Other demographic factors—recent and projected declines in the birth rate and immigration—had negative effects on the program’s finances, though not enough to offset higher-than-expected mortality. However, when combined with the “valuation period” effect—the retirement of the large Baby Boomer cohort and subsequent slowdown in the growth rate of the working-age population—the demographic factors are essentially a wash—reducing the projected long-term deficit by .01 percent of payroll.
Economic factors included both positive and negative factors, but on balance increased the projected deficit by .04 percent of payroll. The positive factors include lower expected inflation, slightly higher long-term wage growth, and the current strong economy as a starting point for projections. The negative factors were lower productivity growth and interest rate assumptions. With the aforementioned positive effect of changes to disability experience and assumptions, which reduced the projected deficit by .07 percent of payroll, and minor technical adjustments, the overall effect was to shrink the projected deficit by .06 percent of payroll over the 75-year window.
Is this good news? Yes, in the sense that the annual release of the report often serves as an excuse for fearmongering. It’s more challenging to put a doom-and-gloom spin on an improved financial outlook—though some will inevitably try. One possible news hook is the fact that the combined “old age” and “disability” trust funds (often simply referred to as “the [combined] trust fund”) will start to shrink this year as more Baby Boomers retire. This is entirely proper and predictable—the Baby Boomers are the reason we built up the trust fund in the first place—but it has never stopped anyone from yelling “Social Security is going bankrupt!” in a crowded theater of bad ideas. (The challenge for the doomsayers, rather, is that they’ve been saying this ever since Social Security revenues minus the interest on trust fund assets weren’t enough to cover benefit payments, so this talking point has become a bit dull with time.)
What will happen if the trust fund is exhausted in 2035, as projected? Social Security is mostly a pay-as-you-go program, so current revenues will still be sufficient to cover 80 percent of promised benefits. While allowing a 20 percent cut in benefits would constitute terrible negligence on the part of Congress, the system would survive, and beneficiaries would still be better off than under some “reform” proposals that would preemptively cut benefits more than would occur automatically if nothing were done to shore up the system’s finances. While momentum is growing to shore up the program and expand benefits through increased revenues, so far this is not a bipartisan movement.
The new report may make life easier for disability advocates, who’ve contended with years of alarmist news stories by reporters who troop to poor rural areas to find beleaguered families with multiple SSDI recipients—and issues. These stories conjure up images of a growing underclass relying on SSDI as a substitute for lost earnings or unemployment benefits. More soberanalysis revealed that the growth in disability rolls from the mid-1980s through 2012 could be explained by population growth, aging Baby Boomers, women’s entry into the workforce, the increase in Social Security’s normal retirement age from 65 to 66 (when SSDI beneficiaries start receiving old age benefits instead), and adverse economic conditions. The decline in the disability rolls since 2013 is somewhat harder to explain, though Baby Boomers aging out of disability benefits at age 66 and a strong economy are contributing factors.
The fact that disability take-up tends to correlate with unemployment seems to support the idea that disability benefits are used as an improper substitute for unemployment benefits. The facts tell another story. While applications increase when economic conditions worsen, so do denials, and there’s little evidence that it becomes easier to access benefits during recessions. Instead, the increase in take-up reflects the fact that employers are more likely to lay off workers when business is bad, and some of these workers, though previously employed, will meet SSDI’s strict eligibility standards. (Consider, for example, a small business that keeps on a relative or longstanding employee in poor health until the survival of the business is threatened.)
If anything, it appears that accessing disability benefits may have become harder in recent years, though no one knows exactly why or how. This, in turn, may have contributed to a plunge in applications, as would-be applicants are discouraged before even trying. Possible factors contributing to the drop in beneficiary rolls include the closing of some regional Social Security offices, long processing times, and increased pressure on Administrative Law Judges to deny claims (which may also influence the composition of the ALJ workforce). On a more positive note, people with serious health conditions and other sources of income who in the past might have applied for SSDI benefits primarily as a way to access Medicare benefits (which SSDI beneficiaries become eligible for after two years) may no longer need to do so thanks to the Affordable Care Act. Another possible factor, welcomed by advocates, is increased funding for reevaluations and other “program integrity” measures.
In short, while it’s good news that Social Security’s financial outlook is brightening, some contributing factors, including higher-than-expected mortality, aren’t a cause for celebration. It remains to be seen whether the drop in SSDI take-up reflects positive trends, such as improved access to health care, or negative factors—eligible applicants being dissuaded or turned down.
The North American Free Trade Agreement resulted in growing trade deficits with Mexico and steep U.S. job losses after it was implemented in 1994, increasing the bilateral trade gap rose by at least $97.2 billion, and costing at least 682,900 jobs through 2010.
Can NAFTA 2.0 do any better?
The U.S. International Trade Commission’s (ITC) new report on the economic impact of the U.S.—Mexico–Canada Trade Agreement, released last week, projects that the revised NAFTA (USMCA) will have tiny impacts on the economy. The ITC estimates the deal will increase GDP by 0.35% when it is fully implemented (six years after it takes effect), or roughly 10 weeks of growth. Similarly, it projects that 175,000 jobs will be added in the domestic economy, a 0.1 percent increase in total employment (based on CBO projections for the economy in 2025), or roughly as many jobs as the economy adds in a normal month, over the next six years. And it claims real wages will rise about one-quarter of a percentage point (0.27 percent), roughly 4 percent of what workers are expected to gain, in real terms, over the next six years, if promised gains in output and employment are realized.
But there are strong reasons to doubt that these gains will be achieved. The ITC results show that the deal will yield remarkably small gains, and those gains rest on questionable assumptions about how the deal will help workers and the economy. Perhaps the most problematic finding in the ITC study (p. 25) was that labor provisions in the USMCA “would increase Mexico union wages by 17.2 percent, assuming that these provisions are enforced.” Given that unionization rates in the durable goods sectors of Mexican manufacturing are reported to be 20.2 percent (Table F.4), these would be massive impacts, indeed. Yet Mexican workers will not benefit unless there are mechanisms to ensure that labor rights enforcement does improve, but those provisions do not yet exist in the agreement.
Thus, it is not surprising to find that the AFL-CIO, other labor unions, and many members of Congress are demanding that “swift [and] certain enforcement tools” are included in the deal before it is submitted to Congress. These concerns also apply to segments of the agreement that pertain to the environment, access to medicines. Furthermore, the assumption that Mexican union wages will increase 17.2 percent seems especially heroic, within the 6-year adjustment period in the ITC model (p 23.), in light of the struggles that will be required to unionize such a large share of the labor force.
The ITC’s economic impact projections are built on a series of heroic assumptions that are built into its “computable general equilibrium (CGE) model.” The ITC model assumes the economy is always at full employment; that trade deals do not cause trade imbalances, job losses, growing income inequality, or downward pressure on the wages of most workers, and environmental damages;, and that the more expensive drugs, movies and software don’t otherwise harm consumers or the economy.
In particular, the ITC study assumes that the overall U.S. trade balance is unchanged by the deal (despite its significant changes in the rules of governing, trade, labor and the environment). Peter Dorman pointed out the problems with CGE models nearly two decades ago, as have many others, and yet the ITC staff, and other economists keep using them anyway.
ITC studies of the impacts of trade and investment deals have a particularly poor track record of projecting the actual pattern of trade following recent trade deals. In addition to being wrong about the overall size and direction of trade flows, the ITC also failed to “correctly identify the winning and losing industries in trade with Mexico and Korea.” The ITC claimed (Table 2.2) the US-Korea KORUS deal would improve that trade balance, but the trade deficit increased, costing more than 95,000 American jobs. And the most infamous, 1999, ITC estimate (Tbl. ES-4) was that China’s entry into the WTO would increase the bilateral trade deficit by about $2 billion after the deal is fully implemented. At last count, that deficit is up $272 billion, costing 3.4 million U.S. jobs.
The ITC’s claims about supposed (net) benefits of the NAFTA-2 (USMCA) deal stand in contrast to those of several other studies. Researchers from the International Monetary Fund recently used their own CGE model to estimate the economic impacts of the trade deal. They found that the USMCA, alone, would result in slight increases in welfare for Mexico and Canada and a small net welfare loss of $794 million for the United States.
Some of the most important, and controversial, changes to the NAFTA agreement, embodied in the USMCA, involve new rules of origin (ROO) that raise the level of regional content for motor vehicles, parts and some other products (including steel and aluminum in vehicles) which must be achieved in order to qualify for special, duty-free treatment under the agreement. New standards were also developed for labor value content (LVC) that require certain minimum shares (40 to 45 percent) of cars and trucks must be produced with labor earning at least US$16 per hour. 
The ITC report estimates that the USMCA’s ROO and LVC requirements would increase net employment in U.S. auto and parts production by more than 28,000 jobs, and that U.S. investment in will increase by “$683 million per year to meet new demand for U.S. produced engines and transmissions. (ITC report 19).” But these findings are certainly controversial.
In their recent IMF working paper, Burfisher, Lambert and Matheson, found that the USMCA agreement (alone) would result in a small ($275 million) increase in the U.S. trade deficit, and that the negative sectoral impacts would be more significant. In particular, they found the agreement would reduce output of motor vehicles and parts in all three countries by an average of 0.8 percent ($7.6 billion), and by 0.2 percent in the United States alone. Higher vehicle costs (due in part to tariffs) will reduce vehicle demand, and some auto and parts production is likely to shift to lower wage locations such as China, Vietnam or Malaysia. This finding stands in contrast to the ITC assumption that the USMCA will increase motor vehicle production in the United States..
It is time for a new approach to analyzing trade deals. The CGE models are built to analyze the impacts of reducing tariffs on trade. But deals such as the USMCA are about much more than trade in goods and increased efficiency in the economy. They are trade and investment deals, and their most important, negative effect on U.S. workers is that they make it attractive for multinational companies to offshore production to low wage countries such as Mexico. The CGE models make gross, simplifying assumptions about how non-trade issues affect workers and the economy, and yet provide an unearned degree of perceived rigor about these effects, when, in fact, they are assuming answers rather than carefully exploring their impacts.
The USMCA nibbles at the edges of the USITC trade model, and the basic approach to negotiating trade deals, but doesn’t appear to change its basic tenets.. The USMCA will continue to encourage firms to offshore production. The locations may change, from Mexico and Canada to China, Vietnam or Malaysia, but the results will remain the same.
These negotiations, and the models used to assess their impacts, aren’t getting the job done for working Americans. It’s time to go back to the drawing board, for all of us.
 ROOs for textiles and apparel were also tightened, and some other trade restrictions involving agricultural trade (dairy, eggs, poultry, cotton, peanuts & related products) between the U.S. and Canada, and some trade in small packages were relaxed.
For all the wrong reasons, the term “fiscal stimulus” became a dirty word in the wake of the Great Recession. Policymakers need to work hard to counter that perception before the next downturn hits.
President Barack Obama’s $800 billion spending plan is often criticized as having been ineffective. In reality, the plan played a crucial role in stemming a deepening economic slump, and if it fell short, it was because the aggressive one-time boost ultimately proved too small to counter the magnitude of the shocks at hand.
Speaking at EPI’s Next Recession event this past Thursday, Christina Romer, who was Chair of the Council of Economic Advisers during the crisis, asked “What made it possible to use fiscal policy so aggressively at that particular moment in time?”
“First, never underestimate the power of fear. The world economy really was imploding before our eyes,” she said.
Romer recalled the high-stakes crisis scenario she faced quite immediately upon taking office.
“I will never forget the first Friday of December in 2008 because I had been in DC as the designate for Council of Economic Advisors chair for all of a week when the employment report for November 2008 was released. And if you remember it, it was awful,” Romer said.
Not only had the economy lost a shocking half million jobs that month, which coincided with the height of the financial crisis on Wall Street, the prior two months showed downward revisions of some 200,000 jobs.
“All told that morning we learned employment was ¾ of a million jobs lower than we might have thought just the night before. And I remember it vividly because I was pulled out of a meeting—the president elect was still in Chicago, but I was pulled out of a meeting because he wanted to be briefed on the numbers by phone.
“I kept saying ‘Oh my God, this is awful, I’m so sorry, oh my goodness it’s a catastrophe, I just kept going,” Romer said. “Finally he stopped me he said, ‘Christy, it’s not your fault’—but wait for it—‘yet.’”
“That really drove home to me the sense of magnitude of what not only the country was facing but also that I was facing.”
A new EPI report finds that the constraints to dealing with an eventual next recession are likely to be political rather than economic.
Romer bemoaned the evaporation of a consensus about the need for fiscal stimulus during downturns.
“Even actions like extending unemployment insurance during a long downturn are now highly controversial,” Romer said. “It’s truly frightening.”
Data from the Bureau of Labor Statistics’ Employer Costs for Employee Compensation gives us a chance to look at workers’ bonuses in 2017 and 2018, to gauge the impact of the GOP’s Tax Cuts and Jobs Act of 2017. Last year, our analysis showed that bonuses rose by $0.02 between December 2017 and September 2018 (all calculations in this analysis are inflation-adjusted). The new data show that bonuses actually fell $0.22 between December 2017 and December 2018 and the average bonus for 2018 was just $0.01 higher than in 2017.
This is not what the tax cutters promised, or bragged about soon after the tax bill passed. They claimed that their bill would raise the wages of rank-and-file workers, with congressional Republicans and members of the Trump administration promising raises of many thousands of dollars within ten years. The Trump administration’s chair of the Council of Economic Advisers argued last April that we were already seeing the positive wage impact of the tax cuts:
A flurry of corporate announcements provide further evidence of tax reform’s positive impact on wages. As of April 8, nearly 500 American employers have announced bonuses or pay increases, affecting more than 5.5 million American workers.
Following the bill’s passage, a number of corporations made conveniently-timed announcements that their workers would be getting raises or bonuses (some of which were in the works well before the tax cuts passed). But as EPI analysis has shown there are many reasons to be skeptical of the claim that the TCJA, particularly its corporate tax cuts, will produce significant wage gains.
The new data for December 2018 allows us to examine nonproduction bonuses in every quarter of 2018 to assess the trends in bonuses in absolute dollars and as a share of compensation relative to both December 2017 and 2017 as a whole. The bottom line is that there has been very little increase in private sector compensation or W-2 wages since the end of 2017. W-2 wages actually fell 2.0 percent from December 2017 to December 2018, and total compensation fell by 0.9 percent. W-2 wages and compensation in 2018 were imperceptibly higher, growing, respectively, by 0.2 and 0.1 percent.
The $0.22 per hour decline in bonuses between December 2017 and December 2018 is startling and may be a statistical fluke. Nonproduction bonuses as a share of total compensation grew from 2.7 percent in December 2017 to 2.1 percent in December 2018. As prior analyses have noted, whatever growth in bonuses has taken place is not necessarily attributable to the tax cuts but could be related to employer efforts to recruit workers in a continued low unemployment environment. As a June 2018 Wall Street Journal article noted:
Bonuses started taking off four years ago. Businesses have been electing to give workers short-term payouts for retention and morale, rather than longer-term wage increases the economy had experienced in previous decades. Anecdotally, the trend of bonuses rather than permanent wage increases continues. A recent report by the Federal Reserve showed employers in the Atlanta Fed district were “increasing the proportion of employee compensation that is not permanent and can be withdrawn, if needed.”
No explanation comes to mind for a sharp decline in bonuses.
The figure below shows the share of total compensation represented by nonproduction bonuses for private sector workers since 2008.
There was a sharp jump up in the share of compensation going to bonuses between the second and third quarters of 2014, rising from 1.8 to 2.5 percent, but a fairly mild drift upwards since then. The increase from the fourth quarter of 2017 to the first quarter of 2018 was from 2.7 to 2.8 percent of compensation. The sharp fall in December 2018 stands out. If one averages the data for the full years of 2017 and 2018, the nonproduction share of total compensation was essentially flat, rising from 2.60 to 2.63 percent. An examination of overall wage and compensation growth does not provide much in the way of bragging rights for tax cutters, especially given the expectation of rising wages and compensation amidst low unemployment.
The White House contention that corporate tax cut-inspired widespread provision of bonuses that led to greater paychecks through bonuses or wage increases for workers is not supported by the BLS Employer Costs for Employee Compensation data. This is not surprising. Press releases—“a flurry of corporate announcements”—by a small group of administration-supporting firms do not create widespread bonuses or wage growth for workers. Neither do tax cuts, at least within the first year.
Excessive wealth and power commanded by a small group of multi-millionaires and billionaires—the richest one-tenth of 1 percent—poses an existential threat to America’s economic vitality, democracy, and civil society.
It’s well-known by now that the richest 1 percent of American households have essentially doubled the share of national income they claim since the late 1970s. Less well-known is that inequality has even risen within the top 1 percent, with the top 10 percent of that overall group—or the top 0.1 percent—accounting for half of all income within the top 1 percent.1
The political clout of this top 0.1 percent is likely even more outsized then their share of overall income. This group’s incomes overwhelmingly stem from owning financial assets, not working in labor markets.2 This means that they benefit from the preferential tax treatment given to income from wealth relative to income from work. The Trump tax cut at the end of 2017 was tailor-made for the top 0.1 percent, as its largest cuts accrue to business owners, both corporate and non-corporate.3
Countering the power wielded by the top 0.1 percent will require ambitious policy changes across a range of issues. Steeply progressive taxes have recently been proposed by a number of policymakers and economists as key ingredients in the overall policy portfolio meant to restrain the power of the super-rich. One idea that has not yet gotten the attention it deserves in this discussion is a surtax on the incomes of the top 0.1 percent. A surtax has a number of advantages as a tool for checking the power of the rich. First, it’s laser-targeted on their incomes, phasing in only at the threshold of the top 0.1 percent. Second, it does not provide preferential treatment for wealth-based incomes relative to work-based incomes—it applies to every dollar of any kind over the income threshold. Third, this neutrality across types of incomes means that in the long run it would be hard to avoid or evade.
Proposal: A 10 percent surtax on the top 0.1 percent
We propose a 10 percent surtax on all income over the top 0.1 percent threshold. For simplicity, the income threshold should be defined by a taxpayer’s adjusted gross income (AGI). The threshold for the tax should be determined by the IRS to have only the top 0.1 percent affected in the first year, then it should be indexed by overall inflation. In the last year of IRS data available (2016), this top 0.1 percent threshold was $2.3 million. The surtax would apply to all income above AGI, including dividends and realized capital gains.
How much revenue might a 10 percent surtax on the top 0.1 percent raise?
Our preliminary estimate is that such a surtax would raise roughly $75 billion in its first year of implementation and roughly $800 billion in its first decade. The methodology for this estimate is fairly straightforward. First, we estimate how much total AGI is recorded by the top 0.1 percent.4 In 2019, we estimate that as roughly $1.17 trillion. Second, we estimate how much of the income of the top 0.1 percent of households would be exempt from the surtax by falling under the threshold, which is simply the number of tax filers in the top 0.1 percent multiplied by the tax’s threshold. With roughly 150,000 filers in the top 0.1 percent estimated for 2019, this implies that about $450 billion exempt from the tax, making the overall base roughly $720 billion. Third, we multiply this base by 10 percent to get $72 billion raised in its first year. In later years, we let the number of tax filers and their AGI rise at rates that have characterized the past ten years and making similar calculations for each of those years. Over the next decade this implies revenue of roughly $800 billion.
$75 billion is a lot of money, even in the context of the federal budget. $75 billion is, for example, the cost of providing universal high-quality pre-kindergarten for all 3 and 4 year olds in the United States, plus providing substantial aid for paying for high-quality childcare for all 0-2 year olds. This sort of ambitious investment in America’s children would provide huge benefits to American society and economic efficiency, and is just one example of how the income currently claimed by the very rich could be put to better use.5
1. Data on top 1 and top 0.1 percent income shares can be found in the online data on distributional national accounts maintained by Gabriel Zucman, based on work done by Zucman and co-authors Thomas Piketty and Emmanuel Saez.
2. The Piketty, Saez and Zucman (PSZ) data referenced in the footnote above indicates that non-labor income accounts for more than two-thirds of the income of the top 0.1 percent.
3. The single most-expensive component of the Trump tax cut of 2017 was the cut in corporate tax rates, which can account by itself for the entire net cost of the tax cut. Among its other provisions was a deduction for “pass-through” incomes—a form of income quite concentrated in the upper reaches of the income distribution. The PSZ data, for example, estimates that the top 0.1 percent claim almost 19 percent of all income generated by non-corporate businesses that is not paid to employees.
EPI Blog by Daniel Costa, Monique Morrissey - 1w ago
The Trump administration recently began implementing a “no-match” policy of flagging administrative records that don’t match what the Social Security Administration (SSA) has on file.
If you’ve been following the news in Georgia, you might think this is a reference to a tactic used by Georgia Secretary of State Brian Kemp to purge minorities from the state’s voter rolls right before the gubernatorial election he narrowly won against his Democratic opponent, Stacey Abrams. Not exactly, but both are related—and have civil rights implications.
Voter suppression efforts in Georgia and elsewhere have used a range of strategies to purge voters, including striking those whose names loosely matched those of dead people and felons and those whose names didn’t exactly match SSA or drivers’ license records (so much for consistency). In a legal challenge, civil rights groups noted that an estimated 80 percent of voters affected by the “exact match” policy were African American, Latino, or Asian American.
Now the Trump administration is reviving a failed policy of sending letters to employers informing them of apparent discrepancies between employee W-2 forms and SSA records. In this case, the ostensible goal is checking tax forms, not voter registrations, but both efforts use SSA data as a validity check and both disproportionately impact immigrants and people of color.
SSA’s stated purpose is ensuring that paperwork is in order so workers receive the Social Security benefits they’ve earned. But there are better ways of doing this—including by informing the workers themselves of any discrepancies. In 2001, when SSA sent letters to both workers and employers, the former was nearly three times as effective in prompting corrections.
Employers can already electronically check W-2s against SSA data to make any necessary corrections before the forms are sent out. So what’s the harm in contacting employers by mail? At best, mass mailing no-match letters will add to the already-long wait times at Social Security field offices as people scramble to add missing hyphens or update their married names. At worst, it will lead to many employers wrongly suspecting that some of their employees don’t have work authorization. And while John Doe is unlikely to lose his job as a result, Juan Dominguez might, even if they are both U.S. citizens.
This is hardly an unforeseen problem. A version of the no-match policy on steroids was suspended by a judge in 2007 who determined that it would “result in the termination of employment to lawfully employed workers… because, as the government recognizes, the no-match letters are based on SSA records that include numerous errors.” Unlike the current policy, the Department of Homeland Security under George W. Bush put forward a regulation that would have required employers to fire workers on suspicion of lacking work authorization if they weren’t able to resolve discrepancies within 90 days. The Bush policy was opposed by a broad range of groups, including the AFL-CIO and the U.S. Chamber of Commerce, and was ultimately rescinded by the Obama administration.
Current no-match letters do warn employers against taking action against workers based on what in most cases is an innocent oversight or clerical error on the part of the employee, the employer, or SSA. But this disclaimer won’t dissuade employers inclined to be suspicious of foreign-born workers. No-match letters can also be used as a union-busting tool—by giving employers a convenient excuse to fire employees that support or engage in efforts to unionize, as happened at a Smithfield meatpacking plant, a Cintas laundry, and other workplaces before the earlier no-match policy was suspended. They can also be used to threaten workers who speak up about unpaid wages or unsafe working conditions.
Immigrants are far from the only group who’ll be adversely affected. Women who change their names after marriage or divorce, people with composite or hyphenated names, and people with less common names that are liable to be misspelled are more likely to be flagged, as are elderly and less-educated workers who are more likely to use nicknames. Low-income workers are also more likely to change jobs often, increasing the scope for error.
Discrepancies between SSA records and other documents may have been caused by applicants, employers, or government agencies—and often by SSA itself. In a 2009 review, Social Security’s Office of the Inspector General found that SSA’s Help America Vote Verification (HAVV) program, in which SSA partnered with states to check voter registrations, had a much higher no-match rate than other programs used by states and employers to verify voter registration or tax records. The HAVV program had a 31 percent no-match rate, while other programs had no-match rates ranging from 6 to 15 percent. The Inspector General found that the HAVV program didn’t even provide consistent responses when the same applicant data were resubmitted! In other words, the evidence is overwhelming that SSA records should not be used for purposes that they were never intended for.
Which brings us back to voter purges. In a partial about-face, Georgia Governor Brian Kemp signed a bill into law last week that, among other things, would no longer automatically strike voters from the rolls based on differences between voter registrations and SSA records. Despite this positive development, the law was ultimately opposed by Democrats because of security concerns regarding the use of electronic voting machines. In any case, Georgia has a history of reintroducing voter suppression tactics with minor revisions over U.S. Department of Justice objections, so history suggests that we’ll see another attempt at a voter purge in Georgia that’s barely disguised as “administrative recordkeeping.” Like SSA no-match letters, it’s a bad idea that never seems to go away.
Wealth is a crucially important measure of economic health—it allows families to transfer income earned in the past to meet spending demands in the future, such as by building up savings to finance a child’s college education.
That’s why it’s so alarming to see that, today still, the median white American family has twelve times the wealth that their black counterparts have. And that only begins to tell the story of how deeply racism has defined American economic history.
Enter EPI Distinguished Fellow Richard Rothstein’s widely praised book, “The Color of Law,” which delves into the very tangible but underappreciated root of the problem: systemic, legalized housing discrimination over a period of three decades—starting in the 1940s—prevented black families from having a piece of the American Dream of homeownership.
Over the years, this disparity was compounded by not only ongoing discrimination but also the legacy of prior practices.
“This enormous difference in (wealth) is almost entirely attributable to federal housing policy implemented through the 20th century,” says Rothstein as the narrator in animated film about his book, entitled “Segregated by Design.”
Director Mark Lopez uses innovative visual techniques to walk the viewer through Rothstein’s story, and the results are moving and compelling.
“African American families that were prohibited from buying homes in the suburbs in the 1940s and 50s, and even into the 1960s, by the Federal Housing Administration gained none of the equity appreciation that whites gained,” Rothstein says in the short film.
The discrimination happened on several levels—and often culminated in violence against black families trying to move into neighborhoods that had been effectively designated as white by government policy. Sometimes these designations took place quite literally as maps were divided up along racial lines with different colors on the maps. Black neighborhoods were painted red—hence the term “redlining”—which only became illegal after the Fair Housing Act of 1968.
In addition, “state sponsored violence was a means, along with many others, at which all levels of government maintained segregation.”
Rothstein acknowledges that the problem runs so deep that it can never be completely untangled, but also argues that partial reversal are possible and can be encouraged by sound economic and housing policies. It starts with knowing how it happened.
“If we understand the accurate history—that racially segregated patterns in every metropolitan area like St. Louis were created by de jure segregation—racially explicit policy on the part of federal, state, and local governments designed to segregate metropolitan areas, then we can understand we have an unconstitutional residential landscape,” Rothstein says.
“And if it’s unconstitutional, then we have an obligation to remedy it,” he adds. “We must build a national political consensus leading to legislation, a challenging but not impossible task, to develop policies that promote an integrated society.”
Until then, the legacy of racist housing practices will remain a fact of life in most American cities.
EPI Blog by Rev. Dr. William J. Barber Ii - 3w ago
The faith community has a long history of involvement in social movements for economic justice, bringing into focus the moral failings of our political and economic systems. I’m always struck when people say to me, “But you’re talking about morality, and we’re talking about money.” I answer, “You really think they’re different? You don’t recognize that a budget is a moral document? That policies are about moral decisions? That morality is not just about inspiration but about information?”
I realize that for some, the concept of a preacher writing for an economics blog might seem odd, but the link between what I do—as a pastor, architect of the Moral Monday movement and co-leader of The Poor People’s Campaign—and the research done by EPI is absolutely vital. One of the quickest ways for a movement to lose its integrity is to be loud and wrong. We’ve seen too many movements that have bumper sticker sayings but no stats and no depth. Researchers help to protect the moral integrity of a movement by providing sound analysis of the facts and issues at hand. Armed with this information, we’re able to pull back the cover and force society to see the hurt and the harm of the decisions that people are making.
In fact, I believe we find evidence of a relationship between religion, activism, and research that dates back to the prophets of the Bible. The prophets of the Bible were the social activists of their time. I say that because the only time prophets in ancient Israel rose to the fore was when the kings or the politicians and their court chaplains weren’t doing their job.
For example, the prophet Isaiah said to those who were rich, powerful and presumed themselves to be morally superior. “Woe unto those who legislate evil and rob the poor of their rights and make women and children their prey.” Isaiah even went as far as saying that religious activity—worship and prayer—was not a cover for their failure to “loose the band of wickedness.” Wickedness in that text is specific to the issue of not paying people what they deserve and trying to cover it over with a lot of religiosity. He goes on to say that the nation will never be able to repair itself until it ends the wickedness of not paying people what they deserve. Because society’s policies had actually insulated destruction, injustice and inequality could never be resolved without a change of policy.
These statements reflect more than just a difference of opinion concerning the legislation. Rather, such bold and specific statements suggest an analysis of the society which concluded that the legislation was evil in that it was robbing those who were most vulnerable. In other words, Isaiah’s moral authority to criticize policy could be confirmed and validated by research.
Now, let’s consider Jesus, the central figure of the Christian faith, who was also very keen on social policy. The opening line of his first sermon went like this: “The spirit of the Lord is upon me for he hath anointed me to preach good news to the poor.” The researchers would have told Jesus in that day that Rome favored the 1 percent and disregarded the 99 percent. That Rome had distinct classes of people. One group of people were called the humiliadors, the humiliated ones. The others were called the honoristeries, the honored ones. The honored ones controlled politics. They wanted all the tax cuts. They wanted the law to favor them and they expressed their grandeur by flaunting and boasting on their entourages, their dress, and their education.
It was into that world that Jesus comes and says, no, this is wrong. This is not the way it should be. This may be Caesar’s way, but Caesar is an egotistical narcissistic builder who loves to put his name on buildings and if he could, would put his face on every coin. Caesar is the one who desires military parades to flaunt and boast about his position of authority. Caesar believed he had the authority to grab any woman any time he wanted to. Caesar only wanted people around him who told him what he wanted to hear. Caesar only cared about money. Everything was about money. If it’s unclear, I’m talking about something that happened 2000 years ago.
Into this, Jesus comes and says the spirit of the Lord, which is above Caesar, is focused on the poor. Now, there are three words for poor in Greek. But, the one used to describe this moral movement of Jesus is ptchos, which literally means those who have been made poor by exploitive policies. So Jesus had to have some research around in order to say in his first sermon, “I’m calling out the policies and declaring that they are wrong.”
In our contemporary society, researchers protect the integrity of movements in other important ways. When we started the Moral Monday Movement in North Carolina, the first thing we did was create a budget so that we could answer up front the critique that always arises, which is “that would be a nice moral thing to do, but it’ll raise taxes.” As Joseph Stiglitz, the Nobel Prize winning economist has said, we have to deal not just with what it costs to fix inequality, but what inequality is costing us. So, for each issue we wanted to raise, we calculated the cost of doing it, and the cost of not doing it.
The research that goes into developing that kind of budget helps us to disarm the obvious critiques of our movement, but also puts us in a position to challenge our critics on the costs of opposing or stifling attempts to find solutions. When we lead public demonstrations, research provides an empirical connection to the anger and legitimate discontent being expressed. Research also provides connections for building unity.
Right now in the Poor People’s Campaign, we are saying that there are five potentially fatal diseases that are impacting this democracy: systemic racism, systemic poverty, ecological devastation, the war economy, and the false distorted moral narrative of religious nationalism that gives cover for the four other social diseases.
What our movement is saying is that we have to have researchers that can connect all five of them and help people to understand that you cannot talk about economic advancement, living wages, and lifting the poor if you don’t deal with the systemic racism, for instance, of voter suppression. You can’t talk about either of those two without talking about ecological devastation, including the fact that the first people who are going to be impacted will be poor people, and those poor people will disproportionately be people of color. We have to have researchers that can help movements and the larger public to understand these connections.
Research and revolutions go hand in hand because you can’t challenge Rome if you are Rome. Revolutionaries have to be re-educated by the research because that’s what helps them think beyond the predominant mindset of the larger society.
For example, most people don’t realize that voter suppression in this moment is more of a white issue than a black issue. The research shows that the states that have participated in racialized voter suppression are among the poorest states in the nation. So the people that get elected through racialized voter suppression pass policies that hurt mostly white people because they are still the majority of the population in those states. We’re losing too often on these issues because we work in silos with black folk on one end fighting against voter suppression and then white folk on the other end fighting neo-liberalism. We work in silos because we’ve been conditioned to think they are separate issues when in fact they’re all connected.
People are ready for a grown-up, researched movement that can handle dealing with race and poverty, and ecological devastation, and the war economy all in the same space, and can use that kind of power and research to build out a long-term strategy. That is what it takes to register people for the movement who vote. So, where do we start?
I believe it starts with changing the South. We do that by building the coalitions of white and black and brown and Latino and Asian and poor folk in the South to raise up this movement and to vote. That’s what it’s going to take to shift the political calculus in this country. For eleven years I’ve been saying we’re in the midst of the birthing pains of a Third Reconstruction. But we cannot wait until election season to do the work. It has to be done year round and every year.
I want to give you some numbers to consider—178, 26, 31 percent, 100 million, 40 million. Now, why those numbers? If you calculate the number of electoral votes available from the 13 former Confederate states from Virginia to Texas, you come up with 178 electoral votes. Which means, any candidate that gives away the 178 electoral votes in those 13 states, puts their opponent in the position of only needing 92 electoral votes from the other 37 states.
The 13 former Confederate states, which only have about 36 percent of this country’s population, decide 178 electoral votes, 26 United States Senate seats and 35 percent of the seats in the United States House of Representatives. That means all it takes to win control of both houses of Congress is 25 Senate seats and 16 percent of U.S. House of Representatives seats available from the other 37 states.
100 million is the number of people that didn’t vote in the 2016 election. 40 million is the number of poor and low-wealth people in this country. The majority of them are in the South and are the key to the transformation of our politics.
All of the close elections we witnessed in the 2018 midterms are a sign that we are right at the tipping point. If there’s ever been a time that we ought to go south and shift the political calculus in this nation for the next 20 to 40 years and beyond, it is in fact right now. Don’t believe the talking heads who haven’t done the research, or just don’t want the public to know that if you registered 30 percent of unregistered black voters in the South and connected with progressive Whites and Latinos you could flip about five Southern states right now: Virginia, North Carolina, Florida, Georgia, and Mississippi. Perhaps Texas and maybe even South Carolina. That’s what the research says, even though it’s not what the talking heads are saying.
A movement connected to the right researchers can do this, must do this and has to do this. This is our movement and our moment. I believe with everything inside of me that if you give us the data, the research and the analysis we need to create budgets that put “ordinary” people first, we will change this nation.
Internal Revenue Service (IRS) funding was in the news at the end of last year, after a series of articles by ProPublica detailed just how badly its resources had been gutted by cuts enacted by the Republican-controlled Congress. And the IRS remains in the news with ongoing pressure to release President Trump’s tax returns. Complaining about the IRS is a popular pastime for lots of Americans, and we would certainly agree that in recent years the IRS has spent too much time auditing low-income households—a recent ProPublica story notes, “the IRS audits Earned Income Tax Credit (EITC) recipients at higher rates than all but the richest Americans.” But the IRS needs mended not ended, with a large infusion of resources as well as a reorientation of its enforcement priorities. The reason for not giving up on having a functional IRS is simple: if we want a country where rich people and powerful corporations pay their fair share, we will need a higher-functioning IRS, and we should be willing to pay for it. The chart below shows the substantial budget and employment cuts at the IRS since 1994. IRS operating costs (in 2017 dollars) have declined 29 percent between 1994 and 2017 as a share of total returns filed. And those budget cuts have real consequences for IRS staffing; full time equivalent employees as a share of total returns filed has fallen by 42 percent since 1994.
Since 2011, GAO found that the shrinking IRS workforce has come largely in enforcement, leading to agency officials telling GAO that declining staff was a key contributor to scaled back enforcement activities. Shrinking IRS enforcement is a boon largely for rich individuals and corporations, who have far greater opportunities to dodge taxes through creative accounting.
The IRS has not always been so hamstrung. A too-brief spell of increased budget and staff capacity from around 2008 to 2011 led to about a threefold increase in audit rates on households making over $1 million, while audit rates overall increased by just 11 percent, as did audit rates for EITC recipients making under $25,000. Overall audit rates for EITC recipients increased by just 4 percent. In short, when resources were adequate, the IRS (properly) focused its enforcement gaze where the money was.
The era of budget austerity has coincided with more suspect prioritization. Budget cuts since 2011 have led to overall audit rates declining by 44 percent since 2011, with overall audit rates on EITC recipients falling 36 percent. But audit rates at the top have fallen even further. Households making between $1 and $5 million saw their audit rates decrease by 70 percent, households making between $5 and $10 million saw their audit rates fall by 62 percent, and households making over $10 million saw their audit rates fall by 51 percent.
Audit rates of corporate returns tell a similar story. From 2008 to 2011, overall corporate audit rates increased by 12 percent, but audit rates of small corporations (those with total assets under $10 million) increased by just 7 percent, while audit rates of large corporations (total assets over $10 million) rose by 16 percent. Budget cuts since 2011 have likewise been a boon for large corporations, even as they dodged taxes owedon trillions of dollars of profits booked offshore. Overall corporate audit rates fell by 26 percent and audits of small corporations fell by 28 percent, while audits of large corporations fell by 48 percent.
The underinvestment in enforcement is so dire that the Congressional Budget Office actually estimates that increasing IRS enforcement funding would decrease the deficit, as the revenue brought in from greater compliance more than makes up for the increased spending on IRS enforcement. The most recent estimate of the amount of noncompliance, or the gross tax gap, was about 18 percent of total tax liability. To make a real dent in this noncompliance, the decline of IRS budget and staffing capacity must not only be stemmed, but reversed.
Going forward we will need a much better-financed IRS who, rather than prioritizing audits of low-income workers, is given an affirmative mission to make the rich and powerful pay the taxes that are legally due. The 2017 GOP Tax Cuts and Jobs Act opened up egregious loopholes in the tax code for the rich and big corporations. In particular, the new pass-through loophole seems tailor-made to exacerbate noncompliance, as the 20 percent deduction will incentivize income shifting from labor income into pass-through business income. Pass-through income actually accounts for the bulk of the overall tax gap, largely because there is no employer reporting wages paid to the IRS. The benefits of tax dodging through this new loophole will, predictably, mostly accrue to the top of the income distribution. 69 percent of partnership income (one key component of pass-through income) is earned by the top 1 percent. And the ability to track these income flows is so poor that even researchers with access to extremely detailed administrative data from the IRS were unable to trace 30 percent of overall partnership income back to an ultimate owner or originating partnership.
Besides giving the rich and corporations a cut in statutory rates at the end of 2017, we have been giving them the tools to construct “do it yourself” tax cuts through avoidance for most of the past decades. If we want a country where the rich have to pay their fair share, we have to give the IRS the tools it needs to do its job, and IRS has to focus where the money is.
Instead of taking action together to enact legislation that would provide a path to citizenship for the unauthorized immigrants who are in danger of losing their immigration protections and work authorization as a result of President Trump’s efforts to end Deferred Action for Childhood Arrivals (DACA) and Temporary Protected Status, Congress and the Trump administration have collaborated to increase in the size of the main temporary work visa program that U.S. employers use to fill low-wage non-agricultural jobs: the H-2B visa.
This year, employers and corporate lobbyists claimed—as they do every year—that 66,000 low-wage work visas were not enough to fulfill their demand for cheap, captive labor in the landscaping, construction, forestry, seafood, meat processing, traveling carnival, and hospitality industries. Members of Congress acquiesced to their demands by inserting language into the appropriations legislation that is now funding the government during fiscal year 2019, that gave the Department of Homeland Security (DHS) the authority to temporarily increase the annual limit of 66,000 visas by up to 69,000 additional visas. DHS ultimately decided last week to increase the H-2B annual limit by 30,000 visas, taking the total H-2B “cap” for 2019 to 96,000.
Migrant workers make important contributions to the U.S. economy, and it should go without saying that they deserve equal rights, fair pay, protections from retaliation, and a path to permanent residence and citizenship. Sadly, the H-2B program does not meet any of these standards. Instead, the H-2B program—like other U.S. temporary work visas programs—empowers employers to legally exert an unusual amount of control over migrant workers, who often arrive indebted to the labor recruiters who connect them to jobs in the United States. H-2B workers are in effect, captive, because their visa status is controlled by their employer—which means that if an H-2B worker isn’t paid the wage he or she was promised, or is forced to work in an unsafe workplace—the worker has little incentive to speak up or complain to the authorities. Complaining can result in getting fired, which leads to becoming undocumented and possibly deported. It also means not being able to earn back the money that was invested in order to get the job.
These problems, which are inherent in the H-2B program, are well-documented. There are numerous cases of litigation, media reports, government audits, and studies revealing how migrants employed through the H-2B program arrive in the United States with massive debt, are often exploited and robbed by employers, and even become victims of human trafficking. While these most-egregious examples are clear legal violations, much of the abuse and discrimination in the H-2B program is perfectly legal. First, employers control the workers’ immigration status. And second, employers have been allowed to underpay H-2B workers for years thanks to the way the H-2B wage rules work, which have included policy changes made through appropriations riders that have weakened the already-inadequate wage rules and de-funded enforcement. Since U.S. workers are forced to compete with vulnerable and underpaid H-2B workers, wages and working conditions for all workers in major H-2B occupations are degraded. As a result, there’s no question that the H-2B program needs major reforms to protect both migrant and American workers.
Table 1 below illustrates how the H-2B program allows employers to undercut U.S. wage standards. Table 1 shows the top 20 H-2B occupations in fiscal2017 by Standard Occupational Classification code, according to H-2B jobs certified by the U.S. Department of Labor (DOL), and the nationwide average hourly wage for all certified H-2B workers in each of the occupations. The 2017 average hourly wage rates for all workers in the occupation nationwide, according to the DOL’s Occupational Employment Statistics (OES) survey—which is used to set H-2B wage rates, making it an apples-to-apples comparison—is listed next to the H-2B wage. The final column shows the difference between the average hourly certified H-2B wage and the average hourly OES wage for the entire country; this is what employers save, on average, by hiring an H-2B worker instead of a worker who is paid the national average wage for the occupation.
Table 1 shows that in all but three of the top 20 H-2B occupations in fiscal 2017, the average hourly wage certified nationwide for H-2B workers was lower than the OES average hourly wage for all workers in the occupation. The biggest wage savings for employers was found in the construction laborers occupation; employers could save over $4.00 per worker per hour on average by hiring an H-2B worker instead of a worker earning the national average for the occupation. If for example, an employer hired an H-2B construction worker to work for 40 hours per week for nine months (approximately 36 weeks) at $4.00 per hour less than the average wage, the employer would save—and an H-2B worker would be underpaid by—$5,760.
In the top two occupations of landscaping and groundskeeping workers and forest and conservation workers—which accounted for nearly half (48 percent) of all H-2B certifications in 2017—the average hourly savings for employers were $1.34 and $3.48, respectively. Employers in the seafood industry, who every year are the loudest voices calling for an increase in the H-2B cap, saved $2.79 per worker per hour on average by hiring an H-2B worker under the meat, poultry, and fish cutters and trimmers occupation. (I’ve explained before how seafood employers also use private wage surveys to lower H-2B wage rates so they can vastly underpay their H-2B employees.)
While H-2B wages are set at the local level according to each job, it makes sense to look at the impact of the H-2B program on the average wages of H-2B occupations at the national level, because the H-2B statute sets a national standard for the protection of U.S. labor standards. The H-2B statute clearly states that H-2B workers can only be hired “if unemployed persons capable of performing such service or labor cannot be found in this country.” In order to determine whether there are “unemployed persons” in the United States capable of doing a job before an employer can hire an H-2B worker, employers should be required to offer at least the national or local average wage for the occupation (whichever is higher), recruit U.S. workers nationwide, and offer to pay for housing and transportation for both U.S. and H-2B workers. Under the current H-2B recruitment and wage regulations, that’s not the case, and Table 1 clearly shows the result: employers are undercutting U.S. wage standards.
The Democrats and Republicans in Congress who supported the appropriations language to expand H-2B wanted the number of H-2B visas to be much higher than 30,000, but did not want the accountability that comes with passing legislation through the regular committees of jurisdiction. Instead, they made a major change to U.S. immigration law, but in a way that avoids accountability: through a fly-by-night provision on a must-pass spending bill that has no identifiable author and without a full debate in Congress, where members would be accountable for their votes. They also failed to specify the level of increase they wanted for the H-2B program—passing the buck instead to the Trump administration by directing DHS to determine how many additional H-2B workers were appropriate—something DHS has objected to more than once.
The Democrats and Republicans who support an H-2B increase ultimately came together to ask for what they really wanted: a doubling of the H-2B program. Many signed a letter dated March 7, calling on DHS Secretary Kirstjen Nielsen to “use [her] authority to increase the number of H-2B visas to 135,320, the number available in FY 2007 when the Returning Worker Exemption was in force.” Secretary Nielsen and President Trump had the legal authority to reject Congress’s request and could have simply said “no” to expanding the H-2B program again, but they didn’t.
It’s important to point out Trump’s glaring contradiction here: He’s taken extreme actions to expel immigrants from the United States or keep them out, including by building a border wall and making it more difficult to request asylum, but doesn’t seem to mind letting migrants enter the country if they’re coming for the explicit purpose of being taken advantage of by employers. Trump himself has first-hand experience with exploitable migrant workers: his companies have long employed both H-2B workers and undocumented workers. As the New York Times and Washington Post have reported, Trump’s companies have bypassed the local workforce, sometimes requiring them to “apply by fax,” because they prefer to hire H-2B workers. Trump’s golf courses have also retaliated against their undocumented employees by firing them after they spoke out about Trump’s hypocrisy.
It’s unfortunate that Democratic and Republican members of Congress and President Trump could not come together to reform the H-2B program in a positive way that uplifts labor standards and provides migrant workers with a decent opportunity to be paid fairly, have a path to citizenship, and ultimately, improve their lives. Instead, they decided that that what America really needs are more underpaid workers who employers can exploit.