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ECONOMIC POLICIES, ANALYSIS, AND RESOURCES

The Economic and Trade Policy Domain tracks and reports on policies that deal with budget, taxation, and finance issues. The domain tracks policies emanating from the White House, Congress, the Department of Commerce and the Department of Treasury.

Latest Economic and Trade Policy Posts

Explaining the Minimum Wage

Brief #99—Economics
By Rosalind Gottfried
The term minimum wage actually refers to several different things.  There is the federal minimum wage which is the lowest wage that employers can pay their workers unless they are in an exempt category of tipped workers.

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Income Inequality in California Points to Economic Shifts Nationwide

Income Inequality in California Points to Economic Shifts Nationwide

Economic Policy

Brief # 103

Income Inequality in California Points to Economic Shifts Nationwide

By Linda F. Hersey

December 29, 2020

As California goes, so goes the nation.

Whether it is culture, policy or innovation, the nation’s most populous state has long been a frontier for change and a reliable predictor of trends for the rest of the U.S. and around the globe.

That is among the reasons why the widening income gap between the state’s wealthiest and poorest citizens, coupled with an outmigration of the middle and working class, increasingly concerns economists and policy makers.

California may command the nation’s largest economy – indeed, among the largest in the world — but it also has among the highest poverty rates in the U.S. California’s poverty rate is 19 percent while the poverty rate for the nation is 14 percent.

Economists warn there is no easy fix. Income inequality in California, they argue, points to significant changes well under way across the economy, as high-tech automation deletes the need for human labor in manufacturing and other traditional jobs.

For Californians, these are the best of times and the worst of times, economically.  The San Francisco Bay area, for example, enjoys a net worth of close to a half-million dollars per resident.  Yet San Francisco’s historic Tenderloin neighborhood reports a poverty rate that hovers at just over 50 percent.

Fundamental Structural Shifts in the Economy

Richard Florida, who directs the Martin Prosperity Institute at the University of Toronto, argues that California is experiencing fundamental structural changes in its economy that are likely to occur in other states.

Florida told the New York Times that income inequality seen dramatically in California is a “symptom of the bifurcation of the labor market into a small share of knowledge jobs and a much larger share of low-wage service jobs.”

California, the leading incubator state for knowledge jobs, ranks among the top 10 states in economic growth, outpacing the nation as a whole.

California also is experiencing a population decline – with a net outmigration of residents to nearby western states that include Texas, Arizona and Oregon, as people who are struggling move elsewhere.

People most likely to leave California are high-school educated, low- and middle-income adults with families, while college-educated high-income earners are more likely to move to the Golden State, according to a 2018 report by the California Legislative Analyst’s Office.

The Public Policy Institute of California reports that the biggest determining factor for economic prosperity for Californians is education.

The job market in the knowledge economy rewards people with a four-year college degree or higher, while median income has dropped for adults without college degrees.

There also are racial disparities in income levels that need solutions. The Public Policy Institute of California found that only about 10 percent of the state’s top wage earners – those with incomes above the 90th percentile — are Latino and African American, though they make up more than 40 percent of the state population.

Renewed Focus on Education, Economic Development

California is a bellwether for economic transformation in the U.S. and other advanced nations around the globe. While less dramatic, income inequality is up in other states, including Alabama, Nebraska, New Hampshire, Virginia and New Mexico.

The California experience, and the lessons learned, need to be recognized and applied in economies moving rapidly into the new Knowledge Age, which favors the well-educated and technological elite.

Closing the income gap will require a combination of policy changes to reduce disparities, including more tax and safety net programs, along with a renewed focus on improving opportunities for education, economic development, housing and transportation.

Engagement Resources

Public Policy Institute of California is a nonpartisan think tank dedicated to improving and advancing the state’s public policies through independent research.

Legislative Analyst’s Office of California is a nonpartisan fiscal and public policy adviser to the state Legislature.

U.S. Census Bureau follows a directive to measure poverty in the United States. Here is a primer on how the Bureau defines and measures poverty.

Congress Finally Agrees to a Tepid Stimulus and a Federal Budget

Congress Finally Agrees to a Tepid Stimulus and a Federal Budget

Brief #102

Congress Finally Agrees to a Tepid Stimulus and a Federal Budget

Rosalind Gottfried        

December 20, 2020

Policy

A sustained disparity in the goals of Congressional Democrats and Republicans has ended in a compromise bill which leaves many Americans still vulnerable to the effects of the corona virus economy while providing a stopgap measure to avoid the worst case scenario.  The 900 billion Stimulus bill is tied to a government spending plan which avoids a last minute government shutdown.

The stimulus includes a $600 direct payment to persons earning under $75,000.  It includes money for people using Taxpayer Identification Numbers, making undocumented immigrants eligible who were barred for participation in the March stimulus.  This figure represents a lower amount than proposed by the Democrats and more than that initially supported by the Republicans; it also had the support of President Trump.   It also provides $600 per child.  Direct infusion is necessary to help strapped citizens but insufficient for the 8 million who have fallen into poverty since June.  It also may not be enough to help the unemployed avoid some of the consequences of long term unemployment.

The plan also provides for $300 a week of federal subsidies for regular unemployed benefits.  It also extends the access of gig and freelance workers though these will expire in less than three months.  Without the new stimulus, an additional 12 million workers would have lost their benefits at the end of the year.  Both the direct cash payments, and the unemployment subsidies, are half of what was provided in the March stimulus.

The stimulus also covers $285 billion for businesses in Paycheck Protection Programs of forgivable loans; $20 billion in federal loans for small businesses, extension of aid to nonprofits, local news sources; and $15 billion for entertainment venues including independent movie theaters.  The bill provides $82 billion in aid to colleges and schools; $13 billion in nutritional supplements; funding for tracing, testing, and vaccine distribution; $7 billion for broadband access; 25 billion in rental assistance; and an extension of the moratorium on evictions which had been set to expire at the end of the year.

In reaching this agreement, the Democrats dropped demands for aid to state and local governments which face large layoffs.  They also won an extension for spending funds remaining from the March stimulus.  The Republicans dropped demands for liability protections for hospitals and businesses.  The two parties agreed on language limiting the power of the Federal Reserve to make loans and emergency funding for businesses, municipalities, and other institutions to prohibiting copycat programs passed in the March stimulus; the Republicans wanted to make a more sweeping limitation on the power of the Fed.

The government spending bill, scheduled to begin at 12:01 Tuesday (with a one day emergency provision for Monday) will see funding for twelve major federal departments, and the safety net, sustained to the end of the fiscal year (September 30, 2021).  The spending bill contains a provision to ban supplemental bills form out of network providers, forcing the providers to work with the insurance companies, as promoted by the Democrats.  The budget will also expand federal Pell grants for tuition to low income students and revoke a ban on grants to prisoners pursuing education while incarcerated.  Provisions for clean energy to counter climate change and to reduce hazardous chemicals in refrigeration and air conditioning are also in the spending plan for the first time in ten years.  These are seen as a hit on President Trump’s administration.

Analysis

In the end, the program represents a huge step down from the over 2 trillion plan the Democrats supported and the more stingy plan proposed by the Republicans.  Nancy Pelosi has called the current agreement an “initial step” and Biden sees it as a down payment on the stimulus plans he hopes to implement in his initial weeks as President.

The current program may help the most desperate situations from occurring in families with unemployed and curtailed workers but it comes too late for many workers and businesses.  Research indicates that half of the businesses that shut down in the spring failed to reopen or did so but then shuttered again.  The ultimate fate of these businesses is hard to predict.  Biden’s commitment to provide more aid is highly likely to falter with the expectation of  economic recovery anticipated by the availability of vaccination programs.

Long terms effects of the recession are disproportionately felt by the lower income workers who are more likely to be women and persons of color.  The racial income gap has widened and women are leaving the labor force in greater numbers.

Time will tell whether President-elect Biden will successfully infuse more aid into the struggling economy but if the debacle of the prolonged debate on the current stimulus is any indication, he appears unlikely to meet the challenge, especially with the Republicans touting the return of commerce that the vaccine promises.

Learn More References

https://www.nytimes.com/2020/12/20/us/politics/congress-stimulus-deal.html

https://www.nytimes.com/2020/12/20/business/economy/stimulus-bill-congress.html

https://www.cnbc.com/2020/12/20/mcconnell-says-congress-has-agreed-to-900-billion-coronavirus-stimulus-deal.html

Resistance Resources

https://www.govotega.org/

Organization to get out the vote in Georgia where two pivotal Senate seats will be elected in early January

The Crisis In American Higher Education; College Enrollment; Student Debt; Student Loan Forgiveness

The Crisis In American Higher Education; College Enrollment; Student Debt; Student Loan Forgiveness

Brief #101

The Crisis In American Higher Education; College Enrollment; Student Debt; Student Loan Forgiveness

Rosalind Gottfried        

Economics

December 21, 2020

Policy

The pandemic has exacerbated troubling trends in higher education.  College enrollment fell by 11% from 2011-2019.  The rate of decline accelerated in the past year, with undergraduate enrollment falling by 3.6% from the previous year; that is two times the previous year’s rate.  The brunt of the decline has been sustained by Community Colleges where enrollment fell by 10%.  Community Colleges, public institutions with two year college degree and certificate programs, educate the largest group of college students in the country and service a disproportionately high percentage of low income students and students of color.  They also suffer the most underfunding, in higher education, as they don’t command as much public money as four year schools and they maintain low tuition as part of their mandate.

The high school class of 2020 demonstrated a 21.7% drop in college enrollment which was unevenly spread over the graduating class.  In high poverty high schools the drop was 32.6% while the drop was only 16.4% in low poverty schools.  The fear is that the class of 2021 will have similar data.  FAFSA (the federal application for student financial aid) applications are down 14% and some colleges, including the California State University system, have extended their admissions deadlines in the hope of gaining more applications.  During the pandemic, short certificate graduate programs and Masters Programs showed some increased enrollment, along with for profit schools.  Many for profit undergraduate programs spend a lot of money on advertising and they charge high tuition and generally show low graduation and employment rates.  These colleges are thought to be siphoning some of the potential pool of community college students, partially because of their advertising and also because they have a history of easy access and online learning.

Even when the effects of the pandemic are eliminated, demographic shifts in the population point to a decreased pool of eligible college students.  The portion of students graduating from high school will peak in 2025 and then face a period of sustained decline until 2037.  In response to lowered enrollments, many institutions have experienced layoffs and furloughs among staff and faculty.  Some schools have canceled sports, certain majors, and even whole departments.  Fifty universities have suspended enrollment in their doctoral programs.

The pandemic has many students questioning the efficacy of gaining a higher education, especially among low income students.  Many students are wary of paying tuition for online learning instead of  opting to join the workforce and make money, potentially saving it for future education opportunities.  Data show, however, that the longer an individual delays college attendance, the less likely they are to ever attend.  The most vulnerable students are first generation college students and they are disproportionately from low income and/or non-white households.  These students are also vulnerable to failing to complete degree programs and still owing payments on student loans, without the benefits of jobs requiring college degrees.

Student loan debt is at a record high of 1.6 trillion dollars.  Student loan debt is second to mortgage debt.  Forty five million people hold student loans.  Forty five percent of loan holders, benefitting from student loan forbearance in place until January 31st, say they fear they will be unable to make their subsequent payments.  The median loan payment is $222 and the average (mathematical) is $393, likely accounting for the small proportion of students with over 100K in debt.  Thirty percent of students graduate without any loan debt and 23% have less than $20,000 in debt.  These figures likely represent the students from affluent families or the small portion that gain full financial aid.  These figures highlight the likelihood that the low and moderate income students are the most likely to accrue debt and they are also the ones who are most likely to struggle to make payments.  If young adults are not saddled with student debt, they could buy houses, cars, start businesses and families—all things which have been delayed or eliminated.  It is estimated that loan forgiveness would boost the GDP by 108 billion dollars per year and add 1.5 million jobs.

Analysis

President elect Joe Biden has pledged to address the issue of student debt forgiveness.  Senators Warren and Schumer support eliminating up to $50,000 in student debt and that is one consideration.  A majority of Americans favor student loan forgiveness of up to $50,000.  Another possibility is that Biden will move quickly to forgive $10,000 in federal student loans per individual, through Executive Order which is possible under the current Higher education Act.  The senators also want to eliminate the tax liability on the loan forgiveness which is currently accrued by the small portion of students who have gained forgiveness under public programs.  Americans feel that tax breaks made for the very wealthy are unfair and “regular” Americans should also get a comparable break. Those tax breaks made under the Trump administration did not improve the economy though canceling debt for the lower income groups would boost the consumer power of that group.

The Biden administration is considering multiple fixes to the crisis in higher education.  In addition to forgiving debt, the proponents of reform suggest restructuring education funding and making four year public colleges tuition free.  The federal government will have to support higher education in new programs because tuition increases already have stretched family budgets.  In 1968, the ratio of college tuition to income was 1:30; today it is 1:5.  Incomes have stagnated or increased only minimally.  Many schools increased tuition during the Great Recession to compensate for slashed state budgets and cannot sustain viability without a federal infusion of funds.  The millennials are the first generation to be worse off than their parents and the bulk of this trend is seen among the most vulnerable groups, namely low income students and students of color.  Biden can help, though there is concern that if he invokes his power of Executive Order it will be contested in the courts, possibly up to the US Supreme Court, a worrying prospect.

Learn More References

Resistance Resources

Congress at Impasse as Situation Worsens for Millions of Americans

Congress at Impasse as Situation Worsens for Millions of Americans

Brief #100

Congress at Impasse as Situation Worsens for Millions of Americans

Stimulus; Unemployment; Evictions

Rosalind Gottfried        

Economics

December 9, , 2020

Policy

As winter recess approaches the Congress remains at an impasse regarding a new stimulus package which is likely to fall by the wayside as it turns its attention to passing legislation to avert a December 11th federal shutdown.  While the government deals with its own malfunctions, economic trends point to multiple trends suggesting a downward spiral.  Job creation, which showed a tepid 245,000 increase in November, was down from an average of 1.9 million in the summer and earlier fall months.  Without a renewed stimulus, 12 million jobless Americans will run out of unemployment benefits on December 31st and an estimated 6.7 million will face eviction as moratoriums end.

The economic recovery is slowing and expected to stall, or worsen, until a vaccine is widely available.  Some signs of the worsening affects can be seen in mid-November data, before the latest surge from the Thanksgiving holiday was felt.  The week ending November 21st saw hotel occupancy at 40%, down from 50% a few weeks earlier.  In the same week, consumer spending was down 5%, and more small businesses have closed, whether temporarily or permanently is not yet known.   While the government stimulus stalls, and  Congress bickers over how to avoid a shutdown, the most vulnerable Americans will suffer the consequences of what promises to be a bleak winter.

Analysis

There are two plans floating in the government, neither of which promises to bring necessary relief to millions of un- and underemployed workers or to state and local governments.   There is a 908 billion dollar bipartisan Congressional plan, versus a 916 billion dollar Trump plan, neither approaching the two trillion plus plan initially favored by Congressional Democrats when the first CARES package expired.   Putting money in the pockets of Americans is a necessity and none of the proposals support another $1200 check; they range from zero, in the bipartisan Congressional plan to $600 in Trump’s plan, though that plan would slash unemployment benefits in the Congressional plan.  Bernie Sanders has stated that 1 in 4 Americans is out of work or making less than $20,000 a year.  This gives pause to a statement made by a Bloomberg economist that the economic pull back will “tip the economy into a modest contraction early next year;”  A significant part of the population will face a dramatic situation.  The Democrats and Republicans are especially split on the issue of aid to state and local governments, which face substantial layoffs. McConnell seems to be a major obstacle to getting the latest bipartisan Congressional bill passed, saying he wants to include coronavirus corporate liability protections for corporations and drop state and local aid provisions.  Biden has pledged to move quickly to bring a stimulus to the first days of his administration, even if it means sacrificing some of the Democrats goals, such as aid for the states.  Biden, and secretary of the Treasury, Janet Yellin, will start out in crisis mode.

Lear More References

https://www.bloomberg.com/graphics/recovery-tracker/

https://www.economist.com/united-states/2020/12/05/americas-economic-recovery-no-longer-looks-so-strong

https://www.cbsnews.com/news/second-stimulus-check-hopes-update-2020-12-08/

Engagement Resources

https://nlihc.org/rental-assistance National low income rental assistance site

For food assistance and cash assistance, please check local listings or contact https://www.crisistextline.org/ and they will assist you in accessing local resources..

Explaining the Minimum Wage

Explaining the Minimum Wage

Explaining the Minimum Wage

Rosalind Gottfried        

Economics

November 27, 2020

Policy

The term minimum wage actually refers to several different things.  There is the federal minimum wage which is the lowest wage that employers can pay their workers unless they are in an exempt category of tipped workers.  Many states have augmented the federal wage with a state or local minimum wage.  Consequently, in referring to the minimum wage, it is imperative to elaborate what standard is the reference point.

The minimum wage was established in 1938 as part of the Fair Labor Standards Act to stabilize the economy and provide for protections for workers.  Currently, the federal minimum wage is $7.25, unchanged since 2009.  This period represents the longest constant amount of the minimum wage in history.  The real value of that wage is down 17% since 2009 and 31% since 1968, when minimum wage was at its peak value. Currently the mid-range for wage earners varies between $23-35 , depending on the industry and the level of education. So the Federal minimum wage number is considerably below the mid-range.

Employers can pay a minimum wage of $2.13 to wait staff and any other person who receives cash tips as long as the combined income equals the federal minimum wage, though this is usually not monitored very thoroughly, or at all.  Although some people make a nice income from tips, others suffer in that their employers are not honoring the law guaranteeing the federal minimum.

In the same time period, 2009-2019, worker productivity has doubled certainly establishing the availability of funds for a more realistic minimum wage. Twenty one states and the District of Columbia have raised their minimum wages to address inflation, along with about two dozen cities and counties.  Wages for low wage workers in those states rose much faster than for those in the 29 states that have not increased the minimum beyond the federal standard.  Georgia and Wyoming have state minimum wages which are $5.15.  In states with a more substantial minimum wage the gender gap has narrowed and women’s wage gains outpaced men’s.  In states with the federal minimum wage, women’s wages gained only 50% of the increase sustained by men.  About 30% of low wage workers earn near the federal minimum wage (between $7.25 and $10.10).  Raising the federal minimum wage is expected to raise the wages of 33.5 to 40 million workers (depending on the source).

Analysis

A living wage, one which would guarantee that a person earns enough to maintain a stable standard of living providing basic needs, would be a lot more than the current standard.  Though many state and localities have increased the minimum wage to, or approaching, $15.00 an hour others have remained stagnant or phased in smaller increases.  The U.S. House of Representatives passed a Raise the Minimum Wage Act, in 2019, which would establish a $15 minimum by 2025.  The wage would also have an annual automatic adjustment based on the middle wage worker so that the gap between low and middle wage earners would be consistent. President-elect Joe Biden supports raising the wage to $15 per hour; eliminating the tipping minimum wage; and basing the minimum wage on the median wage.  If the Senate maintains its Republican majority, the chances of the Senate passing this wage act are slim.  The Pew Research Center survey indicates that two thirds of the American population favors a $15 minimum wage.  Some economists believe that even raising the rate to this level is insufficient to guarantee a minimum standard of living. Many minimum wage workers would remain in poverty, despite the rise in wages.

References

https://www.epi.org/publication/labor-day-2019-minimum-wage/#:~:text=Workers%20earning%20the%20%247.25%20federal,been%20paid%2010%20years%20ago.

https://www.cnbc.com/2020/11/09/the-us-is-closer-to-a-15-federal-minimum-wage-after-biden-win-.html

Resources

https://onefairwage.site/  An organization promoting one fair wage for all workers, including the tipped one.

Consequences of the Lack of a Stimulus Package

Consequences of the Lack of a Stimulus Package

Consequences of the Lack of a Stimulus Package   

Rosalind Gottfried        

Economics

November 20, 2020

Policy

The inability of  Congress to reach an agreement on a second stimulus package has impacted both the rate of disease and the economic recovery in the country.  Experts believe that if the stimulus had passed, as proposed by the Democrats, it would have provided for more funds for tracing and testing of the virus and possibly would have reduced the level of the current viral surge.  The pot of money for businesses was largely emptied months ago, leaving small and mid-sized businesses vulnerable to failing.  Experts in the largest hotel group predict that two of three hotels will close in the six months starting in September.

The $600 weekly federal supplement to unemployment elapsed at the end of July and the $300 weekly benefit Trump subsequently ordered ran out of money and was intended to last only six weeks.  These payments were considered more essential to the health of the economy than the one time payouts to individuals with incomes of $75,000 or less and couples with $150,000 or less.  With the failure of a stimulus program these payments have not been renewed and, though less effective than consistent unemployment support, did help families make rent and car payments and stave off potential disasters.

The House Democrats passed a three trillion program in May of this year and the Senate passed a one trillion plan in August.  In September the House reconciled with a 2.2 trillion dollars plan which was opposed by the Republicans.  Bickering ensued and Trump, prior to the election, encouraged the passing of some sort of  stimulus bill.  Since the election, he has fallen silent and Nancy Pelosi and Mitch McConnell have been unable to reach any kind of agreement.  The Congress is poised to leave on vacation for a Thanksgiving break and it has become increasingly clear that a stimulus is unlikely to occur until President-elect Biden takes the reins.  The recent news regarding imminent vaccination programs means that the ability to forecast a return to economic viability is at least conceptually closer than before the vaccination news but the essential problem of keeping individuals, families, and businesses afloat until then demands attention.

Analysis

Even when Biden assumes the presidency there is likely to be a lag time before the Congress agrees on a stimulus package.  McConnell is pushing for a 500 billion dollar program and Biden supports a 2.5 trillion dollar package.  Even arriving at a compromise hinges on the ultimate resolution of the two Senate seats still hanging in the balance in Georgia.  If the Democrats do not gain them, compromise will be difficult as the Senate will retain its Republican majority and McConnell shows no inclination of softening his position.  With the increasing likelihood of more failing businesses, and the suffering of  lower income workers who are un- or underemployed and lacking access to full healthcare, our economic situation looks largely bleak right now.

However there have been some “winners.”  Big national companies such as Wal-Mart, Targets, Costco, Amazon, and Home Depot are flourishing, making extra revenue off of the suffering of consumers and smaller businesses.  There have been no talks between the political parties since the election and the only potential impetus to do anything hinges on the effort to avoid a government shut down on December 11th when the current budget agreements run out.  With unemployment at 6.9%, and 12 million slated to lose their unemployment benefits after Christmas, the holiday season has another reason to be less than joyful.

References

Social Security in the Time of Covid-19

Social Security in the Time of Covid-19

Brief #97
Social Security in the Time of Covid-19
Rosalind Gottfried
Economics
November 3, 2020

Policy

There are several ways in which older Americans will be impacted as a consequence of the Covid epidemic.  Anyone who was planning on retiring in 2022 will suffer the most severe repercussions in that they will collect less Social Security over their lifetimes than they would have pre-virus.  This is due to the mechanisms which determine Social Security payouts.  The social security formula is configured on wages, age and the growth of average wages.  Since millions are suffering unemployment and/or reduced hours, overall income is down.  For people born in 1960, eligible to retire at 62 in 2022, the loss could be 1428 dollars per year with inflation adjustments (per SSA chief actuary).   These workers would benefit by waiting for the year of their maximum benefit or until age 70.  The reason that the projection is for those retiring in 2022 is that there is a two-year lag in  current employment and the time it is figured into the Social Security formulas.  Those who will retire in 2023 are predicted to be unaffected IF the economy rebounds.  Predictions are that four million people, workers and also their dependents and spouses, will be impacted.

Older Americans face a deteriorating employment situation.  In the past, older workers were protected from layoffs due to tenure and other factors.  Today, their higher pay scales and increased vulnerability to the virus has disadvantaged them.  The youngest workers (16-24) are still the most vulnerable to unemployment though the 55+ group has jumped to the number two place on the vulnerability scale.

The pandemic will affect social security recipients in other ways.  About one fifth of baby boomers have no other retirement beyond Social Security.  This year’s COLA (cost of living adjustment) was 1.6%, and it was 1.4% for the past decade.  Economists are fearful that the COLA might be zero for 2021 as a consequence of the unemployment and reduced hours of today’s workers.  Between 2000 and 2009, the average COLA was 3%.  Even with a more generous COLA, many of the elderly suffer due to the increases in living expenses, particularly in healthcare and housing.  Medicare premiums, groceries, heating oil and home owner’s insurance are also rising. Out of pocket expenses for prescription medications have increased 252% since 2000 and other expenses have seen similar increases.  The average benefit today falls $380 short of maintaining the same buying power as the average benefit in 2000; buying power has fallen about 30%.

Analysis
The major policy response to the plight of older laid off workers is to allow them to draw 1% of their social security now to help with living expenses.  This would amount to a median draw of $4300.  A half percent advance would yield about $2500 and would be of great relief to low income households for whom it would comprise a larger proportion of their income.  It would not add to the national debt because it would be taken out of the Social Security budget.   It is estimated that the loss would be restored if people worked  six weeks more than currently planned.  Economists point out that 401Ks permit “hardship withdrawals,” though they usually apply to the wealthier American households

Learn More References

Resistance Resources

https://www.ssa.gov/ssi/text-help-ussi.htm

This website provides information on how a person can get someone to assist them with obtaining social security benefits.

 

 

Just How Unfair is the Tax Code?

Just How Unfair is the Tax Code?

Rosalind Gottfried
Economics
October 19, 2020

Policy

The recently published revelations regarding the status of President Trump’s tax record hardly come as a surprise.  Many of us have the vague notion that the tax structure is unfair, but how bad is it?  And, how is it structured?

It is very unfair. The burden on the wealthy versus everyone else is very little.  As stated in The Guardian, “there is one set of rules for the richest 0.1% and another for everyone else.”  President Trump exemplifies the former group.  For the 15 years between 2000 and 2015 Trump paid no taxes for ten of those years and little for the remaining years.  In 2016 and 2017 he paid $750 which he described, in a recent interview, as a filing fee.  He has carried over business losses to multiple years accruing extra tax credit for the same losses.  He has not denied that he owes more than 400 million plus in debt, due in the next four years, and he will not state whether any of this is to foreign banks or foreign governments.  The NYT articles detailing his tax status have asserted that he has failed to make any payments on the principal of a 100 million dollar loan, from 2012, to fund the Trump Tower.  They also report that Trump depends on money from businesses which represent significant conflicts of interest with the office of the Presidency.  The full picture of his tax status is still missing in action since he asserts that he is under an audit and therefore cannot supply his records though there is no prohibition against him doing so.

Individual federal taxes are structured so that theoretically the more income you have the more taxes you will pay in terms of the percentage levied on your income.  This rarely plays out, in fact, and so frequently the working and middle classes are paying more income tax than the wealthy.  In 2018, the 400 top earners paid an average federal income tax rate of 23%, rather than their theoretical level of 37%.  One wealthy banker reports paying a tax rate in the high teens.  The bottom half of earners paid an average of 24%.

Tax levels for wages and salaries are greater than those levied on investments and property taxes.  Capital gains from investments, certain dividends, and long term capital gains are capped at 23.8%.   The tax burden is supposed to be “progressive” but the wealthy pay a similar portion, or less, than the middle groups and this imposes a far smaller burden on them.  Those who can least afford to do so pay a bigger portion of their relatively low income to taxes.  This is especially true in other “regressive” taxes such as Social Security and sales taxes.  The social security tax is increased as incomes go up but only to 137,000 dollars and then there are no additional charges.  Sales taxes, for example on food and gas, are equal for all though they are more costly to a household with a lower income.  These tax differentials are adding fuel to the fire igniting the ever widening gap in wealth in the US and the stagnation of the financial picture of the working classes.  The persistent separation of the very wealthy, from everyone else, is the most dramatic it has ever been and far outpaces the situation in other advanced democracies.

Policy

Trump and Biden favor different approaches to the tax structure. Overall, Biden seeks to make it more equitable and simple to utilize.  Trump seeks to advance the interests of business and capital.  A few highlights from the Tax Cuts and Jobs Act of 2017 (TCJA) exemplify these differences.  Trump wants to maintain the theoretical tax celling of 37% whereas Biden wants to return it to the pre-2018 level of 39.6%.   He feels the affluent should pay more because they can.  Trump suggests that the 22% rate on the middle groups be lowered to 15% or the brackets be modified so that more people fall into the lower groupings.  He has advanced no specific plans.  Trump would move the investment rate down to 15%, from a ceiling of 23.8%. 15% OF WHAT?  Taxes on investments..He also suggests tying the tax rate to the inflation index.  Biden would like to see the rates be the same or similar for all types of income.

The TCJA doubles the standard deductions on annual federal taxes and limits the itemized deductions a person can claim.  This has caused most people to stop itemizing.  The rate went from 31% to 14%.WHAT RATE?  Of people who bothered to itemize…Those with large mortgages and significant charitable contributions still benefit from itemizing. BUT ABOVE YOU SAY PEOPLE HAVE STOPPED ITEMIZING/EXPLAIN  Wealthy who have the means to buy huge homes and significant contributions to charities  The Act also increased child deductions to $2000 for children under 17 and $500 for other dependents.  The Act, with regard to personal income taxes, expires in 2025.  Biden seeks to increase the deduction to $3000 for children 6-17 and $3600 for children under 6.  Trump would leave it as is.

Biden proposes increasing payments to Social Security, often referred to as the payroll tax for incomes up to $400,000 rather than the current stopping point of $137,000.  Trump has suspended social security payments for September through December.  These deferred payments would be due in 2021 unless Trump eliminates the debt with a tax holiday.  A Congressional mandate is required to make these permanent.  The deferments only accrue to those making less than $100,000.

The portion paid by corporations versus the overwhelming mass of individual taxpayers continues to plummet.  Corporate taxes, under the TCJA, are at a flat rate of 21% rather than the previous range of 15-35%. These modifications are permanent under the Act. Trump prefers a set rate of 20% though he has made no proposal yet.  Biden supports a 28% rate and a limit to how long a business can claim little to no income.  A significant portion of corporate taxes are paid by employees, shareholders, and consumers rather than by the company.

Suggestions for improving the tax structure include:  that the tax subsidies for failing businesses be limited to six years; preferential treatment for investment income should end; a 10% sur tax should be placed on incomes over two million dollars regardless of its source; and large charitable donations should not have repercussions which accrue to the personal lives of their donors outside of the tax deduction.  It is estimated that the current set of rules results in 574 billion dollars of lost revenue annually and the wealthy comprise 70% of the noncompliant.  Can we afford this?

References: Learn More

https://www.theguardian.com/commentisfree/2020/oct/02/donald-trump-federal-income-taxes-legal

https://www.accountingtoday.com/opinion/trump-vs-biden-whose-tax-plan-makes-for-good-tax-law

https://www.cnn.com/2020/10/16/politics/trump-tax-returns-nbc-town-hall-savannah-guthrie/index.html

https://www.bbc.com/news/business-54364904

Resources

https://joebiden.com/  Biden campaign website

https://americansfortaxfairness.org/national-organizations-working-families/  Organizations seeking to change the federal tax structures

The Corona Virus Crisis Women in the Labor Force

The Corona Virus Crisis Women in the Labor Force

Policy

         Women are leaving the workforce at a rate four times than that of men.  There are two alarming trends affecting women in the labor force as a consequence of the corona virus.  The first impacts lower wage workers and concerns the dramatic rate of unemployment among women and especially Latinas.  The second trend pertains to women with higher education and the increasing rate at which they are dropping out of the workforce largely due to childcare needs.

In recent economic downturns, until the covid era, recessions were more pronounced in their effects on male employment earning them the title of mancessions.  With the covid era that has changed.  Sixty percent of jobs lost, at the onset of the virus, were to women.  In December 2019, women were 50.04% of the labor force, making them more than half of the labor force for the first time in a decade.  In April, the labor force participation for women was the lowest it has been since 1986.  Between February and April women’s unemployment increased by 12.8% compared to 9.9% for males.  Between August and September 1.1 million people left the labor market.  Women comprised the highest portion of this group at 800,000 including 324,000 Latinas and 58,000 African Americans.  Job losses were more pronounced in industries which hire a disproportionate number of women.  These include service work, production work, restaurant work, and some health care occupations.  These affect all women and especially women of color.  These women are least likely to be able to work at home and most likely to lose jobs.  Their unemployment is likely to outlive the recession.  In Sun Belt states this has hit really hard among Latinas.  These include Florida, California, Texas, and Arizona which have the highest concentration of Latinx populations.  It is hard to say how long it will take for these jobs to be reinstated or if they actually will be.  For some, unemployment payments, augmented by the federal CARES program, were literally lifesaving but that aid ended July 31st and there is no new program on the horizon.  The consequences for the community are dire, especially for single women headed households with minor children.

For professional women the situation is more voluntary in that women are opting out of the labor force due to caregiving requirements related to childcare and homeschooling.  Women are more likely than their male partners to quit working because more often they make the lower salary.  Cultural expectations still also play a role in the burden placed on women.  When women are still working they perform 15 hours more childcare duties than their partners.  It is too stressful and they are bending under the weight.  The problem is not only that they are the ones likely to sacrifice working for now but that their departure from the labor force will have long ranging consequences both for women and for the economy.  Women in mid professional careers are on a trajectory where they are more likely to be promoted. If this window is missed they are in jeopardy of losing those opportunities permanently.  Women who leave professional jobs are at high risk for never replacing them at the same level and/or for sacrificing their future gains.  This will create a situation in which the income gains of women, hard won in recent decades, will regress and likely not recoup for some time.  These millennial women also suffered setbacks during the great recession.

Analysis

To address the problem of the lower wage workers, the solution is pretty straight forward.  The federal government must create a CARES program to help those in dire need.  This is not a time for partisan shenanigans.  The need is clear and the response should be swift and compassionate.  In addressing the concerns of women opting out of professional jobs, the employers need to institute very specific programs which will allow for recruiting women back into positions comparable to those vacated.  Flexible scheduling, remote opportunities, and programs to facilitate promotion can be elaborated by human resources departments.  This is not a matter of giving women (or men in the same position) special treatment but of compensating for very real biases in employment world and in the gendered nature which persists in society.  This is not just a way to help specific women but of supporting the economy.  It is estimated that the unemployment of women has cost the economy 341 billion dollars so far.

Learn More

https://www.nytimes.com/2020/10/03/us/jobs-women-dropping-out-workforce-wage-gap-gender.html

https://www.cnn.com/2020/08/19/economy/women-quitting-work-child-care/index.html

https://www.cnbc.com/2020/07/14/how-coronavirus-could-do-long-term-damage-to-womens-careers.html

https://www.epi.org/publication/latinx-workers-covid/

Resources

https://www.crisistextline.org/  National crisis hotline.  It will connect you with local counties which can provide local information on rent assistance, food aid, mental health, suicide, housing, healthcare.

How the Supreme Court Impacts the Economy

How the Supreme Court Impacts the Economy

Policy

The Supreme Court has an enormous influence on economic policy though this association is not commonly made.  For example, the rights and well-being of the working and middle classes can hinge on the opportunity to unionize.  This right suffered a blow in a 2018 Supreme Court case, Janus v AFSCME (American Federation of State, County, and Municipal Employees).  The so-called “right to work,” was upheld by the court in a 5 to 4 decision restricting unions from the collecting “fair share dues.  Prior to the decision, a union could take a “fair share” of the dues from the employee, without their consent, to cover the cost of collective bargaining.  This ruling applies to persons who are in a collective bargaining unit but have not joined the union, since they benefit from the union contract.  They can be applied only to collective bargaining.

In a 5 to 4 decision in June 2018, the court negated the fair share mandate saying that collecting fees from non-consenting employees violated the First Amendment rights guaranteed by the Constitution.  Prior to that decision twenty two states had fair share provisions and 28 were “right to work” states barring collection of fair share monies.  The decision voided the fair share mandates.  The dissenting opinion, written by Elena Kagan, cited protections in the 1977 ruling, Abood v the Detroit Board of Education, which stipulated that fair share dues could only be utilized for collective bargaining which benefited all employees.  She asserted that the  ruling allowed the judiciary to intervene in economic and regulatory policy while weakening the unions.

With the current court poised to get another Trump appointment, the 6-3 conservative majority it would represent can do a lot of damage and, with the relative youth of the newer judges it could be sustained for decades.  According to the Bloomberg report, the current nominee Amy Coney Barrett, represents positons to the right of Chief Justice Roberts.  The fear is that the Court will overturn the Chevron Deference which maintains that federal agencies can interpret laws they administer as long as they are “reasonable.”

In the past, Anton Scalia supported the Chevron Deference, at least in the earlier part of his tenure, arguing that Congress intended to delegate authority and that the courts should uphold that perspective.  Now that interpretation of Congressional intent is considered problematic and the judges are favoring seeing the laws as they are written.  Flexibility in agency administration allowed the EPA to interpret the Clean Air Act to permit regulation of carbon emissions.  The new court would halt the authority of agencies to interpret policy.

Analysis

These two examples indicate the great impact the court can have on workers, businesses, and the economy.  Unionization is at an all-time low with 33.6% of government employees belonging to a union while only 6.2% of private workers are unionized. Nonunion workers average about $1500 less in salary and have to bargain for benefits.  In 2010, Wisconsin Governor Scott Walker signed Act 10 into law that significantly gutted the effectiveness of public employee unions, including the most state and most municipal workers as well as the teachers.  Teacher’s salaries fell an estimated 2.6% and their benefits dropped by 18.6%.   Walker successfully faced a recall vote in 2011 over the crisis in public unionization. 

Learn More

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