“Corporate Tax Subsidies Are Out of Control”: Want Jobs Back, Axe Business Tax Subsidies
It’s no secret that state and local government employment has nosedived during the current economic crisis. According to the St. Louis Fed, total local government employment has declined from 14,481,000 when the recession began in December 2007 to 14,033,000 in March. State government employment has fallen from 5,139,000 to 5,050,000 over the same period, for a total loss of 537,000 state and local government jobs.
This starkly illustrates the opportunity cost of out-of-control use of subsidies to business at the state and local level. In my academic work, I estimated these to be $48.8 billion a year in 1996, of which $26.4 billion was for investment attraction, and almost $70 billion in 2005, of which $46.8 billion was aimed specifically at investment attraction.
Many critics of investment incentives, such as Alan Peters and Peter Fisher, argue that the money would generally be better spent on education and infrastructure, policies that benefit businesses generally as well as the entire population. My cost estimates show just how true this is.
Total business subsidies could be used to hire 1.4 million government workers at $50,000 per year in salary and benefits. Instead, what we have seen in state after state is that there have been sharp cuts to these very areas, even extending to such economic development crown jewels as the state university systems in California and North Carolina, among others.
This is doubly short-sighted: It weakens the very factors that make a state or locality attractive to investment in the first place, and the state/local economic development subsidies largely cancel each other out with little net effect on the overall location of investment in the country. From the point of view of the country as a whole, then, most of these subsidies are a waste of money. But changing the way the economic development game is played will require tremendous effort at the local, state, and federal government level.
By: Kenneth Thomas, U. S. News and World Report, April 10, 2013
“The Stealth Sequester”: Americans Are Starting To Feel The Pain, They Just Don’t Know It Yet
So far, the much-dreaded “sequester” – some $85 billion in federal spending cuts between March and September 30 – hasn’t been evident to most Americans.
The dire warnings that had issued from the White beforehand – threatening that Social Security checks would be delayed, airport security checks would be clogged, and other federal facilities closed – seem to have been overblown.
Sure, March’s employment report was a big disappointment. But it’s hard to see any direct connection between those poor job numbers and the sequester. The government has been shedding jobs for years. Most of the losses in March were from the Postal Service.
Take a closer look, though, and Americans are starting to feel the pain. They just don’t know it yet.
That’s because so much of what the government does affects the nation in local, decentralized ways. Federal funds find their way to community housing authorities, state unemployment offices, local school districts, private universities, and companies. So it’s hard for most Americans to know the sequester is responsible for the lost funding, lost jobs, or just plain inconvenience.
A tiny sampling: Brandeis University in Waltham, Massachusetts is bracing for a cut of about $51 million in its $685 million of annual federal research grants and contracts. The public schools of Syracuse, New York, will lose over $1 million. The housing authority of Joliet, Illinois, will take a hit of nearly $900,000. Northrop Grumman Information Systems just issued layoff notices to 26 employees at its plant in Lawton, Oklahoma. Unemployment benefits are being cut in Pennsylvania and Utah.
The cuts — and thousands like them — are so particular and localized they don’t feel as if they’re the result of a change in national policy.
It’s just like what happened with the big federal stimulus of 2009 and 2010, but in reverse. Then, money flowed out to so many different places and institutions that most Americans weren’t aware of the stimulus program as a whole.
A second reason the sequester hasn’t been visible is a large share of the cuts are in programs directed at the poor – and America’s poor are often invisible.
For example, the Salt Lake Community Action Program recently closed a food pantry in Murray, Utah, serving more than 1,000 needy people every month. The Southeast Alaska Regional Health Consortium is closing a center that gives alcohol and drug treatment to Native Alaskans.
Some 1,700 poor families in and around Sacramento, California are likely to lose housing vouchers that pay part of their rents. More than 180 students are likely to be dropped from a Head Start program run by the Cincinnati-Hamilton County (Ohio) Community Action Agency.
Most Americans don’t know about these and other cuts because the poor live in different places than the middle class and wealthy. Poverty has become ever more concentrated geographically.
A third reason the sequester is invisible is many people whose jobs are affected by it are being “furloughed” rather than fired. “Furlough” is a euphemism for working shorter workweeks and taking pay cuts.
Two thousand civilian employees at the Army Research Lab in Maryland will be subject to one-day-per-week furloughs starting on April 22, for example, resulting in a 20 percent drop in pay. The Hancock Field Air National Guard Base is furloughing 280 workers. Many federal courts are now closed on Fridays.
Furloughs spread the pain. The hardship isn’t as evident as it would be if it came in the form of mass layoffs. But don’t fool yourself: A 20 percent pay cut is a huge burden for those who have to endure it.
Bear in mind, finally, the sequester is just starting. The sheer scale of it is guaranteed to make it far more apparent in coming months.
Some 140,000 low-income families will lose their housing vouchers, for example. Entire communities that depend mainly on defense-related industries or facilities will take major hits.
If you thought March’s job numbers were disappointing, just wait.
With the sequester, America has adopted austerity economics. Yet austerity economics is the wrong medicine at exactly the wrong time. Look what it’s done to Europe.
By: Robert Reich, The Robert Reich Blog, April 8, 2013
“Gone Rogue”: Americans Hate Congress Because Congress Doesn’t Care About Americans
Is it any wonder that Americans dislike Congress so much? It shouldn’t be a surprise because our representatives in Washington ignore public opinion. Gun control is the perfect example. A clear majority of people favors a ban on assault weapons (57 percent favor and 41 percent oppose, according to an ABC News/Washington Post poll). But members of Congress can’t even agree on universal background checks which just about every living and breathing American favors. (91 percent according to ABC News/Washington Post.)
On economic issues, Washington is completely out of sync with public opinion. Seven in ten (or more precisely 71 percent, according to Gallup) Americans favor raising the minimum wage to $9.00 per hour but Republicans won’t even let the increase come to a vote on the House floor. House Republicans won’t even consider raising taxes on rich people even though a majority of Americans favor an increase in the capital gains tax to reduce the deficit (that would be 52 percent in favor and 36 percent opposed, according to survey conducted for CBS News). On the other hand, only one in six (18 percent, again according to CBS News) Americans want to cut Medicare but the president and Congress want to cut the spending for a program which is the only thing that keeps millions of seniors financially afloat.
The debate over the federal budget is just another example of congressional indifference to public opinion. For years, the debate over the federal budget has mainly been about the federal budget deficit to the exclusion of any meaningful discussion about job creation. When President Obama formally introduces his budget for the 2014 fiscal year on Wednesday, it will be business as usual. We’ll have a lot of talk about deficits but little debate about jobs.
Everyone in Washington talks about the deficit but Americans outside our nation’s capital worry about jobs. Not that anyone in Washington cares but the public disagrees with the tone of the budget discussion in D.C. A new Marist College poll shows that Americans want Congress to focus on creating jobs (62 percent of them anyway) more than they want deficit reduction (only 35 percent want that). If that doesn’t work for you, the national Election Day exit poll showed that a lot more voters were worried about jobs (59 percent) than they were the deficit (15 percent).
A focus on jobs instead of the deficit is good politics for Democrats but also good policy. Government programs create jobs and put money into the pockets of middle class families. People with jobs pay taxes and buy things, which in turn creates more jobs, and higher tax revenues. The title of Representative Paul Ryan’s budget “Path to Prosperity” should be the “Path to Austerity” which in turn is the path to poverty. The economy had been creating a lot of jobs for the last few months until the sequester kicked in last month. But spending cuts sucked money out of the economy and the wind out of job growth.
Congress has gone rogue and working families are paying the price.
In his new book, “Who Stole the American Dream?” Hedrick Smith writes that the big business lobby has become so powerful in Washington that it can get Congress to do its bidding. Unions used to counteract the corporate lobby but pro business policies at the state and federal level have weakened labor. In 2010, businesses shelled out $972 million in soft money contributions to party committees compared to $10 million for labor. Business PACs contributed $333 million to only $69 million for labor committees.
Members of Congress can safely ignore public opinion because most of them represent districts where there is little or no competition. And if a member does have a tough race, he or she can always count on big business political action committees to bail them out with large campaign contributions or independent expenditure efforts.
That’s why we are cutting funding for education and moving to limit spending on Social Security and Medicare while Republicans hold spending on oil company companies ($4 billion a year) and tax breaks on corporate jets ($3 billion annually) sacrosanct.
Education is a lot more important to America’s economic future than subsidizing oil barons and corporate jet setters but you would never know it if you follow the economic debate in Washington. The sequester means that 70,000 fewer kids will be able to enter Head Start this fall. That’s 70,000 children who won’t get a much-needed head start in the new world of cutthroat global economic competition.
Let’s talk about basic American values like opportunity and democracy. America should be the land of opportunity but it is getting harder for Americans who grow up in low-income households to reach the middle class than it has ever been before. America should be the bastion of democracy but Congress no longer considers the views of the public it should represent.
By: Brad Bannon, U. S. News and World Report, April 8, 2013
“Cheating Our Children”: The Deficit Scolds Are Actually The Bad Guys In This Story
So, about that fiscal crisis — the one that would, any day now, turn us into Greece. Greece, I tell you: Never mind.
Over the past few weeks, there has been a remarkable change of position among the deficit scolds who have dominated economic policy debate for more than three years. It’s as if someone sent out a memo saying that the Chicken Little act, with its repeated warnings of a U.S. debt crisis that keeps not happening, has outlived its usefulness. Suddenly, the argument has changed: It’s not about the crisis next month; it’s about the long run, about not cheating our children. The deficit, we’re told, is really a moral issue.
There’s just one problem: The new argument is as bad as the old one. Yes, we are cheating our children, but the deficit has nothing to do with it.
Before I get there, a few words about the sudden switch in arguments.
There has, of course, been no explicit announcement of a change in position. But the signs are everywhere. Pundits who spent years trying to foster a sense of panic over the deficit have begun writing pieces lamenting the likelihood that there won’t be a crisis, after all. Maybe it wasn’t that significant when President Obama declared that we don’t face any “immediate” debt crisis, but it did represent a change in tone from his previous deficit-hawk rhetoric. And it was startling, indeed, when John Boehner, the speaker of the House, said exactly the same thing a few days later.
What happened? Basically, the numbers refuse to cooperate: Interest rates remain stubbornly low, deficits are declining and even 10-year budget projections basically show a stable fiscal outlook rather than exploding debt.
So talk of a fiscal crisis has subsided. Yet the deficit scolds haven’t given up on their determination to bully the nation into slashing Social Security and Medicare. So they have a new line: We must bring down the deficit right away because it’s “generational warfare,” imposing a crippling burden on the next generation.
What’s wrong with this argument? For one thing, it involves a fundamental misunderstanding of what debt does to the economy.
Contrary to almost everything you read in the papers or see on TV, debt doesn’t directly make our nation poorer; it’s essentially money we owe to ourselves. Deficits would indirectly be making us poorer if they were either leading to big trade deficits, increasing our overseas borrowing, or crowding out investment, reducing future productive capacity. But they aren’t: Trade deficits are down, not up, while business investment has actually recovered fairly strongly from the slump. And the main reason businesses aren’t investing more is inadequate demand. They’re sitting on lots of cash, despite soaring profits, because there’s no reason to expand capacity when you aren’t selling enough to use the capacity you have. In fact, you can think of deficits mainly as a way to put some of that idle cash to use.
Yet there is, as I said, a lot of truth to the charge that we’re cheating our children. How? By neglecting public investment and failing to provide jobs.
You don’t have to be a civil engineer to realize that America needs more and better infrastructure, but the latest “report card” from the American Society of Civil Engineers — with its tally of deficient dams, bridges, and more, and its overall grade of D+ — still makes startling and depressing reading. And right now — with vast numbers of unemployed construction workers and vast amounts of cash sitting idle — would be a great time to rebuild our infrastructure. Yet public investment has actually plunged since the slump began.
Or what about investing in our young? We’re cutting back there, too, having laid off hundreds of thousands of school teachers and slashed the aid that used to make college affordable for children of less-affluent families.
Last but not least, think of the waste of human potential caused by high unemployment among younger Americans — for example, among recent college graduates who can’t start their careers and will probably never make up the lost ground.
And why are we shortchanging the future so dramatically and inexcusably? Blame the deficit scolds, who weep crocodile tears over the supposed burden of debt on the next generation, but whose constant inveighing against the risks of government borrowing, by undercutting political support for public investment and job creation, has done far more to cheat our children than deficits ever did.
Fiscal policy is, indeed, a moral issue, and we should be ashamed of what we’re doing to the next generation’s economic prospects. But our sin involves investing too little, not borrowing too much — and the deficit scolds, for all their claims to have our children’s interests at heart, are actually the bad guys in this story.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 28, 2013
“Poor People Don’t Just Disappear”: This Is What Happens When You Rip A Hole In The Safety Net
America’s social safety net, such as it is, has recently come under some scrutiny. Chana Joffe-Walt’s in-depth exploration of the increase in people getting Social Security Disability benefits at NPR got many listeners buzzing. Then in The Wall Street Journal, Damian Paletta and Caroline Porter looked at the increase in the use of food stamps, called SNAP. All three journalists look at the increasing dependence on these programs and come away puzzled: Why are so many people now getting disability and food stamp payments?
The answer is two-fold. Recent trends give us the first part of the explanation. Yes, as Paletta and Porter note, the economy is recovering and the unemployment rate is falling. But, as they recognize, the poverty rate is also rising. And therein lies the rub: people are getting jobs but staying poor. The available jobs are increasingly low-wage and don’t pay enough to live off of. And the big profits in the private sector haven’t led to an increase in wages.
GDP and employment may be doing well, but that hasn’t done much for those at the bottom of the totem pole. As the WSJ article points out, 48.5 million people were living in poverty in 2011, up from 37.3 million in 2007, a 30 percent increase. This is despite an unemployment rate that’s fallen off its peak. Some of the fall in the unemployment rate has been driven by people simply giving up on looking for a job altogether. But those who do get jobs are likely trading their once middle-class employment for low-wage work. The National Employment Law Project has found that mid-wage jobs have been wiped out during the recovery in favor of low-wage work: low paying jobs grew nearly three times as fast as mid-wage or high-wage work.
But there’s a deeper explanation that goes beyond the current economic picture. Aren’t there other programs for the increasing ranks of people living in poverty to turn to? Unfortunately, we’ve worked hard to weaken key parts of the safety net by changing how programs operate and then cutting back on their funds. Consequently, the number of people who are reached by programs for the poor has shrunk. But when you take away someone’s lifeline, they don’t stop needing it. So they either suffer hardship or find support elsewhere. What disability insurance and SNAP have in common is that they are fully funded by the federal government, which also can set the eligibility requirements. While states narrow eligibility requirements for TANF or unemployment insurance, the federal government can leave them (relatively) more open for SNAP and disability. That leaves them absorbing those who we’ve thrown off the rolls of other programs.
Unemployment benefits are where people turn when they lose a job and need income before getting back to work. But due to financial and other requirements, not everyone gets them. These rules vary state by state because states are in almost complete control of the program. They set their own eligibility criteria and benefit levels and are also on the hook for most of the funding for the benefits. As the Center on Budget and Policy Priorities reports, “the federal government pays only the administrative costs.”
Unlike the federal government, states have constrained budgets and most have to balance them every year. These budgets get even tighter in a downturn when people lose jobs and don’t pay as many taxes. On top of this, states have come under pressure from business groups during good times to reduce the contributions they use to fund the reserves that pay out benefits when things get tough. So many states have cut back on eligibility or benefit amounts in light of squeezed budgets. Given all of these constraints on benefits, only about a third of all children whose parents were unemployed at some point in 2011 actually saw any unemployment insurance benefits. They were far more likely to get food stamps, a federally funded program that has been much more flexible.
This story of a program financed by states that hasn’t been able to keep up with demand is the same for another huge part of the social safety net: welfare, or as we know it now, TANF. TANF does even worse than unemployment: it reaches just 10 percent of the children living with unemployment parents and just 30 percent of those living in poverty. The program used to do much better: in 1996, it reached 70 percent of poor families with children living in poverty. But then there was welfare reform, which turned it from a cost-sharing model to a block grant. Rather than the federal government sharing the costs with the states, the government now doles out lumps of cash and mostly lets states handle the rest. That lump doesn’t change even if the economy gets worse and more people live in poverty—and hasn’t even kept up with inflation.
While welfare reformers initially claimed victory as rolls fell during a booming 90s economy, the numbers have continued to fall even as jobs have disappeared. The poverty rate among families is back up to 1996 levels, but TANF’s caseload has fallen by 60 percent since then.
These families aren’t magically de-impoverished when they’re kicked off of government support programs. So they either go hungry or find other means of support. Enter SNAP and disability. SNAP has grown by 45 percent to meet increased need in the poor economy. The federal government was able to increase funding and waive some barriers to entering the program.
The CBPP reports that the growth in the use of disability insurance, on the other hand, is in large part due to demographic factors—an aging population and women’s increased entrance into the workforce—which accounts for half its growth since 1990. The elderly are far more likely to be disabled than younger workers, and more women workers means more workers who might become disabled. Other factors that contributed to its growth include the economic downturn. Joffe-Walt reports on how disability has dovetailed with welfare pruning its rolls. As she shows in two graphs, the number of low-income people on disability rose just as the number of families on welfare declined. Disability receipts also rise as unemployment rises. To qualify for disability, an applicant must have, as CBPP puts it, “little or no income and few assets”—which means that if unemployment and poverty rise, more people will fit this description. As Harold Pollack points out, “If you have a bad back, and the only jobs available are manual labor, that’s a real limitation. You’re unable to work. So it very much matters that we’re in a deep recession and a lot of the opportunities people faced are limited.”
Other than elderly disabled workers, those who sign up for disability are those who can’t even dream of finding a job that doesn’t require physical exertion and have no other income—thus leaving them with no where to turn but disability. After all, unemployment only lasts so long and TANF now comes with strict work requirements. Disability steps in when those with low education levels who live in communities based around industry—hard manual labor—lose their jobs and fall into poverty.
This is what happens when you burn enormous holes in the fabric of the social safety net: people either fall through or cling to the remaining parts. We can certainly debate whether we want food stamps and disability to carry so much of the burden of supporting the poor and vulnerable. In fact, this all seems to point to the simplest answer, which is to just hand money to those in poverty rather than funnel it through these different programs that may or may not actually meet people’s needs. But what we shouldn’t do is assume that food stamps and disability are bloated programs because so many people rely on them and then jump to cutting them back. Poor people don’t disappear just because we slash the programs they rely on. They still struggle to get by. That’s the lesson we should have learned over the past two decades.
By: Bryce Covert, The Nation, March 28, 2013
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