The Senate version ties the moratorium on regulating AI to federal funding for broadband internet infrastructure – a program on which all 50 states and territories rely to make critical progress to improve connectivity.  

The provision is opposed by a broad, bipartisan coalition – including unions, civil rights groups, state attorneys general, members of Congress across the political spectrum, and the public, who understand it as a rash giveaway to big tech. Banning state regulation of AI gives even more power to a handful of billionaires, while reducing the power of working people and communities. 

Congress can still act to remove this harmful provision and ensure that AI can expand in ways that are responsible, innovative, and grounded in public trust—while protecting the rights of workers, consumers, and communities.

Congress has a responsibility to develop and adopt federal standards that ensure new technologies lead to positive economic outcomes – and to ensure that workers have the power to control how AI and related digital tools are used in their workplaces, ideally  through collective bargaining agreements. 

However, in the absence of federal action, it is critical that states be permitted to step in and act – and those lessons can hopefully inform federal policymaking. All 50 states have been working to regulate uses of AI that harm communities and society. This ban would stop all of that progress in its tracks, blocking commonsense AI laws in development or already on the books.  

Here are a few key ways this unprecedented ban on state action to protect workers and consumers could harm workers and erode public trust:

Make it easier for employers to discriminate

The right to equal opportunity at work is already under threat from the Trump administration’s attacks on federal anti-discrimination protections and enforcement.  Unregulated AI systems could speed up and cement discrimination even further. 

Major employers increasingly rely on predictive AI software and algorithmic analysis to choose who they interview, hire, promote, discipline, or dismiss. We know these untested tools for “automated decision making” can fuel discriminatory outcomes, such as a preference for resumes with white- and male-associated names. 

With no federal guardrails in place, and with federal enforcement on anti-discrimination weakened, banning state action would allow discrimination to flourish unchecked. States must be able to step in to address algorithmic bias and enforce anti-discrimination protections so that everyone has a fair shot at a good job. 

Make it easier for employers to drive down wages

With a low federal minimum wage, rampant misclassification of contract workers, and no guardrails on how employers use AI and algorithms to make decisions about pay, the race to the bottom already experienced by gig workers could become the norm in all industries. 

Employers already use algorithms and automatic decision systems to dynamically determine the lowest possible pay for each task, location and individual, with little transparency for workers. If states are blocked from even investigating wage suppression by algorithm, these exploitative practices will spread across all industries.

Increase retaliation, union-busting, and surveillance

Automated surveillance systems and AI-powered monitoring can track everything from workers’ keystrokes and voices to their precise location in their workplace. These tools can be weaponized against workers who organize, speak up about unsafe conditions, or simply take too long in the bathroom. Workers already are vulnerable to unfair – and sometimes illegal – retaliatory discipline and firing. If workers don’t even know the extent to which they are being surveilled, they will struggle to exercise their legal rights or defend themselves from wrongful termination – especially the majority of workers who lack the protections of a collective bargaining agreement.

As one school bus driver told researchers from UC Berkeley Labor Center:

“The bus cameras are the worst— they were originally installed to protect the kids, but now three cameras are pointed directly at us and recording at all times, even when no kids are on the bus. We know now that they use this footage in personnel matters, they listen to us through the bus cameras, and that they use the cameras to read our text messages when we are parked and using our phones while the children are off the bus and we are on breaks from work.”

Preventing states from regulating this kind of surveillance will leave workers more vulnerable to unlawful retaliation and to employer wrongdoing, unsafe conditions, and unfair wages.

Worsen worker privacy

A decade of unregulated AI will allow the aggregation and sale of vast amounts of highly specific data on individual workers in ways that can never be truly erased. For instance: With the aid of AI, data collected from GPS systems and wearable technology could be used to identify an employee’s private medical conditions, even before the worker has the chance to invoke the protections of the ADA or FMLA. If this data is sold to other hiring managers or the open market without any regulations, that same individual will find it difficult to secure future employment. 

Workers and consumers need transparency and tools to  control how AI-powered systems use their personal data – not a decade-long ban on state oversight.

Steal creative work

Artists, writers, musicians, and performers are already seeing their work scraped and reused by AI systems without consent or compensation.  The ban would make it more difficult for creative workers to protect their work, including their own images and voices. Those whose work is stolen without compensation to fuel large language models may have no recourse, even as big tech companies continue to profit. 

Harm public safety and public services

In critical sectors like healthcare, education, and transportation, AI systems are already being used to override expert human judgment. The ban would restrict the ability of workers and their advocates to respond. For example, in healthcare, nurses are fighting to protect patients and provide the care they know is best – even when an algorithm advises otherwise. This is equally true in education, childcare, public safety and transportation – all fields with vulnerable lives and worker safety at risk. 

A better alternative is possible

Corporations do not need a blank check and a deregulated landscape to succeed in creating and selling artificial intelligence, automated decision systems, and related technologies.  The balance of power already tilts too far in favor of employers. Congress should remove this dangerous 10-year preemption of state action from the budget megabill, which already poses serious harm to low-income people in this country. Instead, policymakers should consider responsible AI policy frameworks  through the normal legislative process, where these critical issues can be debated and assessed fairly. 

Americans often tell pollsters that they think the economy is in recession, but this seems like a shorthanded way to express their frustration with the state of economic rewards in this country. And it is true that the U.S. economy—the richest in the history of the world—does a bad job of translating overall growth into true economic security for most families. Contrary to popular opinion, though, recessions rarely occur, and when they do, they make economic outcomes far worse and notably increase deprivation for typical families.

In short, the question of whether a recession is coming is not driven by political point-scoring, it cannot be assessed by quirky responses to poll questions, and it has dire and significant consequences for the material circumstances of tens of millions of American families.

Why have people been talking more about a possible recession lately?

Summary: Despite inheriting a strong and stable economy, the Trump administration has made policy announcements and commitments that are highly likely to cause a recession over the next year, unless they are reversed.

Read the full answer

Recent concerns about recession are 100% driven by poor policy decisions from the Trump administration. The macroeconomy was in an extraordinarily strong and stable state when it was handed off to the Trump administration. The historically high and broad tariffs the Trump administration has repeatedly threatened since early March would, by themselves, pose a recessionary threat to the economy. The chaotic way the administration has rolled out, retracted, changed, paused, and re-upped the tariffs have made things even worse by creating mammoth economic uncertainty as well, which nearly all economic observers think will lead to sharp contractions in several kinds of economic activity.

Figure A shows Google search trends for recessions, along with the dates of various tariff announcements.

Figure A

The International Monetary Fund said the following about global growth prospects in January 2025 (before President Trump’s inauguration):

The forecast for 2025 is broadly unchanged from that in the October 2024 World Economic Outlook (WEO), primarily on account of an upward revision in the United States offsetting downward revisions in other major economies…. Upside risks could lift already-robust growth in the United States in the short run, whereas risks in other countries are on the downside amid elevated policy uncertainty.

In April of 2025, a revision to these growth forecasts noted the following about the negative effects that the new tariffs would have:

Since the release of the January 2025 WEO Update, a series of new tariff measures by the United States and countermeasures by its trading partners have been announced and implemented, ending up in near-universal US tariffs on April 2 and bringing effective tariff rates to levels not seen in a century (Figure ES.1). This on its own is a major negative shock to growth. The unpredictability with which these measures have been unfolding also has a negative impact on economic activity and the outlook and, at the same time, makes it more difficult than usual to make assumptions that would constitute a basis for an internally consistent and timely set of projections.

Further, on April 9, the Goldman Sachs macroeconomic forecasting team moved their baseline scenario for the next year to recession, based on announcements of the “Liberation Day” tariffs. When the Trump administration announced a pause on tariffs, the forecast changed back to just under 50% chance of recession.

In short, there is universal agreement that the Trump tariff policy is bad for growth in substance and in implementation, and that this policy is driving increased risk of recession.

On top of the botched tariff policy, the other big threat to growth in the near term is a similarly chaotic effort to destroy capacity in the federal government. The administration has rolled back or ended federal employment and grants in numerous extralegal ways. These cutbacks could eventually be large enough to weigh on growth in the short term, and they will absolutely reduce longer-run growth as key public goods and services that complement private-sector growth-generating activities are no longer provided. Further, many of the key functions being hamstrung by recent cutbacks involve surveillance of potential economic risks—either financial, epidemiological, or climate-related. Impaired surveillance could well mean future risks (say of cascading bank failures or of another pandemic) wouldn’t be anticipated, and there wouldn’t be sufficient time to mount a strategic response, further harming growth.

All the uncertainty associated with bad policy implemented chaotically has led to the highest economic policy uncertainty readings since the beginning of the COVID-19 pandemic. This uncertainty is poison for all sorts of high-stakes spending decisions from businesses and households, and so these decisions will be deferred, and economic activity will begin contracting.

So far, the core data normally used to declare recessions have not signaled that a recession has begun. This could take a number of months (see answers to the questions below that talk a bit more about this data). But other data, often sentiment-based, is strongly signaling that a recession is very likely.

Are standard recession indicators clearly signaling an imminent economic contraction?

Summary: Not as of May 2025. Standard recession indicators do not look strongly contractionary at the moment. Since January 2025 there has been more weakening than strengthening in these indicators, but by themselves, they are not clearly showing signs of recession.

Read the full answer

As of May 2025 these standard indicators are not strongly signaling an imminent contraction. Table 1 shows a number of indicators used by the National Bureau of Economic Research to define recessions. It shows how these indicators slowed in the six months before the last two recessions before COVID-19 and then compares their pace of growth since January 2025 relative to their pace in 2024.

Table 1

In the last two nonpandemic recessions, growth in nearly all indicators slowed sharply in the six months before a recession hit. Since January 2025, of the 10 indicators for which data are available, growth has slowed in six and has not improved at all relative to 2024 for two indicators. Two indicators have seen faster growth so far in 2025 than in 2024.

So far, while more indicators are slowing in this table than not, without other information (discussed in more detail in the following question), this table would not generally raise huge concerns about a coming recession. But these indicators certainly bear watching.

Another commonly referenced recession predictor is the “Sahm rule” (when the rolling three-month average of the unemployment rate exceeds the lowest point this measure reached over the past 12 months by 0.5 percentage points, this often predicts a recession). The Sahm rule has already triggered one “false positive” in the past couple of years, but is not signaling a recession now (see Figure B for the Sahm indicator and thresholds).

Figure B

Do recessions clearly increase poverty and other measures of economic suffering?

Summary: Yes, recessions are strongly associated with higher poverty and greater material deprivation. During the pandemic recession and early recovery, government support was so unprecedentedly generous that the poverty increases spurred by the recession were swamped by poverty declines driven by government aid. But that recession was a clear outlier.

Read the full answer

The labor market is the main source of income for low-income families, and higher unemployment during a recession causes reductions in annual earnings, pushing more families below poverty income thresholds.

Figure C uses annual state-level data to show that higher unemployment rates are associated with higher poverty rates. In particular, a one percentage point increase in unemployment typically leads to a 0.6 percentage point increase in the standard poverty rate, or about 2.1 million additional people in poverty according to recent data.2

However, poverty rates are less likely to rise when there is stronger fiscal support to combat a recession, particularly when the fiscal support is targeted directly at lower-income households. This happened most recently during the COVID-19-induced recession in 2020 when expanded unemployment benefits, higher child tax credits, cash payments, and low interest rates directly benefited families and kept aggregate demand high. The annual unemployment rate more than doubled between 2019 and 2020, but the standard poverty rate based on pre-tax money income only rose by 1.0 percentage point. The supplemental poverty rate, which includes post-tax income, fell by 3.9 percentage points between 2019 and 2021, and only rose in 2022 after many of the COVID-19-related supports expired. Further, by the end of 2021, unemployment rates nearly returned to pre-recession levels.3

Figure C

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Notes:

2. A regression of state-level official poverty rates on unemployment rates from 1978 through 2023, with state and year fixed effects, weighted with mean state age 16 and over population levels, yields a coefficient of 0.623. In 2023, the poverty rate was 11.1%, and the poverty level was about 36.8 million people, so a 0.623 percentage point increase in poverty is equivalent to about 2.1 million people. Poverty rates, unemployment rates, and civilian population levels are available from the EPI State of Working America Data Library, retrieved May 9, 2025.

3. Official and supplemental poverty rates are available from the EPI State of Working America Data Library, retrieved May 9, 2025.

Who is hurt the most in recessions?

Summary: Workers with the least labor market leverage usually bear the largest costs of a recession. Concretely, this means that employment declines the most for Black and Hispanic workers, younger workers, and workers without a college degree.

Read the full answer

Due to discrimination and other structural inequalities in the labor market, Black and Hispanic unemployment rates are consistently higher than white unemployment rates. Black workers have unemployment rates that are twice as high as their white counterparts, and the 2:1 Black-to-white unemployment rate ratio implies that Black unemployment rates soar during a recession. Figure D shows that in every recession over the last four decades, Black and Hispanic workers have experienced a much larger fall in employment than white workers. During the Great Recession, for example, the Black prime-age employment-to-population ratio (the share of adults between the ages of 25 and 54 with a job) fell by 7.4 percentage points, while the white rate fell by 4.3 percentage points.

Moreover, Black workers experience higher unemployment for a longer period relative to white workers. White unemployment began to fall 19 months after the technical end of the Great Recession in June 2009, but Black unemployment only began falling after 26 months. Relative to their white counterparts, Black workers experienced higher unemployment rates, which have taken longer to fall in every recession since the 1980s. When there is a negative economic shock, Black workers experience larger declines and slower recoveries of prime-age labor force participation and employment rates. In addition, Black workers who remain employed see disproportionately lower wage growth than white workers during periods of higher unemployment.

Figure D

For Black Americans, public sector employment has historically provided a pathway to better, more equitable job opportunities for skilled and often highly educated Black workers compared with available private-sector jobs. This fact sheet gives a snapshot of Black federal workers in each state (excluding USPS employees), offering context for the potential impact planned agency cuts—particularly at the Department of Veterans Affairs (up to 80,900 cut jobs), Social Security Administration (about 7,000), and civilian employees at the Department of Defense (up to 39,000)—could have on Black workers across the country.

Figure A presents the Black worker share of each state’s federal employees (excluding USPS) along with the share who are veterans and their average years of employment in the federal government. While 18.7% of all federal workers are Black, they account for at least one-fifth of the state’s federal workforce in 15 states and the District of Columbia.1 The Black worker share of state federal employment is highest in Georgia (43.8%), Louisiana (37.6%), Mississippi (34.8%), and Tennessee (34.6%).

Figure A

Black federal workers average 10 or more years of service in 36 states and the District of Columbia. Black workers in D.C. (16.4 years) and Maryland (15.3) have the longest average tenure in federal employment, reflecting a commitment to non-political career service across various agency headquarters. Nationally, Black federal workers average 12.3 years of service.

Table 1 provides a breakdown of each state’s agency-level employment. Cabinet-level agencies employ the largest number of workers in each state. These include the 15 executive departments that advise the President, including the Departments of Labor, Justice, State, Treasury, Health and Human Services, Education, and Transportation. The second largest federal employers are large independent agencies existing outside of the executive branch and that were (until recently) intended to be independent of presidential control, such as the U.S. Agency for International Development, Equal Employment Opportunity Commission, Environmental Protection Agency, and Federal Reserve.

Table 1

The largest cabinet-level employers in each state are related to the military, including the Department of Veterans Affairs, armed forces (i.e., Departments of the Air Force, Army, and Navy), and the Department of Defense. The nature of these agencies (along with veterans’ preference policies for federal employment) contribute to the high percentage of veterans employed with the federal government. As veterans, 29.5% of Black federal workers have continued to serve the country beyond their time in the U.S. armed forces. In 27 states, more than 30% of Black federal workers are veterans (see Figure A). Along with defense-related agencies, the U.S. Department of Agriculture and the Social Security Administration have a presence in nearly every state and collectively employ most of each state’s Black federal workers.

1. The 15 states where Black workers are at least one-fifth of the state’s federal workforce are Illinois, Florida, Missouri, Arkansas, Texas, North Carolina, Virginia, Maryland, Delaware, Alabama, South Carolina, Tennessee, Mississippi, Louisiana, and Georgia.

Figure A

Table 1

The federal minimum hourly wage is just $7.25 and has not increased since 2009. The Raise the Wage Act of 2025, introduced in the U.S. House of Representatives and U.S. Senate on April 8, 2025, would incrementally raise the federal minimum wage to $17 an hour by 2030. The bill would also gradually raise and then eliminate subminimum wages for tipped workers, workers with disabilities, and youth workers, so that all workers covered by the Fair Labor Standards Act would have the same wage floor.

What would its impact be?

EPI’s analysis shows that raising the federal minimum wage to $17 by 2030 would impact 22,247,000 workers across the country, or 15% of the U.S. wage-earning workforce. The increases would provide an additional $70 billion annually in wages for the country’s lowest-paid workers, with the average affected worker who works year-round receiving an extra $3,200 per year.

Who would be affected?

Table 1 shows EPI’s estimates of the population of workers, by demographic and other characteristics, who would benefit from the Raise the Wage Act of 2025.

Table 1

How many workers would benefit in each state?

Table 2 shows the estimated impact of the Raise the Wage Act of 2025 by state. States that will have the highest share of workers receiving wage increases are often in the South, where both wages and minimum wages tend to be the lowest, like Mississippi, Louisiana, and Oklahoma.

Table 2

Why are workers in some states less likely to be affected?

In January 2025, 21 states and dozens of localities implemented minimum wage increases based on state, local, or municipal laws that already set the minimum wage higher than the federal standard. In total, 30 states and the District of Columbia have a minimum wage above the federal minimum, and many more localities have minimum wages above their state minimum wage. Workers in most of these states will still benefit from a $17 federal minimum wage, but the effect is muted because low-wage workers in those states have already seen wage increases above the federal minimum.

California, the District of Columbia, Hawaii, and Washington all have state- or local-level minimum wage laws that will set minimum wages above the Raise the Wage Act’s proposal of $17 by 2030. Because of this, only a small number of workers in those states would be affected by the federal policy as state and local laws will have already raised the wages of low-wage workers in those jurisdictions. Because of the smaller impacted population, estimates of affected workers are unavailable for those states. (Cells for which data are unavailable are marked with * in Table 2.)

Why is it critical that the Raise the Wage Act be passed?

As EPI’s state-by-state minimum wage tracker shows, raising the federal minimum wage is critical to protect workers (especially in the South) who have been left behind. A higher federal minimum wage can build on existing state-level standards and lock in the wage gains made by low-wage workers in the economic recovery over the last several years.

Assumptions and documentation for EPI’s Minimum Wage Simulation Model

• The estimates are for the year 2030, when the policy’s regular minimum wage would be $17 and the tipped minimum wage would be $15.
• The underlying wage distribution is based on the 2024 Current Population Survey.
• The simulation assumes nominal wage growth will be at a 3.5% annual rate between 2024 and 2025, and at an annual rate of 0.8% plus projected Consumer Price Index growth in subsequent years.
• The simulation accounts for estimated effects of projected state and local minimum wages between 2025 and 2030.
• To read more about the EPI Minimum Wage Simulation Model, see the description in Cooper, Mokhiber, and Zipperer (2019).

Table 1

Table 2

The Washington Post reported recently that President Trump planned to fire the governing board of the U.S. Postal Service and merge the agency with the Commerce Department, prompting the board to seek legal counsel. A White House spokesperson later denied that an executive order was in the works (though it would take an act of Congress to strip away the independence of the Postal Service and make these types of drastic changes).

This isn’t the first time the president has floated the possibility of making massive changes to the popular agency.

The president’s focus on the Postal Service initially stemmed from a feud with Amazon CEO and Washington Post owner Jeff Bezos, whom the president accused of getting a sweetheart deal from the Postal Service. Though Bezos has since mended fences with the president, anti-government think tanks working closely with Trump and his administration (including the Heritage Foundation) have long supported privatizing the Postal Service.

During the first Trump administration, a White House report proposed cutting postal services and shifting legacy costs for retiree benefits to the federal government to make the Postal Service profitable before privatizing it. A later task force headed by then-Treasury Secretary Steven Mnuchin downplayed overt privatization but proposed cutting services and ending postal workers’ collective bargaining rights.

In December 2024 during the transition period, the Post reported that the president-elect had discussed privatizing the Postal Service with members of his transition team, including Howard Lutnick, his nominee for commerce secretary. In addition to reportedly being open to privatizing the Postal Service, Lutnick has floated the idea of having it conduct the census and administer Social Security, as if the Census Bureau and Social Security field offices could simply be shuttered and the work reassigned to existing postal workers and facilities (see interview here, starting at 11:10).

Who’s in charge now?

The Postal Service is overseen by a bipartisan board of governors whose members appoint a Postmaster General to run daily operations. In April 2020, the board’s vice chair resigned in protest over the Trump administration’s attempts to politicize the Postal Service. Louis DeJoy was then appointed Postmaster General. He was a Trump campaign donor and fundraiser whose business interests posed potential conflicts of interest with the Postal Service. DeJoy recently announced plans to retire.

What is Congress’s role?

Postal Service governors are appointed by the White House and confirmed by the Senate. Congress also exercises control over the Postal Service through oversight activities and legislation, including a 2006 law—the Postal Accountability and Enhancement Act (PAEA)—that among other things set staggered seven-year terms for governors to allow presidential administrations to influence, but not directly control, the independent agency (governors’ terms were even longer—nine years—before the PAEA). In his first term, President Trump, nevertheless, attempted to intervene in postal affairs by, among other things, directing his Treasury secretary to withhold a loan authorized by Congress to help the Postal Service deal with effects of the pandemic.

What responsibilities does the Postal Service have, and what restrictions does it face?

The Post Office was a cabinet department until the Postal Reorganization Act of 1970 when it was reconfigured as an independent agency and renamed the United States Postal Service (USPS). The newly independent agency remained responsible for daily mail delivery to all addresses—the “universal service obligation”—but was now required to fund itself through its operations, becoming an off-budget arm of the federal government.

The 2006 law placed new financial burdens and service limitations on the Postal Service

As discussed in more detail below, Congress included a provision in the 2006 PAEA requiring the Postal Service to reimburse the federal government for inflated retiree benefit costs, giving the Postal Service an undeserved reputation for being a money-losing operation when it couldn’t fully cover some of these costs.

The 2006 legislation also set strict limits on services the Postal Service can provide outside of mail and parcel delivery. Advocates point out that without these restrictions imposed by Congress, the Postal Service could bring in needed revenue and provide useful additional services, including basic financial services for the 14 million U.S. adults who rely on payday lenders and other high-cost financial services often because they lack bank accounts.

In addition to removing the Postal Service from direct White House control, the 1970 reorganization created an independent Postal Regulatory Commission (PRC) tasked, among other things, with approving changes to postage rates proposed by the Postal Service board. Like most postal services around the world, the U.S. Postal Service holds a legal monopoly over mail delivery, granted long ago in recognition of its responsibility for daily delivery even in remote areas. The mail monopoly protects the Postal Service from competition in areas that are cheapest to service, offsetting the higher cost of delivering mail to rural and some urban addresses.

The Postal Service competes with private businesses in parcel delivery

The PRC also has a say in regulating parcel delivery services, a market in which the Postal Service directly competes with private businesses like UPS, FedEx, and Amazon. These private carriers tend to service the most profitable areas while relying on the Postal Service for “last-mile” delivery to rural and other hard-to-service addresses.

Regulators and Congress have often sided with private delivery services over customers to prevent the Postal Service from lowering rates and expanding services, even if this would benefit both customers and the Postal Service. The Postal Service also has very limited borrowing authority, which for many years prevented it from replacing an ancient fleet of postal vehicles that lacked air conditioning.

Did Congress set up the Postal Service to fail?

The 2006 PAEA imposed unreasonable costs on the Postal Service for retiree benefits that resulted in large transfers from the agency to federal coffers. It required the Postal Service to rapidly prefund retiree health costs, greatly inflating their cost by assuming rapidly escalating health care costs and investing the funds in low-yield Treasury bonds rather than a diversified portfolio with a higher expected rate of return. The Postal Service was also saddled with some of the legacy cost of pension credits earned by former Post Office Department employees and required to prefund the cost of employee pensions with assets invested entirely in Treasury bonds.

No other entity—public or private—has been forced to prefund the cost of retiree benefits under such conditions. While Congress recently relieved the Postal Service of some retiree health obligations, the agency continues to be burdened with inflated costs for retiree benefits.

Despite these onerous terms, the 2006 Postal Accountability and Enhancement Act was passed with bipartisan support. Large transfers from the Postal Service to federal coffers minimized the appearance of federal budget deficits, appealing to deficit hawks. Progressive Postal Service advocates, meanwhile, viewed rapid prefunding as a way to safeguard benefits for future retirees at a time of growing postal revenues.

However, the Great Recession, along with restrictions hindering the Postal Service’s ability to adjust to a decline in paper mail and an e-commerce boom in package volume, soon made it impossible for the agency to meet its retiree benefit obligations in full. So, while anti-government Republicans may not have intentionally plotted to drive the Postal Service into the red, they later pounced on the opportunity to paint it as a money-losing government agency when it couldn’t make the exorbitant payments demanded by Congress.

What would happen if the Postal Service were privatized?

There’s widespread agreement even among would-be privatizers that Congress has burdened the Postal Service with inflated retiree benefit costs while hobbling its ability to compete in the expanding e-commerce market. Supporters of privatization claim that a privatized service could be regulated to retain protections for some stakeholders, including rural customers (but not unionized workers), while shielding it from the effects of congressional interference. But it’s unlikely that Congress would be better at regulating a privatized postal service than a government agency, especially since a privatized service would constitute a very powerful special interest.

Privatizers suggest that competition would drive innovation and efficiency gains, but the Postal Service already faces competition in parcel delivery. Even in mail delivery, the agency has adapted to changing conditions, delivering mail to more addresses with fewer employees despite the challenges outlined above. This efficiency is why you can mail four letters to any address in the country for the price of a Starbucks coffee—an impressive achievement we tend to take for granted. The U.S. Postal Service delivers half of the world’s mail and charges less than 26 out of 30 other countries surveyed by the Postal Service’s Inspector General, including countries that have privatized their postal service.

Gains from competition are a false promise since a postal service resembles a natural monopoly more than a competitive enterprise

Even without a legal monopoly on mail delivery, a privatized postal service would face limited competition due to economies of scale. Established delivery services like the Postal Service or Amazon can deter competitors because there are high fixed costs to operating a delivery route but a low cost for each additional address serviced or item delivered. As taught in introductory microeconomics classes, profit-maximizing monopolies will charge more than competitive enterprises—or than nonprofit public services—even if this causes them to serve fewer customers.

Rural customers will face higher prices and worse service with a privatized Postal Service

When regulations limit the ability of a postal service to vary prices or services—for example, if a privatized postal service is still required to adhere to some provisions of the universal service obligation—competitors will cherry-pick the most profitable customers. This duplicates effort and drives up the average cost of delivery even as some customers in low-cost areas can take advantage of lower prices or better services offered by competitors. If a privatized postal service is instead permitted to vary its prices or services, rural customers will face even higher prices and worse service—in many cases effectively shutting them out. Amazon’s decision to discontinue Prime service to some urban neighborhoods demonstrates that it won’t only be rural neighborhoods that are affected.

Instead of a naïve assumption that private businesses are always more efficient, it helps to consider the reasons why many services, including the Postal Service, have historically been provided by government entities or regulated utilities. In addition to sectors where competition is limited due to monopoly power, government is usually the best provider of essential services, when ability to pay—household income—shouldn’t determine access and some people face much higher costs than others.

The Postal Service is an essential public service

Our founding fathers viewed a trusted and affordable postal system as essential to supporting democracy and commerce, and meeting people’s basic needs (such as delivering ballots and medications). Americans still greatly value the public Postal Service for this reason, with privatization popular only among anti-government ideologues and special interests who hope to profit. The Trump administration, rife with conflicts of interest, shouldn’t be entrusted with determining the future of this beloved institution.

Privatized government entities gaming the system and restricting access to needed services isn’t a theoretical concern—it’s already happening. Privatized “Medicare Advantage” plans promise added benefits but cost taxpayers 22% more and minimize costs by arbitrarily denying claims. The profit motive hasn’t brought efficiency gains, but it has given these companies an incentive to aggressively market to seniors, who may be unaware of the risks, while driving up costs for other participants.

What postal reforms would help ordinary Americans rather than special interests?

The Postal Service should have more flexibility in pricing and offering competitive services, including basic financial services, and shouldn’t be forced to overpay for employee benefits. Many restrictions imposed on the Postal Service are designed to protect competitors like FedEx, UPS, and Amazon. Protecting corporate profits at the expense of customers, including other businesses, isn’t the proper role of government.

Other constraints faced by the Postal Service are costly to workers and the Postal Service itself. For example, the Postal Service is obligated to outsource work by providing “worksharing” discounts to companies that do work ordinarily performed by postal employees, such as preparing, sorting, and transporting mail. This loophole gets around laws that normally prevent federal agencies from outsourcing work to companies whose only competitive advantage is paying low wages. These and other issues are discussed in more detail in this EPI report.

Updated March 28, 2025 to include the impact of other countries’ value-added taxes (VATs) on U.S. exports. Jump to the update →

This document will be periodically updated as new questions arise. 

During his presidential campaign, President Trump pledged to impose universal tariffs of 10–60% on all U.S. imports—a whopping $4.2 trillion in goods and services purchased from abroad in 2024. This was always a real possibility.

The International Economic Emergency Powers Act gives the president broad authority to do so. In early February the Trump administration seemed to be making good on the threat to enact extremely high and broad-based tariffs. They announced tariffs of 25% on all goods from Mexico and all goods (except energy goods) from Canada, as well as tariffs of 10% on all goods from China, though ultimately punting on action against our neighbors for one month. These three countries combined account for over 40% of goods imports to the United States. Tariffs this high and applied to such a broad scope of U.S. imports would have constituted a highly significant change in economic policy. Almost immediately, the Mexican and Canadian tariffs were suspended for a month. Yet, all this highlights that historically large and broad-based tariffs remain a very possible policy outcome in the coming years.

This FAQ provides information on the likely effects of these tariffs and, crucially, the effects that will not occur due to these tariffs. First, let’s define it. 

What is a tariff? 

A tariff is a tax levied on imports to the United States. By raising the cost of foreign-produced goods or services relative to U.S.-produced ones, a tariff redistributes some of the benefits of trading from U.S. consumers and foreign producers to U.S. producers of import-competing goods, allowing domestic businesses to also raise prices. In this way, a tariff acts as a tax on consumption as well as allowing import-competing businesses to raise prices without losing market share to foreign producers. Until recently, tariffs on U.S. imports averaged 2.2% in accordance with numerous international agreements negotiated by the U.S. government–though many items entered tax free.

Can tariffs ever be effectively used to target smart policymaking goals?

In brief: Yes. Tariffs can do a number of useful things. Three broad uses include: 

• providing effective protection for domestic production in specific economic sectors 
• shielding U.S. workers from unfair forms of competition from specific trading partners (like those with abusive labor rights regimes)
• complementing a country’s strong domestic climate policy when trading partners’ policies are not as strong

Because tariffs are most effective when they focus on well-defined and narrowly tailored goals, they work best as part of a larger strategy.

In detail: The most direct benefit of tariffs is protection for domestic sectors in the U.S. economy that warrant strategic support. For example, some sectors are harmed when our trading partners take actions to support their own domestic exporters or undercut labor and clean air and water standards, or are critical for economic or national security. As a recent example, U.S. steel and aluminum producers have faced chronic global oversupply that has largely been caused by subsidies (direct and indirect) that trading partner governments have given their own domestic producers—who are among the world’s worst polluters.

As part of a strategic suite of complementary industrial policies, tariffs can help sustain and support the development of key industries and maintain them during periods when trading partners are engaged in market-distorting subsidization of their exports. Tariffs can help correct these pervasive distortions and improve economic efficiency, allowing firms to thrive in the face of these distortions.

Other reasons for wanting to target more domestic production from specific sectors include national security concerns, the underinvestment of private actors in the resilience of key nodes of supply chains, and combating monopolization of key inputs by another country—a lesson learned painfully during the COVID-19 pandemic when everyone was scrambling to source personal protective equipment (PPE), respirators, and critical medicines unavailable domestically at the necessary scale. Tariffs can help internalize the social costs of fragile global production chains otherwise created by profit-maximizing corporations. In short, tariffs are a valid, and often useful, industrial policy tool that can provide narrow and targeted protection for key sectors. 

Tariffs can also be used to shield U.S. workers from low-road practices (like labor abuses) among trading partners. For example, if tariffs were higher for countries that routinely failed to protect workers’ fundamental rights (or if tariffs were lowered when a country made a genuine commitment to protect these rights), the benefits of pursuing international competitiveness through wage suppression would be reduced.

Similarly, tariffs could also be useful in complementing high-road competition in environmental standards, for example by embedding the costs of greenhouse gas emissions (GHGs) from manufacturing and transportation in low-standard countries. This would incentivize clean air while also making sure U.S. workers in trade-exposed, energy-intensive industries do not bear the extra burden of adjusting to new climate policies. An approach that explicitly used tariffs to internalize the social costs of labor and environmental exploitation in low-standard countries would help correct these problems and provide transparent incentives for countries to pursue pro-worker and pro-environment policies.

These uses are not trivial: Tariffs are absolutely a key tool of smart industrial and trade policy. But on their own, tariffs cannot and should not be the centerpiece of a national economic strategy. Doing so would represent a gross overuse of a tool for a task it’s not suited for and would cause damage to the wider economy.

Can high and broad-based tariffs fix the U.S. trade deficit or rebuild manufacturing employment?

In brief: No, mostly because high and broad-based tariffs will also reduce exports along with imports, and this will leave the balance of trade mostly unchanged. Exports fall when tariffs are introduced for a number of reasons. The first is that many U.S. exports use imports as intermediate inputs to final goods produced in the United States. Making these inputs more expensive with tariffs will boost the price of these U.S. exports and make them less competitive in global markets. Second, trading partners are highly likely to retaliate to U.S. tariffs with tariffs of their own, making exports more expensive in international markets—which we’ve seen on “Made in America” goods from Boeing airplanes to Kentucky bourbon. And finally, tariffs will put upward pressure on the value of the U.S. dollar in global markets, which will make our exports more expensive and will increase the attractiveness of imports to U.S. customers—primary causes of U.S. trade deficits and manufacturing job losses.

In detail: It is true that unbalanced trade has suppressed employment in manufacturing in the United States for decades. We consistently import far more manufactured goods than we export (and the difference is nowhere near made up in the services trade). This trade deficit drives a wedge between domestic consumption of manufactured goods and domestic production. Closing this trade deficit would, hence, substantially boost job opportunities in the manufacturing sector in the U.S. However, large and broad-based tariffs on all manufactured imports will not do much to close this deficit for several reasons.

First, many U.S. exports are produced using a large share of imported inputs. The slicing of global value chains in recent decades means that parts of a final good are often sourced from several different countries. Tariffs would, hence, make these inputs more expensive, and this would, in turn, push up the price of U.S. exports using these inputs, weakening the competitiveness of U.S. exports in global markets.

Second, and most obviously, tariffs are rarely unidirectional. When we impose tariffs, our trading partners are likely to retaliate with reciprocal tariffs on U.S. goods, pricing U.S. exporters out of international markets. This is not speculative—it absolutely was the result of the tariffs imposed during the first Trump administration.

American farmers and ranchers incurred the most widespread damage from this retaliation following the 2018 tariffs. The damage was so great that the Trump administration authorized $61 billion in emergency relief payments to cushion farmers and ranchers from the blow of this retaliation, an amount roughly equivalent to all of the tariff revenue collected from U.S. businesses. Big manufacturers like Boeing also lost access to international markets. Prior to 2018, China accounted for 25% of Boeing’s sales, but after the tariffs, China stopped ordering Boeing aircraft and created an opening for China’s homegrown COMAC C919—a direct competitor to Boeing’s 737 series planes. Not only will U.S. exporters lose markets abroad, but the lost exports will increase the supply of their goods to U.S. markets, putting downward pressure on the price of goods they sell domestically, reducing corporate profits.

Third, large and broad-based tariffs would put upward pressure on the value of the U.S. dollar, making U.S. exports more expensive to foreign buyers and imports cheaper and more attractive to U.S. businesses and consumers. This often happens as trading partners intentionally push down the value of their own currency against the dollar through exchange rate management policies to offset the competitive ground lost in U.S. markets to the new tariffs.

But it will also happen essentially mechanically. Countries use the dollars they earn from importing to the United States to purchase exports from the U.S. If tariffs reduce the dollars countries earn from importing to the U.S., this will either lead them to reduce what they purchase as U.S. exports, or they will need to purchase dollars on international capital markets in order to maintain their level of U.S. export purchases. This increased demand for dollars in these capital markets will push up demand for dollars, and the exchange rate will increase.

Again, this is not speculative—it is exactly what happened in 2018 in response to Trump’s first-term tariffs on Chinese technology goods and broader steel and aluminum imports, when China depreciated its currency by roughly 10% against the dollar. Against an international basket of currencies, the dollar rose by about 7.5%. Already since the November 2024 election, the value of China’s currency has fallen 1.1% against the dollar.

As a result of these influences, the U.S. trade deficit—how much we export minus how much we import—saw no improvement through the first Trump administration even as tariffs were increased. The tariffs did work to change the composition of the trade deficit as Chinese exporters sought to circumvent U.S. tariffs on Chinese goods by rerouting trade and expanding investment in third countries—in particular, taking advantage of the U.S.-Mexico-Canada trade agreement negotiated by President Trump to use Mexico as a platform to export to U.S. markets. Since the 2018 tariffs took effect, imports from Mexico have increased 63%, and the U.S. trade deficit with Mexico increased by 159%.

Reducing damaging trade deficits cannot be achieved solely through trade policy—except in the extreme case where trade policy measures are so severe that they essentially shut down all international trade, which would cause radical disruption to the U.S. economy. Instead, more balanced trade will only result from macroeconomic policies that are consistent with lower trade deficits—including exchange rate management to realign an overvalued U.S. dollar and a reasonable mix of fiscal and monetary policies.

Are tariffs the same as an industrial policy for the United States?

In brief: No, tariffs are only one tool in the industrial policy toolkit, and they need supporting policies in strategic endeavors to effectively boost domestic sectors.

In detail: Tariffs, on their own, are an incomplete industrial policy strategy, even for the narrow goal of supporting a strategic domestic sector. New research confirms the efficacy and pervasiveness of industrial policies when applied strategically. While these policies can take a variety of forms, all successful industrial policies do three main things, mostly aimed at addressing key market failures:

• promote positive economic spillovers that provide economic benefits beyond the targeted industry—such as by creating innovation that benefits other industries or by supplying complementary goods or services that make other investments viable—and limit or abate negative economic spillovers that impose costs on other industries, consumers, or the public. For example, industrial policy to intentionally spread out the production of key inputs like semiconductors so that bottlenecks specific to a single country don’t choke global supply chains in the future creates the positive externality of resilience—left to their own private profit-making devices, individual companies will not have the incentive to make these investments.
• provide complementary and industry-specific public inputs. Key examples include infrastructure, research and development, and workforce development investments that complement and crowd-in private investment.
• provide coordination of disparate actors where complementary and collective actions are needed for an industry’s success, but market mechanisms are incapable of playing this role. One example of this is publicly provided monitoring of potential supply-chain stresses to keep private actors informed of how they can plan deliveries and marshal inputs to solve blockages before they happen. Industrial policy can also provide market-creating guarantees to crowd investment into cutting-edge technologies that individual investors might consider too risky to support, such as the COVID-19 vaccine development. 

Tariffs can be part of this formulation when there is a compelling public interest to support a particular industry. But they are insufficient on their own to ensure that industries critical to U.S. economic and national security—from primary metals, to critical medicines and health equipment, to semiconductors and other advanced technologies—can overcome market failures and unfair competition.

Tariffs change the price signals in markets from which investors decide to shift resources between different sectors. But price signals alone are often not sufficient to ensure key market failures are overcome. But there are many market failures besides getting prices wrong that domestic capital owners and workers need to overcome in order to be willing to invest in producing in tradeable goods sectors.

At the technology frontier, by definition, no one knows the likelihood of success in achieving technological advances or what the market potential is for such innovation—although technological progress is highly desirable, the potential risks and rewards cannot be accurately priced. Another example is where complementary investments are needed to make an individual investment financially viable, such as the need to upgrade electrical grids and build charging infrastructure for investments in electric vehicle manufacturing to be viable. Further, because it’s easy to change tariffs on short notice, capital owners and workers are unlikely to see tariffs alone as a sufficient signal that they should make costly, long-term investments in the production of tradeable goods.

Who ‘pays for’ tariffs imposed on U.S. imports?

In brief: American households will bear most of the burden of higher tariffs. This will mostly come through higher prices for imported goods and, crucially, higher prices for domestic goods that compete with imports.

In detail: Tariffs are a tax on imported foreign goods and services. The legal incidence of these taxes falls on the U.S. company doing the importing. If a company imports $100 worth of goods and tariffs are 20%, the company must pay a tax of $20 to the federal government. However, one of the useful insights of economics is that the legal incidence of a tax and the economic incidence are different. Taxes set off a cascade of adjustments that can spread or concentrate their ultimate economic burden. In the case of tariffs, these adjustments essentially lead to U.S. households paying higher prices. Importers who pay the tax initially will typically raise prices to pass this additional cost along to consumers, known as “price pass-through.” The precise degree of pass-through will differ by good and sector: It is driven largely by factors such as the degree of a company’s market power and consumer sensitivity to price changes. But substantial research convincingly demonstrates that it is U.S. households who ultimately pay for tariffs.

It is important to note that if tariffs do not raise prices in the U.S. market, they will not shift consumer preferences to domestic goods from foreign goods, thereby failing to provide any useful protection to domestic industries. And if they are not providing effective protection to domestic producers, it is hard to see the point of imposing them. Tariffs provide effective protection to domestic producers by raising U.S. prices of foreign goods and services relative to similar domestically produced goods and services. This enables companies producing import-competing goods in the United States to raise prices, too, without fear of losing market share to lower-priced foreign competition. These higher prices enable domestic firms to maintain or expand production at a viable scale.

Because the tariff on a competing foreign good does not change a U.S. company’s production costs, in the short-run, the higher prices U.S. consumers pay for import-competing goods go directly into higher profits for the company. In the longer-run, and with complementary supporting policies, some of those profits might be redirected to investment and wages as the import-competing sector looks to expand its output.

What’s more, for goods that the United States does not or cannot produce domestically at adequate levels to meet demand, tariffs raise prices for U.S. consumers and businesses without giving a boost to domestic industries. This includes a wide range of agricultural goods (e.g., coffee, avocados, and bananas) and commodities and minerals that are relatively scarce in U.S. territory. Tariffs on imports that do not compete with “Made in America” goods simply raise prices for U.S. consumers without spurring domestic production of these goods. They represent a pure cost to U.S. consumers without any countervailing benefit.

Should policymakers try to make tariffs a significant revenue source for government spending?

In brief: No. Tariffs are essentially a tax on consumption and are, hence, more regressive than most current federal revenue sources. This means that with tariffs, people with lower incomes will pay a larger share of their earnings in taxes than high-income people. For the significant amount of revenue we need to raise in the coming years, we should build on the existing progressive revenue sources we have (income and estate taxes) and institute new progressive taxes.

In detail: President Trump has suggested that tax revenues from new tariffs could replace the federal income tax. This would require tariffs to reach historically high and broad levels and would constitute a large, regressive shift in who finances the federal government. In this scenario, the tax burden would shift from higher-income households to low- and moderate-income households. Large, across-the-board tariffs of this magnitude would also have many negative economic side effects relative to income taxes.

In 2024, the federal government will collect an estimated $2.5 trillion in individual income tax revenues. To raise this much revenue, the base of any tariff would have to be extremely broad—effectively universal, falling on all imports. If one starts with the implausible assumption that a universal tariff would not change U.S. demand for imports, the tariff rate would need to be 78% to replace the individual income tax. More realistically, if tariffs deter Americans from importing goods, then these taxes on imports would need to be significantly higher to replace income tax revenues. In fact, most estimates of how sensitive U.S. purchases of imports are to their prices indicate that tariffs literally could not replace even half of the income tax.

Further, even if tariffs could somehow replace income tax revenue one for one, this would be an extremely damaging shift for most U.S. families who would end up paying a greater share of their incomes in taxes. Revenues from progressive income taxes are preferable to those from tariffs for a few reasons.

First, tariffs are a regressive tax, meaning people with lower incomes will pay a larger share of their earnings in taxes than high-income people. Tariffs are essentially a consumption tax, and consumption as a share of income tends to fall as incomes rise.

Second, progressive taxation achieves more than merely raising revenues to fund essential public services supplied by our government from those who are most able to pay—it also creates incentives that shape economic behavior in socially productive directions. The runaway growth of incomes for top earners are driven by rent-seeking practices—income gained from the exploitation of power that is unrelated to an individual’s contribution to overall economic growth. Progressive taxation disincentivizes such rent-seeking among those with power and instead allows incomes to be more broadly dispersed. This disincentive effect of the federal income tax has been greatly eroded since the 1980s as top marginal rates have fallen, but relative to a scenario with no income tax, it is significant and worth preserving.

Finally, tariffs lead to efficiency losses as the potential benefits of international specialization are lost. At tariff levels that have persisted for the past 70 years, these efficiency losses are quite small (and often very exaggerated by economic commentary). But at tariff levels needed to replace the federal income tax, these efficiency losses would be high. Progressive income taxes also have some distortionary effects that might reduce economic output, but they also have countervailing influences that might boost economic output and welfare. For example, by raising revenue from the rich and financing federal spending targeted toward low- and middle-income families, this progressive redistribution supports growth in economywide demand. Again, richer households save higher shares of their income, so, redistribution away from them boosts spending. Substituting tariffs for progressive taxation forgoes these economic benefits beyond tax revenues.

Are tariffs easier and more transparent to collect than other forms of taxes?

In brief: No, tariffs involve multiple compliance costs, and across-the-board tariffs will offer many more chances for corrupt dealing than exist under current taxes.

In detail: In 2018, tariffs imposed under Sec. 301 and Sec. 232 authorities by the first Trump administration included a process whereby importers could petition for tariff exclusion. Essentially this provided a huge new tax loophole for politically connected large companies to exploit. In total, the Trump administration granted more than 100,000 exclusions from the tariffs. Audits by the U.S. Government Accountability Office and the Department of Commerce’s Inspector General found the exclusion petition processes were plagued by a lack of transparency, followed capricious and inconsistent internal procedures, and issued contradictory and seemingly arbitrary decisions.

New empirical research indeed confirms that tariff exclusions have been used systematically to reward political contributions, as well as to punish political opponents, rather than to accommodate economic need. In one instance in 2019, Apple lobbied President Trump to secure exemptions for iPhone imports from China and pledged to repatriate some Mac computer manufacturing from China to the United States, though they never delivered on this promise. The scope of companies that will be incentivized to apply for exclusions (and potentially offer improper favors in exchange for them) and the financial benefit of avoiding tariff charges will grow enormously if the Trump tariffs that were promised during the campaign actually come to pass.

Will the impact of tariffs on consumers vary a lot across U.S. states?

In brief: Not a lot—the effect of tariffs on consumers’ purchasing power will mostly depend on the share of consumer spending on categories of goods and services facing new tariffs. This doesn’t differ widely by state—consumers in California, for example, aren’t necessarily more likely to spend vastly more money on durable goods or food (products facing high new tariffs) than consumers in Montana. Essentially, residents of all states are in the same boat when it comes to these price increases.

In detail: Tariffs are a tax on imports that, in effect, redistribute “surplus” from U.S. consumers and foreign producers to subsidize domestic producers of import-competing goods. When used strategically to support specific sectors, tariffs can be an effective tool of industrial policy—but consumers will face lower purchasing power as a result.

The effects of these price increases from tariffs will be mostly uniform across states. Below, we provide a rough estimate of the potential impact on U.S. consumers’ purchasing power in each state from President Trump’s new tariffs on Canada, Mexico, and China implemented on March 4, 2025. These tariffs apply a 25% tax on goods imported from Canada and Mexico, except for Canadian energy products that will be taxed at 10%, and raise tariffs on goods imported from China from 10% to 20%. On March 6, President Trump suspended these tariffs on many Mexican and Canadian goods for one month, but given that the administration has now twice announced and backed down from these tariff threats, we thought calculating their potential impact if fully implemented would be a useful addition to the policy debate. The final estimates are shown in the map below.

To estimate the impact on consumers, we analyzed personal consumption expenditures in each state, decomposed into durable goods, non-durable goods, and services consumption from the Bureau of Economic Analysis, using the most recent available data from 2023. We applied research from Federal Reserve Bank of San Francisco economists that identifies the import content of consumer spending in each of these consumption categories and then estimate the tariff-impacted component of imported consumption.

The main variation in how one state’s consumers will face higher or lower costs from import tariffs hence depends on whether their consumption skews more or less toward those spending categories that are intensive in imports (i.e., goods). It is likely the case that states with high housing costs spend less (as a share) on goods and will hence face lower tariff costs, simply driven by the fact that housing is not import-intensive, and if it’s expensive it is by definition claiming a bigger share of personal spending in those states.

Finally, to present a dollar value of tariff costs per capita, we adjusted the prices of 2023 consumption to January 2025 prices—the most recent measurement available from the Personal Consumption Expenditures price index.

There are some estimates of import destination by state, but in the end, we did not use this information to allocate tariff effects. In this import destination data, Canada, Mexico, and China account for 43% of all U.S. imports, though there is considerable variation across states—from a mere 13% of total imports in Hawaii to 94% of all imports in Montana. However, many imports are intermediate inputs used as components in the production of more finished goods—just because something is imported to a state does not mean it will be consumed in that state. For example, 75% of Michigan’s imports are from these three countries, but much of this represents parts that will be assembled into cars and trucks sold all across the country. It’s not Michigan consumers alone who would face any particularly large cost increase from tariffs.

Finally, it’s important to note that this analysis only allocates the effect of new U.S. tariffs across states. The potential effect of retaliation from trading partners might be much more focused on particular states. These three countries are the top export destination for 45 states, but retaliation might not stop at restricting U.S. exports. For example, a possible response by Canada could be to raise electricity prices to the U.S. states supplied by Canadian generation. This is a small subset of states that would face much greater costs than others. Other responses could include reduced tourism, as Canadian Prime Minister Trudeau suggested, which would also be more concentrated in particular states.

Are other countries’ value-added taxes (VATs) an unfair barrier to U.S. exports?

In brief: No. Value-added taxes as they are administered in trading partners of the United States are neutral with respect to trade. They are not a barrier to U.S. exports and hence should not be penalized under “reciprocal” trade protection.

In detail: A value-added tax is a consumption tax on goods and services levied at each stage of the supply chain. Unlike sales taxes in many U.S. states and localities which tax the consumption of a good or service at its final user, a VAT levies taxes incrementally on each stage of production. President Trump’s February 13, 2025, Memorandum on Reciprocal Trade and Tariffs falsely claims that value-added taxes are “unfair, discriminatory, or extraterritorial taxes imposed by our trading partners.” President Trump has suggested treating VATs as a kind of tariff to be met with reciprocal tariffs from the United States. This is a mistake commonly made by people who don’t really understand how these taxes or trade work.

Economists and tax practitioners have long recognized that in theory VATs do not inherently affect international trade flows, as summarized by Nobel Prize-winner Paul Krugman and chief economic advisor to President Reagan Martin Feldstein. In practice, when VATs fall more heavily on tradeable goods (like manufactured goods) than on non-tradables (like housing and health care), they will reduce the size of a country’s tradeable goods sector, leading to reductions in both imports and exports. Further, if a VAT (which is a consumption tax) substitutes one for one for an income tax, this can increase national savings and hence provide a small boost to net exports. But these real-world twists on VATs still in no way constitute an unfair barrier to U.S. exports.

According to the International Monetary Fund, more than 160 countries use a VAT; the United States is somewhat of an outlier in relying on a single-stage retail sales tax to raise revenues from consumption. To illustrate how a VAT taxes each stage of production, imagine that a farmer sells wheat to a grain mill, which makes it into flour, which is in turn purchased by a bakery to produce bread for final sale to consumers. Under a VAT:

1. The grain mill pays a tax on the value of the wheat.
2. The bakery pays a tax on the value of the flour minus the value of the wheat (which has already been taxed).
3. Consumers pay a tax on the value of the bread minus the values of the wheat and the flour (which have both already been taxed).

The value taxed for consumers of bread under a VAT in the third step already embody the taxes paid for the values of intermediate steps—1) wheat and 2) flour—in the supply chain. In contrast to a VAT, a retail sales tax like in U.S. states levies a tax on the full retail price of bread because, as intermediate inputs to production, the wheat and flour are exempted from tax.

It is true that VATs are levied on goods and services imported to the VAT country and rebated on products that the VAT country exports. But this treatment is exactly what keeps VATs neutral with respect to trade flows. In effect, this works like existing U.S. sales taxes: U.S. exporters do not pay a U.S. sales tax on goods that are sold outside the U.S., but U.S. consumers do pay a sales tax on imported goods. Similarly, when a good is sold across state lines into a state with no sales tax, businesses pay no sales tax in the “exporting” state. And consumers in a sales tax state pay taxes for “imported” goods from another state. Levying a VAT on imports and rebating VATs on exports merely serves to give all products the equivalent tax treatment.  

In other words, with a VAT, there simply is no penalty for imports nor a subsidy for exports. Hence, other countries’ VATS do not constitute trade barriers that demand reciprocal protection from the United States.

What is misclassification?

Misclassification is when an employer wrongly classifies an employee as an independent contractor. The problem of workers being misclassified as independent contractors is pervasive and widespread. An analysis from the National Employment Law Project focusing on state-level reports on misclassification estimated that as many as 10–30% of employers misclassify their workers.1 An earlier study commissioned by the Department of Labor in 2000 found 10–30% of employers misclassified at least some workers.2 

The way a worker is classified has serious implications for their labor rights and costs to their economic security. Federal, state, and local labor laws provide extensive protections for employees that are not available to independent contractors, for example:

• When a worker is misclassified as an independent contractor, they are no longer eligible to earn minimum wage or overtime pay.
• These misclassified workers are no longer eligible to participate in unemployment insurance systems or to qualify for workers’ compensation insurance.
• They do not qualify for paid sick or family leave in places where those benefits are statutorily prescribed and they do not receive employer-provided health insurance or retirement benefits.
• They are no longer protected by the National Labor Relations Act, which ensures workers’ rights to form unions and bargain collectively to improve their working conditions.
• In most states, misclassified workers no longer receive federal anti-discrimination and sexual harassment protections.3
• Workers misclassified as independent contractors also must assume the full financial cost of Social Security and Medicare contributions, rather than split it evenly with their employer when classified as employees.

Losing these protections leaves independent contractors in a far more vulnerable position than employees when it comes to their basic rights on the job.

Employers have argued that many workers prefer being classified as independent contractors because they value “flexibility” over fundamental labor rights. But this so-called flexibility is often illusory, given the degree of control many employers retain over workers and their schedules.4 Misclassification remains pervasive because the costs to individual workers are hard to quantify and thus easy to obscure. Prior research has estimated the costs of misclassification by quantifying the number of workers misclassified; the amount of wage theft experienced by misclassified workers; and the loss in federal and state tax revenues resulting from employers not paying payroll taxes and workers’ compensation insurance.5 This fact sheet presents estimates of two types of costs caused by misclassification for 11 commonly misclassified occupations:

1. the difference in the value of a job to a worker if the worker is classified as an independent contractor rather than as an employee, and
2. the difference in payments to social insurance funds if a worker is classified as an independent contractor rather than as an employee.

The cost to workers

Table 1 highlights the individual worker costs of misclassification as an independent contractor for 11 occupations that are most prone to misclassification.6 In the first scenario, independent contractors are not compensated for health and retirement benefits (the low estimate of net job value in Table 1). In the second scenario, independent contractors are fully compensated for health and retirement benefits (the high estimate of net job value in Table 1).

Table 1

Scenario 1: No compensation for health and retirement benefits

In this scenario, we assume regular pay is the same as that of a W-2 employee. However, the independent contractor receives no supplemental pay (e.g., overtime or shift differentials), paid leave, or health insurance and retirement benefits. The independent contractor must also pay the full employer and employee contribution to Social Security and Medicare (15.3% of earnings) and cover paperwork costs like invoicing, bookkeeping, and small business tax filings. The net value of a job for a worker in this scenario is shown in column 3.

Under these assumptions, we conservatively estimate the net value of a construction job done as an independent contractor falls as $40,413 per year—a difference of $19,527 (column 6) or 32.6% less than a W-2 employee ($59,940 in column 2). Notably, misclassified truck drivers also see a massive decline in net value of the job. As a W-2 employee, a truck driving job is worth $60,498, while an independent contractor receiving the same wage, but no supplemental pay or benefits earns $38,965—$21,533 less.

Scenario 2: Full compensation for health and retirement benefits

This scenario assumes the regular pay is the same as a W-2 employee plus the full value of health insurance and retirement benefits. Access to these benefits increases the annual earnings of an independent contractor, but once we deduct Social Security and Medicare contributions and paperwork costs, the net value still falls below the net value of a W-2 employee. In Table 1, this is reflected in the comparatively less conservative high-end estimates in column 4. For a construction worker, the net value of the job as an independent contractor is only $47,499, or more than $12,000 below the net value of the same job done as an employee. For a truck driver, the switch to independent contractor status would cost $12,938.

Table 1 also shows estimates for 9 other occupations with lower annual earnings than construction workers and truck drivers. As W-2 employees, these workers had median annual earnings between $31,940 and $42,470. Under the more conservative estimates in scenario 1, being misclassified as an independent contractor would cost between $8,219 (retail sales workers) and $16,892 (light truck delivery drivers). Under scenario 2, the costs would be $5,901 and $10,172, respectively.

Mapping cost to workers by state

Similarly, we estimate the cost of misclassification to workers at the state level. Again, the value of a job to W-2 employees and independent contractors is calculated using available state- and occupation-specific data. The net value of a job to a W-2 employee is then compared to that of an independent contractor with and without compensation for health and retirement benefits.

Figure A maps the financial penalty that workers face when wrongfully misclassified as independent contractors without health and retirement benefits.The annual per-worker cost in lost compensation ranges from $6,517 for janitors and cleaners in Mississippi to $26,253 for truck drivers in New Jersey. See Appendix Table 1 and Appendix Table 2 for a detailed breakdown of costs to workers by occupation and state for independent contractors with and without compensation for health and retirement benefits.

Figure A

The cost to social insurance

Table 2 illustrates the impact of worker misclassification on payments to social insurance funds (Social Security, Medicare, federal and state unemployment insurance, and Workers’ Compensation).

Table 2

When a worker is misclassified as an independent contractor, the entire cost of Social Security and Medicare contributions is shifted to the worker but no contributions are made to federal and state unemployment insurance and workers’ compensation funds.7 Under our first set of assumptions (independent contractors are paid only their regular pay on a job when they are classified as independent contractors with no health or retirement benefits), total contributions to social insurance fall for construction workers by close to 30% ($3,070). Under our second set of assumptions (independent contractors receive the regular pay on the job plus the full cost of insurance and retirement benefits), payments to social insurance drop by less—17.3% ($1,790) due to the higher base pay.

Mapping the cost to social insurance funds

Expanding this methodology to states reveals how misclassification deprives state social insurance funds of crucial dollars needed to maintain safety net programs, such as unemployment insurance and Workers’ Compensation. Figure B maps the difference in contributions to social insurance funds between W-2 employees and independent contractors without compensation for health and retirement benefits. The median, annual, per-person cost to social insurance funds ranges from $609 for pedicurists and manicurists in Oklahoma to $3,713 for construction workers in Hawaii. See Appendix Table 3 and Appendix Table 4 for a detailed breakdown of costs to social insurance funds by occupation and state for independent contractors with and without compensation for health and retirement benefits.

Figure B

Recommendations

Policymakers at the federal, state, and local levels should act to curb misclassification and enforce the rights to which all workers should be entitled. Policymakers should:

• Establish or expand the use of a strong, uniform protective legal test for determining employee status, such as the ABC test;8
• Pass the Protecting the Right to Organize (PRO) Act,9 which would make it harder for employers to misclassify employees in order to prevent them from forming a union and bargaining collectively;
• Strengthen enforcement of wage theft and misclassification, and fully fund the federal and state agencies responsible for enforcing workers’ wage and hour rights;
• Require employers to provide workers with transparent statements of their employment status and a justification for their classification;
• Extend basic wage and hour protections, workplace health and safety protections, paid sick leave, and other protections to independent contractors to discourage misclassification as a “race to the bottom” for worker rights; and
• Improve coordination among state and federal tax and labor enforcement agencies by establishing interagency misclassification task forces with dedicated resources and staff and strong co-enforcement partnerships capable of effectively cracking down on misclassification in targeted industries.10 

Methodology

Since there is no private or public data on workers misclassified as independent contractors, we apply a methodology that makes use of available employee total compensation and earnings data to estimate the costs of misclassification. For each of the 11 occupations included in our analysis, we begin with the average compensation profile drawn from the Bureau of Labor Statistics’ (BLS) Employer Costs for Employee Compensation (ECEC) database. This profile provides a breakdown of average employer costs for employee compensation in the private sector. As an example, Table 3 presents the average hourly compensation profile for construction workers broken into its component parts. We take the ratio of the individual compensation components to regular pay—which includes wages, salaries, supplemental pay, vacation, holiday, sick, and personal leave—to estimate the ratio of compensation to pay.

Table 3

Next, we apply the ratios of compensation to pay to median annual earnings obtained from the BLS’ Occupational Employment and Wage Statistics data (OEWS). This gives us estimates of the regular pay, supplemental pay, paid leave, and insurance and retirement benefits for a W-2 employee. We then calculate the net value to the worker as an employee based on the sum of all pay, paid leave, insurance and benefits, minus Social Security and Medicare taxes.

From here, we model two possible ways that net value to a worker can change if the employee is misclassified as an independent contractor.

1. In the first case, we assume that workers classified as independent contractors lose their supplemental pay, their paid leave, and their health insurance and retirement benefits.
2. In the second case, we assume that employers pay independent contractors their regular pay and fully compensate them for the cost of health insurance and retirement benefits that employers would have paid to the same worker working as an employee. 

We make a few assumptions of additional costs incurred by workers hired as independent contractors that substantially reduce the value of the job relative to the value of the same job when performed as an employee. The largest cost is the independent contractor’s responsibility for paying both the employee and the employer contributions to Social Security and Medicare. We also assume independent contractors incur paperwork costs, including invoicing, bookkeeping, and small business tax filings. We calculate paperwork costs by updating the methodology used in  2020 comments on independent contractor status under the Fair Labor Standards Act.11

State estimates

Estimates of the cost of misclassification by state and occupational group are produced similarly to national estimates, using compensation data from the BLS’ Employer Costs ECEC data and state earnings data from the BLS’ OEWS data.

A compensation profile for each of the 11 occupational groups (see Table 1) obtained from the ECEC details the total hourly cost of compensating a worker, including the share of total compensation derived from regular pay, insurance and retirement benefits, and legally required benefits. A ratio of compensation to pay is calculated by dividing each compensation component by regular pay. 

BLS does not produce ECEC data for occupational groups at the state level. Thus, we construct these data by combining national, occupation, and census division ECEC data. Table 4 illustrates this procedure using construction workers in New England as an example. First, we create compensation to pay ratios for private-sector workers at the national level, for each occupational group (e.g. construction workers) and for each census division (e.g. New England). Next, we divide the occupation-specific ratio by the national ratio and multiply this quotient by the census division ratio. This yields a unique compensation to pay ratio for New England construction workers, which is then mapped onto all states within this respective census division. This procedure is followed for all occupational groups and census divisions to produce compensation to pay ratios for all 50 states and the District of Columbia.

Table 4

We apply the state- and occupation-specific compensation to pay ratios to state and occupation median annual earnings obtained from BLS’ OEWS data. This gives us estimates of total compensation that comes from regular pay, supplemental pay, paid leave, and insurance and retirement benefits for W-2 employees across all states and occupations.

As in the national estimates, the cost of misclassification to both workers and to social insurance funds is calculated by comparing the net value of a job for a W-2 employee to that of an independent contractor under two scenarios: with and without compensation for health and retirement benefits. Appendix Tables 1–4 provide detailed breakdowns of these costs in both net dollar amounts and percentage differences relative to W-2 employees.

Notes

1. National Employment Law Project, Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries, October 2020.

2. Government Accountability Office, Employee Misclassification: Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention, GAO-09–717, August 2009.

3. Meghan Racklin, Molly Weston Williamson, and Dina Bakst, “State Leadership on Anti-Discrimination Protections for Independent Contractors,” Future of Work Blog (A Better Balance), April 22, 2020.

4. Margaret Poydock, Lynn Rhinehart, and Celine McNicholas, Flexible Work: What Workers, Especially Low-Wage Workers, Really Want And How Best To Provide It, Economic Policy Institute, July 2024.

5. Françoise Carré, (In)dependent Contractor Misclassification, Economic Policy Institute, June 2015; Government Accountability Office, Employee Misclassification: Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention, GAO-09–717, August 2009.

6. For discussions of occupations where workers are particularly vulnerable to misclassification as independent contractors, see Annette Bernhardt, Sarah Thomason, Chris Campos, Allen Prohofsky, Aparna Ramesh, and Jesse Rothstein, Independent Contracting in California: An Analysis of Trends and Characteristics Using Tax Data, UC Berkeley Labor Center and California Policy Lab, March 2022; Françoise Carré, (In)dependent Contractor Misclassification, Economic Policy Institute, June 2015; National Employment Law Project, Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries, October 2020; and Lisa Xu and Mark Erlich, Economic Consequences of Misclassification in the State of Washington, Harvard Labor and Worklife Program, December 2019.

7. When workers are employees, they pay the employee share of Social Security and Medicare (7.65% of W-2 earnings). Their employers also make identical payments to Social Security and Medicare.

8. Lynne Rhinehart et al. Misclassification, the ABC Test, and Employee Status, Economic Policy Institute, June 2021.

9. Celine McNicholas, Margaret Poydock, and Lynne Rhinehart, Why Workers Need the Protecting the Right to Organize Act, Economic Policy Institute, February 2021.

10. For more on interagency misclassification task forces, see Rebecca Smith, Public Task Forces Take on Employee Misclassification: Best Practices (policy brief), National Employment Law Project, updated August 2020. For more on co-enforcement partnerships, see Janice Fine, Daniel Galvin, Jenn Round, and Hana Sheperd, “Strategic Enforcement and Co-enforcement of U.S. Labor Standards Are Needed to Protect Workers Through the Coronavirus Recession,” Boosting Wages for U.S. Workers in the New Economy series, Washington Center for Equitable Growth, January 2021.

11. Heidi Shierholz, “EPI comments on independent contractor status under the Fair Labor Standards Act,” comments submitted on behalf of the Economic Policy Institute to Division of Regulations, Legislation, and Interpretation (Wage and Hour Division) Director Amy DeBisschop, October 26, 2020.

The IRS estimates that business taxpayers spend 13 more hours than nonbusiness taxpayers doing their taxes. If we conservatively assume that independent contractors spend 30 minutes per week on other (non-tax) paperwork costs that they wouldn’t have to spend if they were a payroll employee, that, plus the additional 13 hours spent on taxes, is an additional 39 hours of paperwork per year. This is equivalent to 1.8% of pay, or $880 annually for an independent contractor who earns $48,887 in regular pay annually. 

Additionally, we estimate these paperwork costs as the annual purchase of basic bookkeeping software ($114 on the lowest end, using FreshBooks, see https://www.freshbooks.com/pricing, accessed October 16, 2024), self-employed tax filing software for federal taxes ($129, using TurboTax, https://turbotax.intuit.com/personal-taxes/online/live/, accessed October 16, 2024) and state taxes ($64, using TurboTax).

Data appendix

Appendix Table 1

Appendix Table 2

Appendix Table 3

Appendix Table 4

The federal minimum hourly wage is just $7.25 and has not increased in 14 years, the longest period of congressional inaction in the history of the minimum wage. As a result, the real, cost-of-living-adjusted value of the minimum wage has fallen by 30%.

The Raise the Wage Act of 2023, introduced in the U.S. House of Representatives and U.S. Senate on July 25, 2023, would raise the federal minimum wage to $17 an hour by 2028. The bill would also gradually raise and then eliminate subminimum wages for tipped workers, workers with disabilities, and youth workers, so that all workers covered by the Fair Labor Standards Act (FLSA) would be at the same wage level.

What would its impact be?

EPI’s analysis shows that a $17 minimum wage in 2028 would raise the wages of 27,858,000 workers across the country, or about 19% of the workforce. The increases would provide an additional $86 billion annually in wages for the country’s lowest-paid workers, with the average affected worker who works year-round receiving an extra $3,100 per year.

How many workers would benefit in each congressional district?

Table 1 shows the number and shares of workers in each congressional district who would receive wage increases if the Raise the Wage Act of 2023 were enacted into law.

Table 1

Why are workers in some states less likely to be affected?

In summer 2023, 19 states and localities implemented minimum wage increases based on state, local, or municipal laws that already set the minimum wage higher than the federal standard. In total, 30 states and the District of Columbia have a minimum wage above the federal minimum, and many more localities have minimum wages above their state minimum wage. Workers in most of these states will still benefit from a $17 federal minimum wage, but the effect is muted because low-wage workers in those states have already seen wage increases above the federal minimum.

California, the District of Columbia, Hawaii, and Washington all have state- or municipality-level minimum wage laws that will set minimum wages close to, or above, the Raise the Wage Act’s proposal of $17 by 2028. Because of this, only a small number of workers in those states would be directly affected by the federal policy as state/local laws will have already raised the wages of low-wage workers in those jurisdictions. Because of the smaller impacted population, more detailed impact estimates are unavailable for those states. (Cells for which data are unavailable are marked with * in Table 1.)

Why is it critical that the Raise the Wage Act be passed?

As EPI’s state-by-state minimum wage tracker shows, raising the federal minimum wage is critical to protect workers (especially in the South) who have been left behind. A higher federal minimum wage can build on existing state-level standards and lock in the wage gains made by low-wage workers in the economic recovery from the COVID-19 pandemic.

Assumptions and documentation for EPI’s Minimum Wage Simulation Model

• The estimates are for the year 2028, when the policy’s regular minimum wage is $17 and the tipped minimum wage is $15.
• The underlying wage distribution is based on the 2022 Current Population Survey.
• The underlying geographic data is based on the 2015–2019 American Community Survey (ACS), reweighted to match 2019 ACS-based gender-specific employment counts of congressional districts for the 118th Congress.
• The simulation assumes nominal wage growth will be at a 5.0% annual rate between 2022 and 2023, and at an annual rate of 0.5% plus projected CPI growth in subsequent years.
• The simulation accounts for estimated effects of projected state and local minimum wages between 2023 and 2028.
• To read more about the EPI Minimum Wage Simulation Model, see the description in Cooper, Mokhiber, and Zipperer (2019).