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It looks like Pennsylvania Republicans are Ready to Move on the Minimum Wage. But is $8.50 enough? [Hint: No, it is not!]

Third and State - May 18, 2019 - 12:10am

State Senators Michele Brooks (R – Mercer County) and Dan Laughlin (R – Erie County) told the Manufacturer and Business Association that with consensus building in Harrisburg, this will be the year to raise the minimum wage.

That’s very good news.

But the senators said that the wage being discussed (among Republicans) is an increase to $8 or $8.50 “if it had to be tied to inflation.” While I applaud the senators for being willing to move on this issue—for the first time in over a decade—raising the minimum wage $.75 cents or $1.25 is wholly inadequate.

The senators are right that we should be adjusting the minimum wage for inflation. But they are in error about what that means for today.

In 1968, the minimum wage was $1.60. If this wage was set to adjust for inflation, today it would be $10/hour (a full $2/$1.50 above what Republicans are proposing). A more accurate measure to consider is the minimum wage relative to the median wage in Pennsylvania. In 1968, the minimum wage was 51% of the median wage of $3.15/hour. But after that time, minimum wage increases became less frequent. Today, Pennsylvania’s minimum wage ($7.25/hour) is only 30% of the state’s median wage for 2019 (which is $24.44/hour) and without further action will continue to decline.

And this decreasing value of the minimum wage is not due to stalled productivity. In fact, productivity has grown 77.6% since 1979, while median hourly compensation (wages plus benefits) has grown only 10.1%. This means someone is benefiting from the increased productivity, and it isn’t the worker. This is why we’ve seen the overwhelming and undeniable ballooning of income for the top 1%.

 

Workers can, and should, share in this growing prosperity. Keeping the minimum wage below $15/hour not only denies workers the ability to share in the prosperity they helped to create, but it also denies residents across our state the ability to live with dignity and to afford the most basic necessities of life.

Let’s look at how low-wage residents of Senator Laughlin’s district in Erie would fare under a raise in the minimum wage to (his proposed) $8.50/hour. As the chart below shows, the average monthly expenses for a single person with no children in Erie is $2,669 a month. Raising the minimum wage to $15/hour would nearly allow this person to afford the bare necessities including housing, food, healthcare, transportation, and other needed provisions (think toilet paper, shoes, laundry detergent, etc.). A wage of $8.50/hour would bring in about $1,473 a month, which is only 55% of what a single person would need for a bare bones budget.

I can hear the feedback already—but before you say that those benefiting from a minimum wage hike are all teenagers, anyway, let me dispel the myth. Of those workers in Pennsylvania that would benefit from a minimum wage hike to $12/hour (the governor’s proposal), 88% are adults, aged 20 and older.

And one-quarter of those who would benefit are parents. Even $15 an hour would not allow a single parent with two kids to afford even half of her expenses, although a two-parent working family would get close. However, at $8.50 an hour, a single mom would only make 27% of her monthly expenses working full-time. A two-parent working household, both making minimum wage of $8.50/hour, would make less than half (49%) of their monthly expenses. [READ: Not making it.]

 

Now one concern often cited by Republicans around raising the minimum wage is that it will be a job-killer. In fact, at the event for the Manufacturer and Business Association Senator Laughlin said, “I think trying to go to $12 right out of the gate would probably kill about 50,000 jobs across the state.” Let’s examine the senator’s claim.

The Pennsylvania legislature’s own Independent Fiscal Office (IFO), a nonpartisan body, projects some job loss associated with a minimum wage increase. The IFO estimates 34,000 workers would lose employment as a result of a minimum wage increase to $12 this July.

Before getting into the weeds of the job-loss debate, it’s important to register the size of the IFO estimates of who benefits versus job losses: i.e., according to the IFO, more than 50 times as many people would benefit from a minimum wage increase as would lose a job. Moreover, because there is significant churn in the low-wage labor market, and especially in today’s low unemployment economy, those that do lose a job should be able to find a new job at a higher wage.

In addition, there are questions about the reliability of the IFO’s estimate that 34,000 workers would lose employment as a result of a minimum wage increase to $12 this July. As with five previous IFO reports, this estimate is derived from a study of a minimum wage increase’s effect on teen employment; the results are then applied to a group that is nearly 90% adults. An expanded literature review in the most recent IFO report acknowledges that some research finds that minimum wage increases have not had negative employment effects—yet the IFO does not factor this research into its job estimates. The IFO assumption of a small amount of employment loss is out of step with the most current and sophisticated research (i.e., the research designs that control best for other variables that impact employment, thereby estimating more precisely employment effects of minimum wage increases). Using the strongest research designs, this research finds no employment effects of state minimum wage increases over the past three decades.

So, while we applaud Senators Laughlin and Brooks for discussing (and potentially acting to implement) a much-needed legislated increase to the minimum wage, they should reconsider what a truly adequate minimum wage would be today. And to be adequate, workers should not have to make the difficult choice of cutting housing, food, health care or other basic and essential costs. #WeCantWait

Judicial Districts and Judicial Independence

Third and State - May 14, 2019 - 4:27pm

This week the Republican leadership of the Pennsylvania House of Representatives plan to take up a HB 196, a constitutional amendment proposed by Representative Russ Diamond to elect the appellate court judges who sit on the Supreme Court and the two second-level courts, the Commonwealth Court and Superior Court, by districts rather than in statewide elections. This proposal is similar to the Aument amendment to SB22 a redistricting reform proposal that passed the Senate but stalled in the House last year.

HB 196 is deeply problematic for three reasons.

First, given the role judges play in our constitutional government, district election is unnecessary. We elect legislators by district because it is important that regional interests be accounted for in the process of enacting legislation. But there is no regional way to interpret the statutes or Constitution of our commonwealth.

Second, electing judges in districts can make it more difficult to put the best qualified judges on the bench. Representative Diamond points out that the appellate judiciary does not represent the geographic diversity of the state. But that is not the relevant consideration. We want appellate courts judges with the legal experience in appellate matters and / or judicial experience to sit on these courts. Men and women with that kind of experience are more likely to be found in the urban, commercial centers of the state. And the record shows that people with such experience from the more rural counties are able to secure places on the appellate courts.

And third, HB 196 would, in two ways, give the General Assembly far more influence over the courts than is appropriate in a government that respects the separation of powers. By gerrymandering judicial districts and by using the transition process to prevent the current judges from running in retention elections, the General Assembly would be able influence both the partisan and individual composition of the courts in ways that undermine judicial independence.

Read a detailed memo analyzing HB 196 here.

Low Teacher Pay Shortchanges Teachers—and Students—in Pennsylvania

Third and State - May 3, 2019 - 4:18pm

We wanted to highlight the Economic Policy Institute’s new analysis on the teacher pay gap and explain why it should encourage Pennsylvania lawmakers to pass a proposal to raise the starting salaries of the state’s public school educators.

Nationally, in terms of total compensation (wages plus benefits), teachers earned 13.1 percent less than similar college graduates in 2018, the EPI report finds.

Pennsylvania is no exception. Weekly wages for Pennsylvania teachers are now 13.5 percent lower than for other college-educated workers. This compares to an average of 11.5 percent in neighboring states, including 18.5 percent in West Virginia, where teachers recently triggered a wave of statewide and city teacher strikes.

In some parts of Pennsylvania, experienced educators earning low salaries struggle to pay their bills and support their families. Given the crucial role teachers play in their students’ lives, they shouldn’t have to scrape by to make ends meet.

To address the growing teacher pay gap, Pennsylvania legislators need to invest more adequately in Pennsylvania’s schools and pass a bill that would raise the minimum wage for teachers from the current $18,500 to $45,000. That way, teachers such as Steelton-Highspire’s Dottie Schaffer wouldn’t have to work two jobs to get by. The Governor’s minimum teacher salary proposal targets money to the less affluent rural and urban school districts that pay the lowest salaries—providing a boost to local economies where it is most needed (just as the Governor’s minimum wage proposal does).

Doing so is not only good for educators; it’s good for students, too. Low teacher pay makes it more difficult to attract and retain great teachers, the key to student success.

Pennsylvania is in the midst of a growing teacher shortage that, while not at a crisis level as in some other states, is starting to take a toll. 1 in 10 Pennsylvania teachers are in their first two years (“inexperienced”), reflecting high recent attrition exacerbated by uncompetitive pay. Pennsylvania also has a much higher concentration of uncertified teachers in schools with high shares of minority students than in other schools.

Pennsylvanians understand the urgency of the situation. Two-thirds of likely voters in Pennsylvania (66%) favor the proposal to raise the minimum educator salary, according to a poll conducted by Harper Polling for the Pennsylvania State Education Association in February. Nearly half of respondents “strongly favor” the measure.

Three figures in the EPI report tell the story:

Figure A shows that U.S. teachers’ weekly wages have not grown since 1996 (these data are not available at the state level).

 

Figure B shows that public school teachers now earn 21.4% less than comparable college graduates in other fields.

 

 

Figure C shows the teacher pay gap in each state. (The national gap is a bit smaller in Figure C than Figure B because it relies on several years of data—not just 2018 data as in Figure B—to increase sample sizes for states). 

 

 

Teachers and students can’t afford the decline in teacher pay compared to other college-educated workers. It’s time to stop shortchanging our teachers and our students by investing adequately and equitably in our schools.

 

Fair Share Tax Plan - 2019 Edition

Third and State - April 18, 2019 - 3:47pm

The main reason that Pennsylvania’s tax system is so upside-down—with the top 1% paying only 6% of their income in taxes while the middle 20% pays 11.1% and the bottom 20% pays 13.8%—is that the Pennsylvania Constitution prohibits us from enacting a graduated personal income tax. Sales and property taxes tend to take a higher percentage of the income of taxpayers at the bottom and in the middle than at the top. But graduated income taxes in many states—including all of our neighbors—compensate by taxing those at the top at a higher rate.

We can start to fix our broken tax system by adopting what we call a Fair Share Tax.  . Representatives Elizabeth Fiedler (D-Philadelphia), Chris Rabb (D-Philadelphia), and Sara Innamorato (D-Allegheny) plan to introduce Fair Share Tax legislation in the House. Senators Art Haywood (D-Philadelphia and Montgomery), Vince Hughes (D-Philadelphia and Montgomery), and Jay Costa (D-Allegheny) have already introduced it in the Senate.   

1. The Personal Income Tax, which is currently set at 3.07%, will be divided into two taxes. 

2. The tax on wages and interest—the kinds of income received by almost everyone—will be reduced to 2.8%.

3. The tax on what we call income from wealth—business profits, capital gains, dividends, royalties, and estates—will be increased to 6.5%.

The Fair Share Tax plan would raise $2.2 billion in new revenues in the first year while cutting taxes for about 47% of Pennsylvania families. Thirty-five percent of Pennsylvania families would see no change in their taxes. Only 18% of families would pay more.

Over 50% of the new revenue from the Fair Share Tax would come from the top 1% of taxpayers. They would pay, on average, an additional $24,680 on their average income of $1.6 million. Another 24% of the revenue would come from the next 4% of taxpayers, who would pay, on average, $2,706 on their incomes, which range from $252,000 to $590,000. The next 15% of taxpayers, with incomes from $112,000 to $252,000, would only pay an average extra $332, on average. About 16% of the tax will be paid by residents of other states.  

A Fair Share Tax would enable us to begin closing our budget and public investment deficits without increasing taxes on working people and the middle class.

Some possible objections and responses to them.

Three objections are often made to the Fair Share Tax, but they can be easily answered:

  • The tax does not place Pennsylvania at a competitive disadvantage to neighboring states. After it is instituted, the effective income tax rate on the top 1% will only be 3.9%, below all of our neighboring states except Ohio and far below New York and New Jersey, which has an effective tax rate of 5.8% and 6.6% on the top 1%.
  • The tax does not put an unfair burden on retired Pennsylvanians. Pennsylvania is one of the best places to retire from a tax perspective. Social security, pension withdrawals, and 401k withdrawals are not taxed at all. The Fair Share Tax would raise more only from retired Pennsylvanians with substantial financial holdings beyond these protected categories. More than three-quarters of seniors would see a tax cut or no change in their taxes. The highest fifth of seniors, with an average income of $246,100, would pay 92% of the increase among seniors.
  • The tax also does not put an unfair burden on small, family-owned businesses or farms. Those businesses and farms can avoid the tax increase by taking the income from their business as wages instead of business profits. Larger businesses cannot do this because they need to show a profit to secure loans. Loans to family-owned businesses typically are secured by the assets of family members. 

Tax Freedom Day? Not Really.

Third and State - April 15, 2019 - 10:55am

Every year the Tax Foundation, a conservative think tank, releases a report about “Tax Freedom Day,” a made-up day of the year that indicates when the nation as a whole has earned enough money to pay this year’s federal, state, and local taxes. This year, the report says, Tax Freedom Day falls on April 16, 2019.

Despite the catchy approach, there are several problems with the Tax Foundation’s Tax Freedom Day, both in terms of how it is calculated and conceptually. The Center on Budget and Policy Priorities put out a great report on April 10th discussing these problems.

First, the way the Tax Foundation calculates its Tax Freedom Day is misleading. They calculate the day the “nation as a whole has earned enough money to pay its total tax bill for the year” by measuring tax revenues as a share of the economy (i.e. the average tax rate). But in the U.S., which has a progressive tax rate, it is only tax payers who are in the upper income levels that pay, on average, rates equal to or above federal revenues as a share of the economy.

Look at the graph to the left. The Tax Foundation’s average tax rate is 18.7%. But 80% of tax payers in the U.S. pay less than that tax rate. So reports that discuss Tax Freedom Day as the day a typical American worker would have to work to pay their taxes is misleading. CBPP explains how here: “The following example shows how the Tax Foundation’s methodology can overstate the tax burdens of the typical family.  Suppose four families with incomes of $50,000 each pay $2,500 in taxes (5 percent of their income) while one wealthy family with income of $300,000 pays $90,000 in taxes (30 percent of its income).  Total income among these five families is $500,000, and the total amount paid in taxes is $100,000.  Thus, 20 percent of the total income of the five families goes to pay taxes. But it would be highly misleading to conclude that 20 percent is the typical tax burden for families in this group.” (https://www.cbpp.org/sites/default/files/atoms/files/4-10-19tax3.pdf)

The Tax Foundation’s Tax Freedom Day Report also ranks states by which ones reach their Tax Freedom Day sooner, meaning their residents don’t have to work as long to pay their share of taxes. Alaska is ranked #1 because residents there bear the lowest average tax burden. Pennsylvania ranks 30th. However, as CBPP discusses, there are several flaws with their state-by-state estimates. These include overstating middle-class tax levels, reflecting state affluence as opposed to state taxes, including taxes paid in other states, and relying heavily on estimates from years-old data.

Aside from the Tax Foundation’s flawed calculations, let’s address the conceptual problems. Establishing what they call a “Tax Freedom Day” divides up the year into a time an individual is paying taxes to the government and a time of year they are taking care of themselves financially. This paradigm undervalues the importance and impact of taxes on our lives every day throughout the year and it, wrongly, assumes we live independently from the rest of our city or township, our state and our nation.

Our taxes go towards funding our roads, bridges, and transportation systems to ensure we, our families, and our businesses and goods can flow freely from one place to another. They fund health care for our communities’ elderly and low-income neighbors. It funds the education systems for our kids. It funds the military, the justice system, Social Security, and more. These things help to make up the society we are embedded in and rely on daily. They can’t simply be pulled out and considered as separate. Our jobs, income, and economy rely on this infrastructure and systems which is funded by our taxes.

The real sham here is not that we pay taxes that help our society run smoothly, but rather, that so many Fortune 500 companies that rely on us (as consumers and their workforce) to make their profits, do not. The Institute on Taxation and Economic Policy just put out a report that shows 60 of America’s largest corporations, making $79 billion in pretax income, paid nothing into our tax system, thanks to  the 2017 Tax Cut and Jobs Act. In fact, they made billions and got a $4.3 billion rebate. (For more details, see Jeff Garis’s blog post here.)

And in Pennsylvania, our richest residents (the top 1%, with an average income of $1.7 million/year) pay only 6% of their income on state and local taxes compared to our poorest residents (the lowest 20%, making below $20,000/year) who are paying 13.8% of their income on these taxes.

A true Tax Freedom Day will be when corporations and the rich pay their fair share in taxes. Then we can actually provide quality health care to everyone, provide a good education to all our kids regardless of income or zip code, and fund college for those interested in pursuing an advanced degree, without graduating with crushing debt. That sounds like freedom to me. 

A New Proposal Would Give a Much-Needed Boost to Pennsylvania’s Working Families

Third and State - April 10, 2019 - 12:42pm

Senator Bob Casey today joined Senators Sherrod Brown, Michael Bennet, Dick Durbin, and Ron Wyden to introduce the Working Families Tax Relief Act (WFTRA), legislation that would begin to fix our tax laws to help working people with low-wage jobs make ends meet as they work to support themselves and their families. The proposal would strengthen the highly successful Earned Income Tax Credit (EITC) for working families with children and working people without children at home, ensure that millions of poor children aren’t left out of the Child Tax Credit (CTC), and boost the CTC for families with very young children. A summary of key provisions of the WFTRA is included below.

The proposal stands in stark contrast to the 2017 Trump tax law, which was heavily tilted in favor of America’s wealthiest households and most profitable corporations. Even as it showered massive tax cuts on the wealthy and corporations, the 2017 tax law’s signature “middle class” tax cut provided only a token CTC increase (from $1 to $75) to 825,000 children in low-income working families in Pennsylvania. 

If enacted, the WFTRA would improve the financial security of 1,641,000 low- and middle-income Pennsylvania families, benefiting more than four million Pennsylvanians, many of whom are children. Nationally, the WFTRA would cut child poverty by 28 percent, lifting 3.1 million children out of poverty and making another 7.7 million children less poor.

For working families, this would mean more money for basic necessities, home repairs, maintaining a car to get to work, or in some cases, additional education or training to get a better, higher-paying job. The WFTRA would give working people a fair shot to get ahead and help low-income parents give their children a good start in life, with lasting benefits for millions of children.

The Pennsylvania Budget and Policy Center applauds Senator Casey for cosponsoring this important measure and calls on Senator Pat Toomey, along with the rest of Pennsylvania’s congressional delegation, to substantially strengthen the EITC and CTC and help give working people and their children a fair shot to get ahead.

Summary of Working Families Tax Relief Act (WFTRA)

Major expansion of the Earned Income Tax Credit for Childless Workers

The EITC is a proven policy success story, lifting millions out of poverty and rewarding work for millions of families.  Its largest shortcoming, however, is the very small credit it provides workers who are not raising children in their homes.  This is the only group of Americans that the tax code taxes into, or deeper into, poverty. 

WFTRA addresses this shortcoming with a major expansion of the EITC for childless workers, substantially raising the maximum credit and expanding its age range as shown in the following table:

 

Substantially boosting the EITC for families with children

WFTRA also builds on the success of the EITC for families with children by increasing its maximum credit and phase-in rate by roughly 25 percent. Both the income level at which the EITC stops phasing in and the income level at which it begins to phase down are unchanged from current law, but the increase in the maximum credit results in an increase in the income level at which the EITC phases out entirely.

Important Child Tax Credit improvements – including full refundability

The proposal makes key improvements in the Child Tax Credit (CTC) that will boost the economic security of millions of low- and moderate-income families with children and reduce poverty.  They include:

  • Making the CTC fully refundable: The current CTC is only partially refundable – the refundable portion of the credit is limited to 15 percent of a family’s earnings above $2,500, up to a maximum of $1,400 per child. This is well below the $2,000 per-child that supporters of the 2017 tax law have touted. It means that a home health aide with two children making $18,000 a year gets a CTC of $2,325, while two married corporate lawyers with two children who make $400,000 get a CTC of $4,000. The WFTRA makes the CTC fully refundable for the first time, so that all low- and middle-income families with children can receive the full support it provides. Tax relief from the refundable CTC will also be paid out to families via periodic payments. The $2,000 per-child maximum credit would be adjusted for inflation going forward.
  • A new $3,000 Young Child Tax Credit (YCTC): Families will receive an extra $1,000 of CTC for each child under the age of six, making the total CTC for young children $3,000. Research shows that this is a period of great importance and vulnerability in children’s lives, and that more adequate family income in these years can improve poor children’s life opportunities. 
  • Reducing the CTC phase-out threshold: A prime example of the upside-down priorities of the 2017 tax law is that it roughly tripled the income level where the CTC begins to phase down, from $110,000 for married couples ($75,000 for single parents) to $400,000 ($200,000 for single parents). The WFTRA reduces the income level at which the CTC begins to phase down to $200,000 for married parents ($150,000 for single parents). Please note that this is the threshold at which the CTC begins to phase down; a married couple with two children age 6 or older that makes up to $280,000 would still receive some CTC – as would a married couple with two young children until its income reaches $320,000. The phase-out threshold would be adjusted for inflation going forward.

Expanding both the EITC and CTC would magnify the benefits for working families

The combined impact of the EITC and CTC expansions would boost the incomes of an estimated 44 million households, benefiting more than 112 million people and lifting 28 million people above or closer to the poverty line, including 11 million children. It would benefit an estimated 24 million white families, 8 million Black families, 9 million Latino families, and 2 million Asian American families. To see how the WFTRA would improve millions of lives, consider the following examples:

  • A mother of a 4-year-old and a 7-year-old works as a home health aide making $20,000. Today, her CTC is $2,790. The WFTRA would raise it to $5,000, an increase of $2,210. And the bill would also increase her EITC by about $1,460. Altogether, the WFTRA would increase her income by about $3,670. 
  • One partner in a married couple works full time as an auto mechanic and makes $45,000 a year, while the other takes care of their two young children. The WFTRA would increase their EITC by about $1,460, and they’d also receive an additional $2,000 from the YCTC. In total, they’d receive about $3,460 more under the WFTRA.  
  • A fast food cook makes the federal minimum wage; her annual earnings – $14,500 – put her only slightly above the poverty line for a single individual (which is estimated to be $13,340 in 2019). But she must pay over $1,250 in combined federal individual and payroll taxes, so the tax code actually pushes her below the poverty line. The WFTRA would increase her EITC by about $1,530. She’d no longer be taxed into poverty.  

Over the next two years, various policymakers are expected to introduce a number of proposals to boost struggling families’ incomes, including minimum wage increases, more vigorous anti-trust enforcement, and other ways to restore bargaining power to rank-and-file workers. The WFTRA’s tax-credit expansions – which would provide substantial wage supplements to many families – complement such efforts and deserve to be a policy priority. Both types of policies are needed to address the powerful economic barriers that many American families face.  

 

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