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Economic News, Data and Analysis

Poverty Up

OMB Watch – Federal Budget –
The Census Bureau today released updated income and poverty data. The news is not good.
Among the findings:
* “Real median household money income did not change from 2002 to 2003.1
* …the share of aggregate income received by the lowest 20 percent of households had a slight reduction – from 3.5 percent to 3.4 percent.
* The ratio of female-to-male earnings in 2003 for full-time, year-round workers was 76 percent, a decline from 77 percent in 2002, because of a decline in the earnings of female year-round full-time workers.
* The official poverty rate rose, from 12.1 percent in 2002 to 12.5 percent in 2003. The number in poverty increased also, by 1.3 million people, to 35.9 million in 2003.2.
* The poverty rates for people 18 to 64 and those 65 and older remained unchanged, but the poverty rate for children rose from 16.7 percent in 2002 to 17.6 percent in 2003.”
See the full report from the Census Bureau.

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Filed under: Economy

Tax Cuts?

Did you get a tax cut? Think carefully – with the run-up of deficits – now about $445 billion – what you might have gotten today will have to be offset by what you owe back tomorrow.
As Gale, Shapiro, and Orszag put it: “The tax cuts are often portrayed by their supporters as painless and simply ‘giving people their money back.’ But the numbers presented above indicate that a majority of American households will be made worse off by the tax cuts, because the tax cuts will ultimately have to be financed. ”

Distribution of the 2001 and 2003 Tax Cuts and Their Financing

By William G. Gale, Isaac Shapiro, Peter Orszag
Popular discourse about tax cuts frequently ignores a simple truism: Someone, somewhere, at some time will have to pay for them. The payment may be in the form of increases in other taxes or reductions in government programs; it may occur now or later; it may be transparent or hidden. But iron laws of arithmetic and fiscal solvency imply that the payment has to occur.
To date, the tax cuts enacted in 2001 and 2003 have been funded with increased borrowing. This postpones but does not eliminate the required payments. It can also create the misleading impression that tax cuts make almost everyone better off, because the direct tax-cut benefits are immediate and quantifiable, while the ultimate costs are delayed and disguised and therefore often ignored.
The central goal of this analysis is to correct the misimpression that the tax cuts make everyone better off. We estimate not only who benefits directly and immediately from the recent tax cuts but also who benefits and who loses once the financing of the tax cuts is considered.
Specifically, we examine the distribution of the 2001 and 2003 tax cuts (when fully in effect and reflecting the president’s proposal to make most of the tax cuts permanent) combined with the costs of paying for them. We therefore examine the “net effects” of the tax cuts, accounting for both the direct benefits and the costs of financing those benefits.
The first scenario assumes that each household pays an equal-dollar amount each year to finance the tax cuts. Under that scenario, each household receives a direct tax cut based on the 2001 and 2003 legislation, but it also “pays” $1,520 per year (2004 dollars) in some combination of reductions in benefits from government spending or increases in other taxes to finance the 2001 and 2003 tax cuts. Something close to that scenario could occur if the tax cuts were financed largely or entirely through spending cuts. We refer to this as “equal-dollar” financing.
The second scenario assumes each household pays the same percentage of income to finance the tax cuts. In that case, each household receives a direct tax cut based on the 2001 and 2003 laws, but also pays 2.6 percent of its cash income each year. Something close to this scenario could occur if the tax cuts were financed through a combination of spending cuts and progressive tax increases. We refer to this as “proportional financing.” Our principal findings include:

  • Once the financing is included, the 2001 and 2003 “tax cuts” are best seen as net tax cuts for about 20-25 percent of households, financed by net tax increases or benefit reductions for the remaining 75-80 percent of households. Not surprisingly, equal-dollar financing is significantly more regressive than proportional financing.
  • Under either scenario, more than 75 percent of households would be worse off: They lose more from the financing than they gain directly from the tax cuts. The “losers” would be concentrated among low- and middle-income households. Under equal-dollar financing, the losers include 90 percent of households in the middle fifth of the income distribution and nearly all households in the bottom 40 percent.
  • The annual net transfer of resources from low- and middle-income households to high-income households would be sizable. The annual transfer from the 80 percent of households with incomes below $76,400 to the top 20 percent of households with incomes above that level would be $113 billion under equaldollar financing and $27 billion under proportional financing. The annual transfer to households with incomes exceeding $1 million would be $35 billion under equal-dollar financing and $15 billion under the proportional scenario.
  • Middle-income households would be losers under both scenarios, but would fare worse under equal-dollar financing. Under equal-dollar financing, households in the middle quintile would average losses of $869 per year, 3.1 percent of after-tax income. With proportional financing, the loss would be $228, or 0.8 percent of after-tax income.
  • Low-income households would be worse off under either scenario, but would face enormous costs under equaldollar financing. Under equal-dollar financing, households in the bottom quintile lose an average of $1,500 a year, or 21 percent of their income. Under proportional financing, they lose 2.5 percent of after-tax income.
  • High-income households would be net winners, and the gains among the highest-income households would be large. People with annual incomes exceeding $1 million would gain an average of $59,600 a year, or 3.1 percent of after-tax income, under proportional financing and $135,000 a year, or 7 percent of after-tax income, under equal-dollar financing.
    Read Full Report

Filed under: Economics

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Filed under: Website

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Health Insurance and Jobs

I would think that the business community, especially small businesses should get behind some form of national health insurance so that they wouldn’t have to deal with this kind of stuff.

Business > Rising Cost of Health Benefits Cited as Factor in Slump of Jobs” href=”http://www.nytimes.com/2004/08/19/business/19care.html?hp”>The New York Times > Business > Rising Cost of Health Benefits Cited as Factor in Slump of Jobs
A relentless rise in the cost of employee health insurance has become a significant factor in the employment slump, as the labor market adds only a trickle of new jobs each month despite nearly three years of uninterrupted economic growth.
Government data, industry surveys and interviews with employers big and small indicate that many businesses remain reluctant to hire full-time employees because health insurance, which now costs the nation’s employers an average of about $3,000 a year for each worker, has become one of the fastest-growing costs for companies. Health premiums are sapping corporate balance sheets even more than the rising cost of energy.
In the second quarter, the cost of health benefits rose at a 12-month rate of 8.1 percent – more than three times the inflation rate and the rate of increases in wages and salaries.
“Health care is a major reason why employment growth has been so sluggish,” said Sung Won Sohn, the chief economist at Wells Fargo.
Although the economy emerged from recession long ago, posting 11 straight quarters of growth, there are still about a million fewer jobs in the United States than there were at the beginning of 2001, just before the country sank into recession.

Filed under: Economy

Tax cut distribution

The Congressional Budget Office released a new study today detailing the impact of recent tax cuts on various income levels. Bottom line – the very, very wealthy made out very, very well.
From the New York Times:

Washington > Campaign 2004 > Report Finds Tax Cuts Heavily Favor the Wealthy” href=”http://www.nytimes.com/2004/08/13/politics/campaign/13tax.html?hp”>The New York Times > Washington > Campaign 2004 > Report Finds Tax Cuts Heavily Favor the Wealthy
Fully one-third of President Bush’s tax cuts in the last three years have gone to people with the top 1 percent of income, who have earned an average of $1.2 million annually, according to a report by the nonpartisan Congressional Budget Office to be published Friday.
The report calculated that households with incomes in that top 1 percent were receiving an average tax cut of $78,460 this year, while households in the middle 20 percent of earnings – averaging about $57,000 a year – were getting an average cut of only $1,090.
The new estimates confirm what independent tax analysts have long said: that Mr. Bush’s tax cuts have been heavily skewed to the very wealthiest taxpayers. Those are also the people, however, who pay a disproportionate share of federal income taxes.

Filed under: Economics

Wake up

Krugman’s crystal ball…

MediaChannel.org – A Global Network of More Than 1,000 Media Issues Groups
…Krugman says it’s time for a showdown. “Can we break the machine that is imposing right-wing radicalism on the United States?” he asks. “The scariest part is that the media is part of that machine. There will have to be some kind of reckoning soon, a possible Watergate moment to come. . . Things aren’t all the way unraveled yet . . . and alternative scenarios still exist.
“We need above all sunlight! We need to see what is actually going on,” he concludes. “When are people going to wake up?”

Filed under: Uncategorized

July jobs data: not so good

The job market showed an extremely weak and disappointing gain of just 32,000 jobs in July — well below expectations as well as below the level needed to keep up with the growth of the labor force.
See jobwatch.org for more details.

Filed under: Economy

Berkeley

Brad DeLong brings back memories. I spent a very nice summer in Berkeley taking a computer science course and an economics course; spending the majority of my time at La Strata — arguably the best place in the world to drink a cappuccino in August.

Brad DeLong’s Semi-Daily Journal (2004): a Weblog
Summer in Berkeley
It is 3 P.M. on an August day at the coffeehouse La Strada, at the corner of Bancroft and College. The sun is shining. The espresso machines are humming–Italian technology being operated by Spanish-speaking immigrant workers processing water from the Sierra Nevadas, milk from Marin County, and a ground-up roasted bean originally from Ethiopia now grown in Central America under shade canopies by small farmers interested in sustainable agriculture. It is a beautiful day.
The overhead heat lamps are on.
I repeat that: the overhead heat lamps are on to take the chill out of the air, so that we can comfortably sit in the sun, sip our coffee, and discuss the Great Intellectual Issues.

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Debt ceiling to be hit soon

It looks like the debt ceiling will be hit soon – late september/early october unless congress and the president act to raise the ceiling.
It does sound like there are some accounting gimmicks that could be used to extend until mid november.
A good journalist (hint, hint) should track down what those gimicks might be and to make sure people know what’s going on in case congress fails to act…

Treasury formally asks to have U.S. debt ceiling raised – Aug. 2, 2004
Snow seeks hike in U.S. debt ceiling
Treasury Secretary says the U.S. debt will hit its $7.384 trillion limit by late Sept., early Oct.
August 2, 2004: 5:37 PM EDT
WASHINGTON (Reuters) – Treasury Secretary John Snow on Monday put the ball squarely in Congress’ court on the debt ceiling issue, warning lawmakers that the U.S. government cannot not be financed past November unless they raise the limit.
In a letter sent to Capitol Hill leaders, Snow said the debt subject to the $7.384 trillion limit will be hit “between late September 2004 and early October 2004.” Even if the government takes certain accounting maneuvers to stay beneath the ceiling, as it has done in the past, Snow said, “we can finance government operations no longer than mid-to-late November 2004.”

Filed under: Economics

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