Income tax rates are at the center of many recent policy debates over taxes. Some policymakers argue that raising tax rates, especially on higher income taxpayers, to increase tax revenues is part of the solution for long-term debt reduction. For example, in the 112th Congress the Senate passed the Middle Class Tax Cut (S. 3412), which would allow the 2001 and 2003 Bush-era tax cuts to expire for taxpayers with income over $250,000 ($200,000 for single taxpayers). Other policymakers argue that maintaining low tax rates is necessary to foster economic growth. For example, the House passed the Job Protection and Recession Prevention Act of 2012 (H.R. 8), which would extend the 2001 and 2003 Bush-era tax cuts for one year. The Senate also considered legislation, the Paying a Fair Share Act of 2012 (S. 2230), that would implement the so-called "Buffett rule" by raising the tax rate on high-income taxpayers...
...Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. This analysis finds no conclusive evidence, however, to substantiate a clear relationship between the 65-year reduction in the top statutory tax rates and economic growth. Analysis of such data conducted for this report suggests the reduction in the top tax rates has had little association with saving, investment, or productivity growth. It is reasonable to assume that a tax rate change limited to a small group of taxpayers at the top of the income distribution would have a negligible effect on economic growth. For instance, the tax revenue projected from allowing the top tax rates to rise to their pre-2001 levels is $49 billion for 2013 or 0.3% of projected 2013 gross domestic product.
The top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% during to the 2007-2009 recession. During a portion of that time period, however, the share of the tax burden borne by top taxpayers increased. For instance, the top 0.1% of taxpayers paid 9.4% of all income taxes in 1996 and 11.8% in 2006, but their share of income paid in taxes decreased from 33% in 1996 to 25% in 2006....
]]>Are federal disability benefits becoming a general safety net?
One of the often-told stories of the anemic economic recovery has been the dreary prospects for workers. As of July 2012, there were 811,000 more long-term unemployed than when the recession officially ended in June 2009, and there were 412,000 more who had given up looking for work. The Bureau of Labor Statistics' expanded unemployment measure was 15 percent in July 2012.
As a result, discouraged workers are increasingly dropping out of the labor force. While the number of people with jobs has climbed 2.7 million since June 2009, the pool of Americans who aren't in the labor force at all has shot up by 7.5 million.
A great many of these people will likely never come back to the workforce even if the economy does rebound: not because they've aged into retirement but because they've signed up instead to get disability benefits -- joining the federal government's Social Security Disability Insurance (SSDI) program. This program, started in the late 1950s, was meant to provide much-needed benefits to those who were too disabled to work, but weren't yet eligible for Social Security benefits. The current massive exodus of workers to the disability rolls could have worrisome implications for the solvency of the SSDI program -- which is scheduled to become insolvent in less than four years -- as well as the federal government's broader entitlement spending problem. The shift could also cut the growth potential of the U.S. economy by permanently shrinking the available pool of labor....
Related:
The Unsustainable Rise of the Disability Rolls in the United States: Causes, Consequences, and Policy Options
Source: David H. Autor, National Bureau of Economic Research Working Paper No. 17697, December 2011
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Supporting Work: A Proposal for Modernizing the U.S. Disability Insurance System
Source: David H. Autor, and Mark Duggan, The Brookings Institution and The Hamilton Project, December 2010
Social Security Disability Insurance: Participation Trends and Their Fiscal Implications
Source: Congressional Budget Office, Economic and Budget Issue Brief, July 22, 2010
The Impact of Unemployment Insurance Extensions on Disability Insurance Application and Allowance Rates
Source: Matthew S. Rutledge, Center for Retirement Research at Boston College Working Paper No. 2011-17, October 2011
Why are more people leaving the labor force, and what are they doing?
Since September of last year, the unemployment rate in the United States has declined nearly a full percentage point, from 9 percent to 8.3 percent. On its face, this is an encouraging signal about the health of the labor market. But some of the change is due to a potentially troubling trend: a dramatic decline in the number of Americans who are part of the labor force. Prior to the recession, 66 percent of the population (not counting active duty military or people in a nursing home or in prison) over the age of 16 was in the labor force. Just four years later, this rate -- known as the "labor force participation rate," or LFPR -- has fallen to 63.7 percent. While this might not sound like a large decline, it is unprecedented in the postwar era.
The dropoff is all the more striking because it does not include unemployed workers who are actively seeking work; such workers are still considered to be part of the labor force. It is only when the unemployed decide to stop looking for jobs, perhaps because they have given up on the possibility of finding one, that they are considered out of the labor force -- although they might still want to work, and would accept jobs if they were offered.
The current low labor force participation rate is the result of both long-term structural changes, such as an aging population and decreased demand for low-skill workers, and cyclical factors, namely the lingering effects of the 2007-09 recession. While it's difficult to distinguish between the effects of demographics and the effects of the business cycle on labor force participation, why people drop out of the labor force -- and what they do when they're not working -- has important implications for the future growth of the U.S. economy.
Related:
The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply
Source: Stephanie Aaronson, Bruce Fallick, Andrew Figura, Jonathan Pingle, and William Wascher, Brookings Papers on Economic Activity, Vol. 37 no. 1, 2006
Time Use During Recessions
Source: Mark Aguiar, Erik Hurst, and Loukas Karabarbounis, National Bureau of Economic Research Working Paper No. 17259, July 2011
The Rise in the Disability Rolls and the Decline in Unemployment
Source: David H. Autor, and Mark G. Duggan, Quarterly Journal of Economics, Vol. 118, no. 1, February 2003
The Labor Market in the Great Recession: An Update to September 2011
Source: Michael W.L. Elsby, Bart Hobijn, Aysegul Sahin, and Robert G. Valletta, Brookings Papers on Economic Activity, Vol. 43 no. 2, Fall 2011
The Increased Role of Flows Between Nonparticipation and Unemployment During the Great Recession and Recovery
Source: Marianna Kudlyak, David A. Price, Federal Reserve Bank of Richmond Economic Brief, no. 12-06, June 2012
The Unemployment Gender Gap During the 2007 Recession
Source: Aysegul, Sahin, Joseph Song, and Bart Hobijn, Federal Reserve Bank of New York Current Issues in Economics and Finance, Vol. 16 no. 2, February 2010
Disentangling the Channels of the 2007-2009 Recession
Source: James H. Stock, Mark W. Watson, Presented at the Brookings Panel on Economic Activity, Washington, D.C., March 22-23, 2012.
Interpreting the Recent Decline in Labor Force Participation
Source: Willem Van Zandweghe, Federal Reserve Bank of Kansas City Economic Review, Vol. 97 no. 1, First Quarter 2012
From the summary:
Most of us like the idea of finding new and appropriate uses for things we thought we were done with. This is true whether we are a business or a household. Businesses that focus on profits know that finding a way to reuse materials can make them money. Households don't often recognize the value-added they provide to the economy by choosing to recycle; however their contribution can be significant to the overall wellbeing of the economy of the region as well as improving the environment of the region.
In 2012, the impact on Connecticut's economy, as measured in total sales due to recycling activity, is estimated to be over $746 million. Over seven years, from 2006 through 2012, this impact is estimated to be nearly $5.17 billion. Other measures of the overall economic activity associated with Connecticut's recycling activities in 2012 are estimated to include:
• Employment over 4,800
• Total value-added of $469 million, which includes:
o Labor income more than $275 million
o Indirect business taxes of nearly $59 million
o Other profit-type income of more than $134 million
While these numbers are substantial, they are conservative estimates of the overall impact of all aspects of the recycling activities in Connecticut. This conservative nature is a result of a the complex market structure of recycling in Connecticut which results in some dimensions associated with recycling not being classified in recycling or easily associated with that activity. Among these factors include efficiencies associated with some of the aspects of recycling which are not quantifiable but reduce costs, the economies associated with various reduced and avoided waste disposal requirements, and the economic values residents attach to having less land taken up with landfills or other waste disposal facilities.
However, this analysis has been as thorough as possible in accounting appropriately for all available data. Within the structure of Connecticut's economy this analysis was developed to provide a measure of the economic impacts associated with Connecticut's recycling activity for each year from 2006 through 2012. In addition, the following report extends this analysis to include an examination of the contributions of the Connecticut Resources Recovery Authority (CRRA). CRRA fills a critical role in overseeing an efficient materials recycling facility within the state and providing its knowledge to inform state policy. CRRA also provides an experiential and educational component of recycling in Connecticut through the CRRA Trash Museum.
See also:
Press release
For most of the last century, the worst employers in the United States--the tenement sweatshop, the company-town mine--were remnants of our past. Today, they are glimpses into our future.
Consider wages. While productivity grew about 80 percent between 1973 and 2011, the real hourly wages of the median worker barely budged--inching up only 4 percent over a generation.... Consider benefits. Public policy (Social Security and our patchwork health system) remains organized around the expectation of job-based pension and health coverage. But the share of workers offered such coverage, or able to afford their share of the costs when it is offered, continues to fall....
]]>The U.S. Congress Joint Economic Committee released the eleventh installment of its "Understanding the Economy: State-by-State Snapshots" 2012 series, which provides easy access to the major economic indicators in all 50 states and the District of Columbia in the areas of jobs, unemployment, personal earnings and housing.
Key economic statistics for each state include:
• Jobs created or lost since the start of the recession;
• Jobs saved or created by the Recovery Act;
• Unemployment rates;
• Per capita earnings; and,
• The condition of the housing sector.
See also:
Executive Summary
From the abstract:
This issue brief provides nearly "real-time" tracking of the recession's impact on children, with state-by-state data through 2012 on children with an unemployed parent and individuals receiving SNAP benefits, as well as the authors' predictions of state child poverty rates for 2012. There has not been much change in children's economic well-being over the past year, but there has been a sharp deterioration compared with conditions before the recession. Compared to 2007, more children today live in families with an unemployed parent, families that turn to SNAP benefits to help pay their grocery bills, and/or families below the poverty threshold.
Policies to boost innovation, competitiveness and job creation are top priorities for the nation's governors. State economic development agencies play a large role in making and implementing those policies and, accordingly, how states will rebound from the recession that ended in 2009. State leaders seeking to lay the foundation for renewed economic prosperity should try to ensure that such agencies function as effectively and efficiently as possible, so that the economic recovery brings with it strong growth and high-paying jobs.
The fact that states are now facing daunting economic challenges makes it easier to muster broad support for transforming their economic development agencies. Governors have a unique opportunity to review the economic landscape and to propose critical changes that would not have been feasible in the past. Within the past two years, at least 12 states have created new entities focused on economic development or have consolidated existing agencies to streamline their approach to economic development.
]]>From the summary:
Weathering the Great Recession shows that the economic downturn had devastating impacts for families at every rung of the economic ladder. However, in many ways, families in high-poverty neighborhoods were already experiencing their own hard times before the official downturn, making any additional losses that much more harmful to their economic prospects.
The key findings of this analysis include:
- There were no differences by neighborhood type in the proportions of residents who had wage losses or family income losses greater than 20 percent.
- Families in high-poverty neighborhoods experienced smaller absolute dollar losses in wealth but higher percentage losses than those in low-poverty neighborhoods.
- Families in low-poverty neighborhoods were the most likely to be homeowners and to have experienced home equity losses. However, families in high-poverty neighborhoods were the most likely to be behind on mortgage payments and to expect to be behind on payments in the next 12 months.
- Those in high-poverty neighborhoods were the least likely to be employed and the most likely to be unemployed during the recession. However, the chance of becoming unemployed during the recession did not differ across neighborhood types.
- These findings provide insight for policy makers working to design effective and targeted policy interventions to strengthen the recovery and address pre-existing challenges faced by residents of high-poverty neighborhoods.
See also:
From the abstract:
The American Legislative Exchange Council's Rich States Poor States studies have since 2007 urged states to cut taxes and suppress wages in order to create jobs and raise incomes. But the states ALEC rates best turn out to have actually done the worst.
See also:
Press release
From the abstract:
A growing economics literature establishes a causal link between in utero shocks and health and human capital in adulthood. Most studies rely on extreme negative shocks such as famine and pandemics. We are the first to examine the impact of a positive and policy-driven change in economic resources available in utero and during childhood. In particular, we focus on the introduction of a key element of the U.S. safety net, the Food Stamp Program, which was rolled out across counties in the U.S. between 1961 and 1975. We use the Panel Study of Income Dynamics to assemble unique data linking family background and county of residence in early childhood to adult health and economic outcomes. The identification comes from variation across counties and over birth cohorts in exposure to the food stamp program. Our findings indicate that the food stamp program has effects decades after initial exposure. Specifically, access to food stamps in childhood leads to a significant reduction in the incidence of "metabolic syndrome" (obesity, high blood pressure, and diabetes) and, for women, an increase in economic self-sufficiency. Overall, our results suggest substantial internal and external benefits of the safety net that have not previously been quantified.
From the abstract:
I find that median wealth plummeted over the years 2007 to 2010, and by 2010 was at its lowest level since 1969. The inequality of net worth, after almost two decades of little movement, was up sharply from 2007 to 2010. Relative indebtedness continued to expand from 2007 to 2010, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. In fact, the average debt of the middle class actually fell in real terms by 25 percent. The sharp fall in median wealth and the rise in inequality in the late 2000s are traceable to the high leverage of middle class families in 2007 and the high share of homes in their portfolio. The racial and ethnic disparity in wealth holdings, after remaining more or less stable from 1983 to 2007, widened considerably between 2007 and 2010. Hispanics, in particular, got hammered by the Great Recession in terms of net worth and net equity in their homes. Households under age 45 also got pummeled by the Great Recession, as their relative and absolute wealth declined sharply from 2007 to 2010.
From the abstract:
Federal highway grants to states appear to boost economic activity in the short and medium term. The short-term effects appear to be due largely to increases in aggregate demand. Medium-term effects apparently reflect the increased productive capacity brought by improved roads. Overall, each dollar of federal highway grants received by a state raises that state's annual economic output by at least two dollars, a relatively large multiplier.
The institution of collective bargaining is under serious attack in the United States.
American public sector unions and collective bargaining have been subjected to a vicious attack under the auspices of balancing government budgets, promoting "equity" between private and public employees, and limiting the impact of "special interests" on government policy. The American and world financial crisis of 2007 resulted in the Great Recession of 2008 and substantial budget shortfalls for local and national governments worldwide. This financial crisis and the resulting disintegration of aggregate demand and employment are eerily similar to the financial crisis and collapse that led to the Great Depression of the 1930s. However, unlike the calamity of the 1930s, in the present emergency, American conservatives, funded by the moneyed class, are attempting to use the predicament as an opportunity to attack collective bargaining and other institutions of support and power for the American middle class. This grasp for power represents an assertion of power and control by the American upper class not experienced since the rise of scientific management, the deskilling of jobs, and the destruction of the trade union system of collective bargaining in the 1890s.
In this paper, we outline the recent attack on public sector unions' power in the American economy and the accompanying changes, as well as proposed changes, in American law. We will briefly describe the impact of the recent financial crisis on the American economy, the balance sheets of American state and national governments, and the opportunism of the American plutocracy in using this crisis to propose and enact legislation to undermine the institution of collective bargaining and political proponents for the middle and lower classes. In particular, we will discuss the recent efforts in Indiana, Wisconsin, Ohio, and Michigan to severely limit or prohibit public sector collective bargaining and the political influence of American public sector workers. This attack on collective bargaining constitutes the largest grab for economic and political power by the American upper class since the destruction of the labor guilds in the 1890s and the rise of the "Gilded Age" in the late nineteenth and early twentieth century.
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