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STUDY: Teachers in Pennsylvania Are Undercompensated

February 15, 2018 - 4:30pm

The Economic Policy Institute is out today with a new paper authored by Jeffrey Keefe examining compensation for public school teachers in Pennsylvania.  If you are still an avid reader of letters to the editor in your local paper, or perhaps a braver reader of the comment section of the online edition of your local paper, you will not infrequently encounter angry comments about teacher pay being high. Those comments are typically based on bad data or incorrect assumptions.

The Keefe paper carefully compares the wages and benefits of Pennsylvania public school teachers with other full-time workers who have similar characteristics – critically, similar skills and education – and finds that total compensation (wages plus benefits) are 6.8% lower for public school teachers than comparable workers. More troubling, Keefe finds that recently enacted pension changes for new teachers in Pennsylvania (Act 5) will increase the compensation penalty to 10%.

 A growing pay penalty for choosing a career in teaching comes at a particularly bad time, as the number of students graduating from teacher training programs has fallen in recent years by 63%. The wave of teacher layoffs, and school districts choosing not to replace new teachers that followed the deep budget cuts in the first budget of Tom Corbett, seem to have convinced many potential teachers that a career in teaching is not a good option. Now, districts in Pennsylvania seeking to hire great teachers are having difficulty finding qualified candidates. Falling total compensation for teachers is only going to make the teacher recruitment problem more severe.

Proposed Elimination of the Community Services Block Grant (CSBG)

February 13, 2018 - 3:44pm

The following is a guest post from Steven Martinez, Communications Director at the Community Action Association of Pennsylvania:

Today the Trump Administration released its FY 2019 budget proposal, doubling down on last year’s unprecedented proposed cuts. The budget calls for the elimination of three programs critical to America’s working families –  the Community Services Block Grant (CSBG) which helps fund your local Community Action Agency, the Weatherization Assistance Program (WAP), and the Low-Income Home Energy Assistance Program (LIHEAP). CAAP CEO, Susan Moore, said: 

“While we are not surprised by the budget put forth today, we are profoundly disappointed that the Administration has once again chosen to turn its back on the nearly 1.6 million Pennsylvanians (507 thousand children) living in poverty. We are confident that Congress will reject these cuts and provide robust funding for programs proven to lift families out of poverty.”

CSBG continues to serve over 15 million Americans each year (nearly 900 thousand Pennsylvanians) through a delivery network of over 1,000 Community Action Agencies in 99% of U.S. counties. 43 of those agencies are located right here in Pennsylvania. CSBG allows states and local communities to take the lead on combating poverty, tailoring programs and solutions to meet locally determined needs. Community Action Agencies provide workforce development, education, health services, housing support, and other critical bridges out of poverty.

Seth and Rachael Fredericks, from the Lycoming-Clinton Counties Commission for Community Action (STEP) and CAAP 2017 Self-Sufficiency Award winners, were one of the many families affected by the opioid epidemic sweeping across Pennsylvania. Their local Community Action Agency supported their path to sobriety and to financial self-sufficiency. Seth said, “I believe that there are other people like us who really have a desire to change but are held back. If it wasn’t for programs like this, we might never have had a fighting chance.” CLICK HERE to hear directly from Seth and Rachael about the impact their local Community Action Agency had in their lives.

Community Action Agencies are unique agencies in their communities, each overseen by a governing board that represents public and private stakeholders and low-income community residents. While each agency may vary in size and scope, they all share a common mission of fighting poverty and promoting self-sufficiency at the community level. Local agencies respond to short-term crises that can topple a working family into poverty and address chronic conditions that can trap multiple generations in dependency.

CAAP is committed to working with our partners both in and outside of Washington, D.C. to defend low-income Americans. Members of Congress have demonstrated strong, bipartisan support for these vital programs. We are confident that Congress will craft a sensible budget that preserves critical funding and prioritizes America’s working families.

Too many low-income families would suffer if our communities lost their local Community Action Agency. Go HERE to hear directly from just a few of the families PA Community Action supported in 2017 and to meet a few of the leaders who run Community Action Agencies throughout the Commonwealth. 

On President Trump's Infrastructure Proposal

February 13, 2018 - 10:41am

The president has put forward a "plan" for infrastructure spending that identifies no new source of funding, that makes unbelievable assumptions about how much state and private spending can be leveraged by a limited amount of new federal spending and that proposes an end-around of environmental regulations in the guise of streamlining those regulations. 

In response to deep and long ignored needs in Pennsylvania and throughout the country for upgrading our roads, bridges, transit systems, airports and water and sewer works - needs that should be met by new investments that could create tens of thousands good jobs - the president has offered a glittering fantasy with little of the substance necessary to meet those needs. 

The basic problem with the president's approach is that he offers a new means of financing infrastructure projects - public private partnerships - when it is funding, not financing, that is the barrier to infrastructure development. The traditional method of financing infrastructure, generating the upfront money to things like build roads and bridges through issuing government bonds, works well, and there is no reason to think it will not continue to do so. What we are lacking is not a mechanism to finance infrastructure, but a mechanism to fund it, that is to pay back the bonds through some mix of government funding and user fees. Again, this mixture works well and should be used as is appropriate, with the benefits that flow to the public - such as the lower prices for goods and faster economic growth generated by reducing the costs of transportation - paid for by public funding and benefits that flow to private individuals - such as the profits of trucking companies and the producers of goods - paid for by user fees.

Public funding at federal, state, and local levels has been shrinking. And the Trump plan, which only adds $200 billion in new federal funding, is at best a very modest increase in the short term. But because the president's budget also calls for deep cuts to federal funding for existing infrastructure programs - for public transit, Amtrak, and the TIGER program, which has supported innovative local infrastructure projects over the last eight years - it is not clear whether total federal funding will increase at all. 

In addition, it appears that the president's program calls for state and local governments to pick up 80% of the cost of infrastructure projects rather than 20%, as in the past. It is very hard to imagine states that have tenuously balanced budgets, like Pennsylvania, being able to contribute enough to generate the $1 trillion in new infrastructure spending the president hopes to generate. 

While the president touts his private-public approach as a way to reduce the cost of infrastructure projects because it bypasses the requirement that contractors pay the prevailing wage to their workforce, the most likely result of this approach will be to reduce wages for working people, while increasing profits for contractors. 

Finally, the president's proposal to speed up government approval of infrastructure spending is not merely a way to make the approval process faster but appears to set artificial deadlines as way to approve projects without the necessary environmental safeguards. 

This proposal is a public relations scheme, not a serious response to our infrastructure needs. If it accomplishes anything, it will, like the tax cut and health care plans, mainly shift income and wealth from working people and the middle class to the president's friends in big business.

FACT CHECK: Undocumented Immigrants Like the Dreamers Are Not a Drag on State and Local Government

January 27, 2018 - 12:00pm

A political movement that is based on demonizing a group of people needs a demon. So the efforts of the Trump administration to generate anger and hatred toward immigrants, both documented and undocumented, has been combined with repeated claims by the administration and its supporters about the terrible burden immigration creates on the United States. Immigrants have been called rapists and murders and terrorists and have been said to be dragging down our economy and burdening citizens with higher taxes.

That rhetoric has heated up as Congress struggles to pass legislation to restore the DACA program, which protects the Dreamers — undocumented immigrants brought to this country as children — from deportation. It has reached even higher levels as the Trump administration uses the debate over DACA as a bargaining chip to win Congressional support for a border wall with Mexico and radical changes to immigration policy.

Most of those claims have been rebutted, time and again. It is not clear how effective facts can be in tempering hatred. But we intend to do our part by putting the truth before Pennsylvanians.

We begin today with the impact of undocumented immigration on state and local taxes, particularly in Pennsylvania. Those who fear immigration often claim that immigrants are a large burden on state and local governments because they benefit from the services those governments provide but do not pay taxes to support them. That is simply not true

A recent study by the Institute on Tax and Economic Policy (ITEP) shows that the estimated 137,000 undocumented immigrants in Pennsylvania pay our state and local governments almost $135 million in taxes each year. (They pay $11.7 billion in state and local taxes nationwide.)

How is that possible? Well, to begin with undocumented immigrants work hard and their average family income in Pennsylvania is $31,400. While that is more than $20,000 below the average for all families, it is enough to generate substantial tax payments. Undocumented immigrants pay about $64 million in sales taxes in Pennsylvania. They also pay $36 million in property taxes both directly, as 30% of families headed by undocumented immigrants own homes in our state, and indirectly, as property taxes are passed through in the rents paid by those who don’t own their own homes.

Undocumented immigrants also pay $34 million in personal income taxes (PIT) to the state. That may surprise people who think of undocumented immigrants as being paid under the table in cash. But federal laws have forced may undocumented immigrants to secure papers, including Social Security numbers or Individual Tax Identification numbers that allow them to be paid through payroll systems that withhold personal income taxes from their paychecks.

Of course, some undocumented immigrants are paid through channels that do not withhold personal income taxes. Yet, overall, undocumented immigrants pay 7.2% of their income to state and local governments. That is less than the percentage paid by low and middle-income Pennsylvanians (which is 12% for those in the bottom 20% of families and 10% for the middle 20% of families.) But it is far more than the rate paid by the richest 1% of Pennsylvania families, which is 4.2%.

While undocumented immigrants pay a bit less in taxes, they also receive fewer government benefits. Contrary to what the demonizers say, undocumented immigrants are not eligible for federal programs such a Medicare, Social Security, Food Stamps or federal-state programs such as general assistance or Medicaid or CHIP. (We will consider the cost of educating the children of immigrants in future posts and show that, by and large, these costs do not place a large burden on Pennsylvania taxpayers.)

And if we want undocumented immigrants to pay more in taxes, there is a simple solution: give them legal status. ITEP estimates that doing so would bring another $52 million, mostly in personal income and wage taxes, into the coffers of the state and local governments of Pennsylvania and raise the taxation rate of currently-undocumented immigrants almost to the level of middle income Pennsylvanians.

One last point: this entire analysis only looks at what undocumented immigrants themselves pay in taxes. It does not take into account the dynamic effects of undocumented immigration on Pennsylvania’s economy, that is the impact of the consumption of undocumented immigrants on the earnings of other Pennsylvanians and the taxes they pay. Comprehensive studies of the impact of immigration on the American economy have shown that our economy, and thus the taxes raised by federal, state, and local governments, realize benefits from immigration of all kinds.

When it comes to the DACA issue, the first thing we should consider is the moral horror of sending young people brought to this country through no choice of their own “back” to countries they may not even remember, whose language they do not speak, whose culture they do not know, and where they have few connections to other people. That should settle the issue. But for those who worry that a generous policy towards the Dreamers will create an economic burden on Pennsylvania and other states, we can state clearly that the answer is the opposite. Undocumented immigrants pay substantial taxes to state and local governments in Pennsylvania. And offering them legal status will increase the taxes they pay even more.

The Pennsylvania Promise - Affordable College for all Pennsylvanians

January 26, 2018 - 2:04pm

Pennsylvania is barreling towards a future where only the descendants of the well-off will have access to quality higher education. Or perhaps we are already there. See the figure below, which shows high performing, high-income youth are more likely (74%) than high scoring, low-income youth (41%) to complete college (columns in blue):

Those from families with modest means, if they do choose college, will likely graduate riddled with debt that follows them in the decades to come. Take Daniel Le, a sophomore psychology major at Shippensburg University — one the colleges in Pennsylvania’s state system of higher education — and member of Pennsylvania Student Power Network:

I grew up in a poor city (Reading, Pennsylvania), with a poor family. I love going to college but it’s financially destroying my family. I’m $30,000 in debt and I’m not even half way through undergraduate. My mom grew up very poor and never had the means to go to college but when she was 33 she found a way to make it happen. Six years later she graduated with an Associates and a Bachelors. She inspired me to go to college to better my situation and my family’s situation. But that’s not all that is happening. Tuition is digging my family into a new hole. Some days writing a paper or going to class seems like an impossible task when all I can think about is the parent plus loan that my mom had to sign for me to go to college. I get endless feelings of guilt and regret about going to college, something that I’m supposed to feel great about and feel proud of.

Over the last six months, the Pennsylvania Budget and Policy Center (PBPC) and the Keystone Research Center (KRC) have produced several reports documenting the abysmal job Pennsylvania is doing in terms of investing in higher education for our state’s youth. To give you a sense:

  • U.S. News and World Report ranks Pennsylvania dead last for higher education after 35 years of state disinvestment, high levels of student debt and the state’s high tuition and fees.
  • In terms of per capita investment in higher education, Pennsylvania ranks 47th out of 50 states (at $132.44 per capita investment), which is about half of the U.S. national average (at $259.18 per capita).
  • Pennsylvania ranks 40th for the share of adults 25-64 with more than a high school education. Worse, more than half of Pennsylvania’s counties ranked below even the last place state, West Virginia. A large body of economic research shows that lagging educational attainment results in lower wages and incomes for individuals and slower economic growth for regions.

This week KRC and PBPC released a plan to reverse Pennsylvania’s disinvestment in higher education and begin to create a future where higher education and workforce training are more affordable, and therefore more accessible, for residents of our state.

Called the Pennsylvania Promise, the plan:

  • covers two years of tuition and fees for any recent high school graduate (regardless of family income) enrolled full-time at one of the Commonwealth’s 14 public community colleges; 
  • covers four years of tuition and fees for any recent high school graduate with a family income less than or equal to $110,000 per year accepted into one of the 14 universities in the State System of Higher Education;
  • provides four years of grants ranging from $2,000 up to $11,000, depending on family income, for students accepted into a state-related University;  
  • finances the expansion of grant assistance to adults seeking in-demand skills and industry-recognized credentials, as well as college credit.

This plan would make Pennsylvania Promise grants the “last dollar” of tuition and fees remaining after accounting for all other federal, state or institutional grants awarded to a student, similar to plans in New York, Tennessee and Oregon. The plan calls for the establishment of the Office of Income Mobility which would be located within the Department of Education and coordinate strategies with colleges, high schools and local communities to lower barriers to college attendance for high achieving low- and middle-income students.

The Pennsylvania Promise plan also includes potential strategies to fund such legislation, which we estimate will cost the state $1.16 billion. We recommend establishing a special fund to be earmarked for the PA Promise, managed by the Commonwealth. This establishes a direct link between increased taxes and services funded by those increases. See the Pennsylvania Promise plan for more details on potential funding strategies. 

Like most public policies, the Pennsylvania Promise is about our values as a state. Do we want to make college affordable and accessible to young Pennsylvanians regardless of their family’s income? Do we want to ensure poor and middle class youth have access to the American Dream of upward mobility? Do we want our economy to thrive because we invest in the education and training of our future workforce? 

As Daniel Le simply stated: “We need to fix college. We need to save the next generation’s future. Education should not be a privilege, it should be a right.”

PA Leads on Overtime Pay – Where the Governor Can Act Without the State Legislature

January 21, 2018 - 12:28pm

Turns out that Gov. Wolf believes in the 40-hour week. Because he does, about 460,000 lower-paid Pennsylvania salaried workers will soon be on track to receive overtime pay if they work more than 40 hours a week. If their employer doesn’t want to pay overtime, these hard-working members of Pennsylvania’s middle class will get back time with their family, instead of having to work for free. We’re talking here about shift supervisors at a McDonald’s who mostly serve customers, department managers at a Walmart, accountants and para-legals overseen by high-paid executives and partners, team leaders in some factories. Their salary ranges from $24,000 to $48,000 and, if they work 45-50 hours per week, their pay per hour can be $10 or $11 – or less. They hold together many of our businesses, arriving early, staying late, going the extra mile – and too often their employers take advantage of them. (Thankfully, good employers such as Altoona-based Sheetz recognize that salaried workers paid decently will repay their employers in loyalty, productivity and service.)

The Governor stepped up to give lower-paid salaried workers basic fairness because a Texas court and the Trump Administration derailed the Obama Administration’s effort to do the same for 12.5 million workers nationally. The Trump Administration has appealed the court’s December 2016 claim that the Department of Labor does not have the authority to set an overtime threshold. But it has indicated that it will set a much lower threshold than $48,000, a little over $30,000 rather than the current $23,600. That will leave some salaried workers still working for as little as $12-$13 per hour.

Gov. Wolf’s leadership on the overtime rule provides an interest contrast with Pennsylvania’s inaction on the minimum wage. On the minimum wage, every one of our neighboring states has raised its minimum wage above the federal $7.25 per hour. But Pennsylvania is the regional laggard because increasing the state minimum wage requires state lawmakers to act. Since they have not done so, Pennsylvania’s lower-paid workers have not enjoyed a roughly $1,500 per year (if they work full time, full-year) increase in wages enjoyed by lower-paid workers in our neighbors. Our county map of pay trends in a typical lower-wage industry across the seven-state region drives home, which workers have seen little increase in their pay since 2012. Most of them are in Pennsylvania and there’s a big concentration in rural central Pennsylvania. Those counties’ lawmakers should be leading the parade for a higher minimum wage (cue to Mufasa’s voice from The Lion King), “but they’re not.”

In stark contrast to the situation on the minimum wage, Pennsylvania is now a regional – and national – leader on overtime pay for lower-paid salaried workers. It is because Gov. Wolf can raise the overtime threshold on his own, even while state lawmakers sit on their hands. The regulatory process will take some time and provides opportunities for public (get ready!) and legislative input. But unless both chambers of the General Assembly can muster a veto-proof, two-thirds vote to block an increase – which they can’t – and as long as the Governor puts forward a solid rationale for the increase and the overtime threshold chosen (which he will), the Governor’s position will prevail.

New York is also a regional leader on the overtime rule – it already has overtime thresholds that will increase above the Obama threshold (as does California). But Pennsylvania is the first state where a Governor or legislature has stepped up to give salaried workers a long-overdue raise since the Texas Court and President Trump failed to do so. We share the hope of our national partners at the Economic Policy Institute and the National Employment Law Project that Gov. Wolf’s leadership emboldens his peers – got that New Jersey Gov. Murphy? Washington Governor Inslee? And friendly legislatures beyond CA and New York?

As with the minimum wage, and increasingly paid family and medical leave, inaction in Washington D.C. means that states must take the lead on overtime pay to create an economy that works for all.

While the Trump Administration has refused to defend President Obama’s bold attempt to raise the overtime threshold nationally, here’s one thing to get ready for: President Trump increasing the rule from the current $23,600 to slightly over $30,000. He will then call his meager bump “huge” that benefits “many millions” of workers and claim that this shows he, and not President Obama, is the real champion of the middle class. Inoculate yourself and your friends against such nonsense.

The Unnecessary Federal Budget Impasse

January 20, 2018 - 10:34pm

Let’s be straight about the politics of the federal budget. The Republicans control the House, Senate and Presidency, but partly because they are not united and partly because they are short of the 60 votes needed under current practices to move most legislation in the Senate, they are unable to pass a budget without Democratic support. So to pass a full-year budget, Republicans and Democrats must compromise.

The federal government is shut down today because too many Republicans in Congress won’t compromise and because President Trump doesn’t appear to know what he really wants.

Democrats are demanding that their key priorities be included in the budget: restoration of DACA protections for the children of undocumented immigrants who have spent almost all of their lives in the United States; reauthorization of the CHIP program that provides health care for millions of American kids (including over 100,000 in Pennsylvania), and additional funding for community health centers, worker pensions, the growing opioid epidemic, and disaster relief for Americans in Puerto Rico and the Virgin Islands.

None of these Democratic demands are extreme or even especially partisan. By large majorities, American support all of them. A majority of Republicans in the country and the Senate support all of them, and there is a Republican majority in the House for CHIP reauthorization. In the case of DACA, there was no need for the current dispute at all. President Trump didn’t have to revoke President Obama’s executive order on DACA.

So why haven’t Democrats and Republicans in Congress and President Trump reached an agreement on the budget for this year? What is the hold up?

There are two problems. The first will remind us of the situation here in Pennsylvania: An extremist group among Republicans in the House of Representatives are delaying an agreement. They are opposed to a reasonable compromise on DACA. They don’t want to spend more on disaster relief. Many don’t want to spend more on the opioid problem, either. Speaker Paul Ryan has invoked the “Hastert” rule, saying he won’t bring legislation to the floor that is not supported by a majority of the Republicans.

The other problem is President Trump. He is both making demands that Democrats are reluctant to accept and being inconsistent in those demands.

The president’s key demand is to spend $18 billion on a new border wall with Mexico. This is just a waste of money. Illegal immigration from Mexico is at the lowest level since 2010 and in recent years more Mexicans have emigrated from our country than immigrated to it. There is also no reason to think that a wall will do much to stop the illegal immigration that continues.

Still, Democrats have been willing to spend some money for the wall this year. But that leads to another problem. The president, who prides himself on his negotiating skills, can’t seem to make up his mind about what he wants. How far does his demand for a wall go? How much is he willing to back the demands of Republican extremists in the House on DACA as opposed to seeking a compromise agreement? No one really knows because he says one thing one day and another thing the next.

Between the extremism of so many Republican House members and the president’s inconsistency, reaching a compromise agreement on this year’s budget has been far harder than necessary. And that is true even though Democrats have reluctantly acceded to many Republican demands, especially about spending more than they think is necessary on defense and spending something on the border wall. But Democrats are rightly not compromising on policy goals supported by the majority of Americans. 

We need to do right by the Dreamers. We need to reauthorize CHIP. We need more money for disaster relief, community health centers, and opioid addiction. These are not ideological, left-wing demands. They are simply common sense responses to problems almost every American wants to solve.

Unless President Trump and the Republican extremists decide they want to solve them too, this budget impasse and government closure could continue.

KRC Reports in Small Bites: The Minimum Wage Report 2018: Post 6 of 6

January 10, 2018 - 8:10am

We write a lot and that makes it hard to find the time to catch up on our latest research. To make our work easier to digest in 2018 we are breaking reports up into smaller bite size pieces and posting them here. This post is the fifth in a series of six highlighting key findings from our latest report The Pennsylvania Minimum Wage in 2018. Netflix down? Can't read another grim news story? You can binge on the full report here. Or take it slow and read the first, second, third, fourth, andfifth post in this series.

After determining the level of the minimum wage, the single most important issue policymakers will consider is whether the wage is adjusted annually to reflect changes in the demand for labor. 

Currently, 18 states, including New York, New Jersey, Ohio, and the District of Columbia, adjust the minimum wage annually to reflect changes in consumer prices. If after raising the minimum wage to $7.15 in 2007 had Pennsylvania’s minimum wage been adjusted annually based on changes in the Consumer Price Index (CPI) it would be $8.40 per hour in 2018 (table below)

The Raise the Wage Act of 2017 introduced in the U.S. Senate last May proposes indexing the minimum wage using the median wage. The advantage of using the median wage is that it more directly reflects conditions in labor markets than consumer prices, where volatile components like food and energy prices tend to be driven by economic factors unrelated to labor market conditions. Adjusting the minimum wage set at $7.15 in 2007 for changes in the median wage for full-time full-year workers in Pennsylvania since then would lift the minimum wage in 2018 to $9.60 per hour.

We would recommend the Pennsylvania minimum wage be indexed to the median wage.

 

KRC Reports in Small Bites: The Minimum Wage Report 2018: Post 5 of 6

January 9, 2018 - 7:46am

We write a lot and that makes it hard to find the time to catch up on our latest research. To make our work easier to digest in 2018 we are breaking reports up into smaller bite size pieces and posting them here. This post is the fifth in a series of six highlighting key findings from our latest report The Pennsylvania Minimum Wage in 2018. Netflix down? Can't read another grim news story? You can binge on the full report here. Or take it slow and read the first, second, third, and fourth post in this series.

Campaigns to raise the minimum wage are more complex than simply raising the minimum wage; policymakers must grapple with whether to allow subminimum wages and local premption and take steps to fight wage theft. 

Subminimum Wages

In Pennsylvania, employers of workers that customarily receive tips are required to pay their tipped workers a base wage of $2.83 per hour, provided employees’ weekly income from tips plus their base wage would bring their hourly rate to $7.25 – the current minimum wage. Tipped workers in states like Pennsylvania face higher rates of poverty and a greater reliance on public assistance than tipped workers in states that do not have a tipped subminimum wage. For this reason, we recommend streamlining Pennsylvania’s minimum wage law by phasing out the tipped minimum wage by 2025. The Economic Policy Institute estimates that raising the tipped minimum in Pennsylvania to $5.25 while boosting the minimum wage to $9.00 by next July would boost the wages of 161,688 tipped workers. Two other subminimum wages that policymakers sometimes propose include subminimum wages for younger workers or subminimum wages for workers in small business. These provisions generally do more harm than good by giving employers an incentive to discriminate in hiring by age or by subsidizing inefficient firms, and thus are not recommended. Our allies at the Restaurant Opportunity Center are a great resource for learning more about the need for One Fair Wage.

Local Preemption

As part of a compromise to raise the state minimum wage to $7.15 an hour in 2006, local governments in Pennsylvania were preempted from establishing a minimum wage higher than the state minimum wage. At the time, Pennsylvania was only one of ten states to preempt local minimum wage law. Since then, preemption has blossomed nationwide with 25 states preempting higher local minimum wages and a growing number of states using preemption to roll back local efforts to expand paid sick days and fair scheduling laws. We recommend an end to preemption to allow higher-wage, higher-cost-of-living regions in Pennsylvania to establish minimum wage levels more in line with local pay levels and the cost of living.

Wage Theft

Raising the minimum wage is not enough: for many workers in Pennsylvania, the state needs to do more to combat wage theft. Community Legal Services of Philadelphia reports over a hundred cases each year of clients whose employers simply did not pay them or paid them less than the legal minimum. The Economic Policy Institute, using data from the Current Population Survey, finds 107,000 Pennsylvania workers, or 10% of the minimum-wage-eligible workforce, were victims of wage theft. The EPI analysis finds that Pennsylvania employers that commit wage theft are stealing just over a third (34.6%) of the wages to which their victims are legally entitled – a bigger share than in any of the other 10 large states studied by EPI.

To combat wage theft in Pennsylvania, Community Legal Services of Philadelphia recommends boosting the penalties for wage theft violations, and streamlining and better funding enforcement of existing laws by the Pennsylvania Department of Labor and Industry. Our “Agenda to Raise Pennsylvania’s Pay” also recommends clamping down on wage theft through more effective, strategic, and industry-specific enforcement.

In our next and final post in this series we will discuss the importance of indexing the minimum wage.   

KRC Reports in Small Bites: The Minimum Wage Report 2018: Post 4 of 6

January 8, 2018 - 7:27am

We write a lot and that makes it hard to find the time to catch up on our latest research. To make our work easier to digest in 2018 we are breaking reports up into smaller bite size pieces and posting them here. This post is the fifth in a series of six highlighting key findings from our latest report The Pennsylvania Minimum Wage in 2018. Netflix down? Can't read another grim news story? You can binge on the full report here. Or take it slow and read the first, second, and third post in this series.

The failure to raise the minimum wage in Pennsylvania has cost low-wage workers hundreds of millions of dollars in lost wages.  Not surprisingly, the long-term erosion of the purchasing power of the minimum wage has led to campaigns across the country to raise local and state minimum wages.

These campaigns were invigorated after a wave of strikes at fast food restaurants for a $15 minimum wage inspired activists around the country to raise their own demands. Prominently, the city of Seattle, followed by New York state and California, all enacted legislation putting them on a road to a $15 minimum wage. The national campaign to raise the minimum wage moved from a demand of $10.10, which would restore the purchasing power lost since 1968, to an increase to $12 by 2020 and to $15 by 2024.

Although there is bipartisan support for a higher minimum wage in Pennsylvania, with bills introduced by both Republicans and Democrats, it has been more than a decade since legislation to raise the minimum wage has moved to the floor of the state House or state Senate for an up or down vote. 

The legislation proposed in Pennsylvania includes minimums that range from $8.75 to $15. We present here a simplified schedule of increases that lift the minimum wage $1.75 (24%) to $9 next July and then raise the minimum wage annually by $1 until it reaches $15 by 2024.  Although the timing of a minimum wage increase matters for both workers and employers and varies widely in proposed legislation, the table below provides a useful guide in comparing the number of workers affected by the different proposals circulating in Harrisburg.

David Cooper and Janelle Jones of the Economic Policy Institute estimate an increase in the minimum wage to $9 by July 2018 would raise the wages of 791,000 Pennsylvania workers (403,000 directly and another 388,000 indirectly), which is 13.8% of the workforce. Raising the minimum wage to $12 would raise the wages of just over twice as many workers, 1.6 million, or 28.9% of the workforce. Raising the minimum wage to $15 would lift the earnings of roughly 2.2 million workers, which is 37% of the Pennsylvania workforce. In terms of the cumulative increase in wages for all affected workers, a $9 minimum wage would boost annual wages by $894 million, a $12 minimum wage would increase total earnings by $3.9 billion and a $15 minimum wage increase total earnings by $9.1 billion. 

The majority of workers in Pennsylvania that would get a raise if the minimum wage were increased to $9 this July are adults (80.6%) working 20 or more hours a week (75%) with a family income less than $75,000 (67.8%). To view the demographic characteristics of the workers affected by a minimum wage increase to $9, $12 and $15 download this table.

In our next post in this series we will discuss the importance of eliminating subminimum wages, local preemption and reducing wage theft.

KRC Reports in Small Bites: The Minimum Wage Report 2018: Post 3 of 6

January 5, 2018 - 4:43pm

We write a lot and that makes it hard to find the time to catch up on our latest research. To make our work easier to digest in 2018 we are breaking reports up into smaller bite size pieces and posting them here. This post is the fifth in a series of six highlighting key findings from our latest report The Pennsylvania Minimum Wage in 2018. Netflix down? Can't read another grim news story? You can binge on the full report here. Or take it slow and read the first and second post in this series.

As we illustrated in our second post, while the minimum wage has lost ground to inflation here in Pennsylvania it has risen in every bordering state. What in turn has happend wages in a low wage industry like food services and drinking places?

The map above presents the percent change in real annual average weekly wages by county in Pennsylvania and in six bordering states (Delaware, Maryland, New Jersey, New York, Ohio, and West Virginia) and the District of Columbia in food services (see the online technical appendix for employment and wage data by county).

The counties shaded in red had the most growth in wages between 2012 and 2016 (2016 is the last full year of data available in our data source) and yellow the least. As the map makes clear, especially in New York, northern West Virginia, and Maryland there was more growth in wages in food services than in Pennsylvania.

Overall in Pennsylvania, real wages in food services grew by just 5% while across the region they grew 7.8%. Not only has wage growth been stronger in the rest of our region where the minimum wage has increased, but so has employment growth.

Even as the purchasing power of the minimum wage rose 12% across the region, payroll growth in food services was up 12.5% compared to much slower growth of 6.8% in Pennsylvania, where the minimum wage lost 4.7% of its purchasing power.

KRC Reports in Small Bites: The Minimum Wage Report 2018: Post 2 of 6

January 3, 2018 - 3:36pm

We write a lot and that makes it hard to find the time to catch up on our latest research. To make our work easier to digest in 2018 we are breaking reports up into smaller bite size pieces and posting them here. This post is the second in a series of six highlighting key findings from our latest report The Pennsylvania Minimum Wage in 2018. Netflix down? Can't read another grim news story? You can binge on the full report here. Click here to take it slow and start from the first post in this series.

How does the minimum wage in Pennsylvania compare to the minimum in other states? As of January 2018, the minimum wage in Pennsylvania is lower than in each of its bordering states. At $7.25, the Pennsylvania minimum wage is 13.8% below the minimum in Delaware and 43.4% lower than in most of New York state.

How has the minimum wage changed since December 2013? Altogether, the minimum wage has increased in 26 states. That figure includes all six states that border Pennsylvania (plus the District of Columbia). In these six states and D.C., the minimum wage increased by an average of 26% between December 2013 and January 2018. 

How will the minimum wage change in the years ahead? Laws already on the books will lead to further increases in the minimum wage between now and January 2024. There is a 29% increase scheduled for most of New York State (minimum wages are higher now and will increase a further 26% in New York City, Nassau, Suffolk, and Westchester Counties), a 28% increase is on the books in D.C., a 15% increase will occur in New Jersey and Ohio, and finally a further 9% increase is schedule for Maryland. There are active campaigns to raise the minimum wage beyond these scheduled increases in New Jersey and Maryland, so it is likely that in the region the minimum wage will rise further before 2024.

In our next post we will explore how wages across the region have changed in a low wage industry, food services and drinking places.

KRC Reports in Small Bites: The Minimum Wage Report 2018: Post 1 of 6

January 2, 2018 - 4:14pm

We write a lot and that makes it hard to find the time to catch up on our latest research. To make our work easier to digest in 2018, we are breaking reports up into smaller bite size pieces and posting them here. This post is the first in a series of six highlighting key findings from our latest report The Pennsylvania Minimum Wage in 2018. Netflix down? Can't read another grim news story? You can binge on the full report here.

How has the minimum wage changed since 1968?

In 1968, the minimum wage in Pennsylvania was set at just over half (51%) the value of the median wage ($1.60 compared to $3.15) for full-time full-year workers. After 1968, minimum wage increases were less frequent and never made up for the ground lost between increases considered relative to inflation or relative to the median wage.

By our projections the minimum wage in 2018 will stand at 31.9% of median wage for Pennsylvania workers, its lowest point since 2006 when it stood at 30% of the median wage. In 2006, Pennsylvania policymakers agreed to raise the Pennsylvania minimum wage in 2007 from $5.15 to $7.15. The figure below provides some context for the aspirations of advocates for a higher minimum wage. Raising the minimum to $9 this July would push the minimum wage to 39% of the median wage – its relative value in 2007. A $12 minimum wage pushes the minimum wage to 49% of the median, just shy of its level relative to the median in 1968, and $15 pushes the relative value of minimum beyond that previous peak to 57% of the median wage.

Our next post will explore how the minimum wage has changed in our region in the last several years.

P.S. Want to amaze your friends and family with historical information on wages? Be warned when I share data at cocktail parties I find people are so blown away they go away very quickly — I assume to tell others. Here is the full time series of the minimum wage and the median wage for a full-time full-year worker in Pennsylvania. You're welcome!

A Temporary Setback on the Way to a Just America

December 19, 2017 - 9:10pm

The Trump-GOP tax cut bill, which passed the House on a party-line vote with twelve Republicans voting against this afternoon and is likely to pass the Senate tonight, reminds us that history does not move in a straight line. There are moments, like this one, in which America takes a step away from its promise of equality and justice for all. A combination of ideological zealotry, partisan extremism, and financial power has given us legislation that will cut taxes for the richest Americans while ultimately raising taxes and insurance premiums for working people and the middle-class and taking health insurance away from 13 million people. Wall Street will benefit, but the rest of us will be harmed by higher taxes, insurance premiums, deficits, and interest rates, and, if the Republicans have their way, deep cuts to the social safety net.

This legislation will ultimately rank in the same category as the Alien and Sedition Acts, the Fugitive Slave Law, and the Smoot-Hawley Tariff, laws that betrayed our highest principles and that were made at the behest of a narrow and self-interested minority that used chicanery and deception to convince others to follow them. Whether political and economic crisis follows in the wake of this legislation, like these others, will ultimately depend on whether the vast majority of Americans rise up to challenge the forces that have led to it passing today.

The tides of history will turn again when that happens. Because of the amazing outpouring of activism and energy in opposition to this legislation, we expect it sooner rather than later. Our failure to move any Republicans in Pennsylvania to oppose the bill is not due to lack of effort. And all that effort did have an incredibly important impact: while the dark forces in this country were powerful enough to pass this legislation, the work activists did in opposing the bill in social media and on the streets has had a dramatic impact on public understanding of it. This tax cut is opposed by a large majority of the public. It is opposed by a larger percentage of people than those who opposed tax increases in the past. Despite the lies and deceptions of the Republicans, most Americans understand exactly what this legislation is.

Continuing that effort with our many allies will help us set America back on course towards equality and justice for all. In the near future we will stand up against any cuts to Social Security, Medicare, Medicaid, and food stamps. Later, we will repeal this disastrous legislation and move forward other programs that help us realize our ideals.

There are no guarantees in history, either that we can avoid temporary setbacks or that we will ultimately be successful in raising this world up to meet our ideals. All we can do is keep working together with hope and with faith that we will ultimately succeed. That so many of us share that hope and faith make us optimistic about the future. 

State Education Funding Matters – A Tale of Two States (PA and NJ)

December 19, 2017 - 7:59am

A new “big-data” base on U.S. school districts provides new evidence that Pennsylvania has many high-performing schools but many lower-income rural and urban districts that perform less well. A likely culprit: Pennsylvania’s inadequate state funding for schools. Low state school funding leaves moderate- and lower-income districts poorly funded and with less in total funding than affluent districts, even though the lower-income districts serve students with higher rates of poverty, non-English speaking families, and other challenges that hold back achievement. Most school districts in neighboring New Jersey perform well regardless of their income and wealth, thanks in part to more generous and equitable state funding for schools of moderate means.

The new data base, the Stanford Education Data Archive will be a gold mine for education researchers and policymakers. While waiting for definitive studies, we take a first look here at what the data base offers based on a New York Times story and interactive on-line tool posted earlier this month.

The story highlighted that the Chicago Public Schools delivered one of the highest improvements in student test scores from 3rd grade to 8th grade between 2009 and 2015. Its interactive tool allows users to enter a school district, and to extract information on how that school and 19 comparison districts in the same state performed over this period. The comparison districts change each time you use the tool, even if the school district you enter stays the same. The basic picture of how the school district entered performs relative to other districts does not change, suggesting that the researchers have been careful to make the other districts a “representative” comparison group.

We used the tool to examine the performance of Pennsylvania school districts. We then used the tool to generate information on New Jersey school districts. The table profiles Philadelphia and 19 other Pennsylvania school districts.

The bar chart shows how Philadelphia and the other 19 Pennsylvania districts rank relative to other school districts across the country – the “percentile” ranking of each school district based on its 3rd-grade-to-8th-grade test score gain. (The highest-ranked school district nationally falls in the 100th percentile, the lowest-scoring in the 1st percentile.)

Eight of 20 Pennsylvania school districts rank at the 81st percentile or higher (i.e., in the top fifth of schools). Another eight rank at the 35th percentile or below (i.e., roughly in the bottom third of schools). When we entered Pittsburgh, Erie, Reading, and Allentown, the data base extracted other groups of 20 school districts which included some near the top of the national percentile rankings and others near the bottom.

We then used the tool to generate information on New Jersey school districts. As shown below, when we entered Camden, the data base provided information on 20 school districts half of which ranked in the top fifth nationally (for average test-score gain) and all but two of which ranked in the top half. When we entered Trenton, 11 of the 20 New Jersey districts extracted ranked above the 90th percentile nationally and 15 in the top half.

One explanation for the more uniform high performance in New Jersey: New Jersey more generously funds its moderate- and low-income schools, leading to more equitable funding across districts independent of their income and wealth. Based on U.S. Department of Education data, New Jersey ranks second out of 50 states for total school (state, local, and federal) funding to its highest-poverty quartile of school districts (school districts with the highest-poverty rate that educate a quarter of K-12 school students) and fourth lowest for the gap in funding between its lowest-poverty quartile of school districts and highest-poverty quartile. Pennsylvania ranks 23rd in total funding for its highest-poverty quartile of school districts and 50th -- dead last – for the gap in funding between rich districts and poor.

More generous state funding enables New Jersey to achieve educational opportunity for all. In Pennsylvania, the high performance of many school districts suggests that educational opportunity for all remains within reach – but only if the state provides additional and more adequate school funding to moderate- and lower-income rural and urban school districts.

In the past, lack of detailed, reliable, and comparable data on school-district performance has held back policymakers’ ability to understand “what works” in education. The new Stanford education data archive helps fills this vacuum. It will be invaluable in the effort to understand more fully the impact of school funding. It will also help unravel what districts such as Chicago – and Peters township and Northeastern York in Pennsylvania – do well that other districts can emulate to achieve educational opportunity for all.

It redistributes from working people and the middle class to the rich. And that's just wrong.

December 18, 2017 - 5:34pm

With all the controversy over the details of the tax cut bill that is moving towards a final vote in the House and Senate this week it is easy to forget about the basic features of the bill. 

As they did during the debate over repeal of the Affordable Care Act, the Republicans put forward noxious proposals—to radically reduce the state and local tax deduction, to tax graduate student stipends, to eliminate the deduction for teachers who use their own funds in classrooms, and to eliminate the deduction for extremely high medical expenses among others—and then removed them from the final proposal.

But we shouldn’t be gratified that these horrible elements of the bill are gone when the basic framework of the bill, which has remained constant in every version considered by the House and Senate, remains so awful. 

The legislation is basically a huge and permanent tax cut for the largest and wealthiest corporations and pass-through businesses that will benefit the 1% of United States families who own them combined with a temporary tax cut for individuals. The overall impact in Pennsylvania in 2019 can be seen in this first table, which shows that the bottom 60% of Pennsylvanians with an average income of $34,100 will get an average tax break of $400. On the other hand, the richest 1% of Pennsylvanians with an average income of $1.8 million will get an average tax cut of $53,580. And that huge difference is not just a matter of cutting taxes in proportion to who pays them. The bottom 60% will see their taxes decline by 1.2%. The top 1% will see their taxes decrease by $2.1%. 

And, as the second table shows, by 2027 when the indiviidual tax cuts have expired but the corporate and business tax cuts remain in place. the basic outline of the bill remains—those at the very top benefit while most working and middle class people suffer. The bottom 60% will see their taxes actually go up by an average of $100 or .2% of their current tax bill. The top 1% will see their taxes go down by an average of $6,930 or .3% of their current taxes. (Republicans claim that they will extend the individual tax cuts. There is little reason to think they will do that. But if they do, the additional deficits created by the legislation will grow to more than $300 billion per year.) 

 There are other reasons to oppose the bill. 

  • Upper middle-class taxpayers will pay more because of the limitation on state and local tax deductions
  • Those same limitations on state and local tax deductions will make it more difficult for the state to close its budget and public investment deficits. 
  • There is the impact on health insurance affordability and costs. About 500,000 fewer working-class and middle-class people in Pennsylvania will have health insurance; Nationally it will be 13 million. In 2019, people in their 50s and 60s who purchase health insurance in the individual market will pay more for insurance than they gain in tax cuts. By 2027 everyone who purchases health insurance in the individual market will pay more for insurance than they gain in tax cuts.
  • The tax bill allows drilling for oil and gas in the Artic National Wildlife Refuge (ANWR) which is deeply harmful to the environment.
  • Ultimately the huge deficits caused by the tax bill could, under certain economic conditions, undermine economic growth. And they will, sooner rather than later, lead the Republicans to try to put in place deep cuts to Social Security, Medicare, Medicaid, Food Stamps, and other important programs that reduce poverty and serve human needs. 
  • The legislation will keep the parents of 1 million children from accessing the Child Tax Credit despite the small changes in the bill added to meet Senator Rubio's demands. 
  • And, of course, this tax cut is unnecessary. There is no reason to think it will encourage economic growth and job creation. Given that the fundamental barrier to economic growth is inadquate consumer demand, raising taxes for working people and the middle class, the people in this counry who actually spend most of what they earn, will undermine growth. 

These other problems with the Republican tax cut plan are all really important. Any of them, by themselves, is reason to oppose this terrible legislation. 

But the fundamental reason to oppose it—the one underlies all the others—is seen in the data we presented above. 

This legislation is basically designed to redistribute income from working people and the middle class to the very rich. And that is, plain and simply, immoral and contrary to any public good we can imagine. 

 

Limitations on the State and Local Tax Deduction Hurt Pennsylvania in Two Ways

December 16, 2017 - 9:21am

A major issue in the debate over the Republican tax cut bill is whether the deduction for state and local taxes (the SALT deduction) should be eliminated or reduced. The conference committee bill released on Friday proposes a “compromise” that would allow individuals to deduct up to $10,000 in some combination of state and local property and income or sales taxes. 

That compromise is deeply problematic for Pennsylvania and many Pennsylvanians, in two different ways. 

First, substantial numbers of upper middle-class Pennsylvanians will see their taxes go up as a result of the limitation on state and local tax deductions in the conference committee bill. These taxpayers are likely to be concentrated in the suburbs of Philadelphia, where a high percentage of taxpayers take the state and local deduction. 

Second, the state as a whole will suffer because the limitation on the state and local tax deduction will make it more difficult for the state to raise taxes. This is a serious issue, especially at a time when the state suffers from both recurring budget deficits and a deep public investment deficit and yet there is little political will in the General Assembly to raise taxes. 

We consider these two problems in order after the break.

Unfair individual tax increases

The following table contains an analysis of the impact of the provisions of the Senate tax bill with the compromise proposal on State and Local Tax Deductions contained in the conference committee legislation. It does not take into account other changes from the Senate bill in the conference committee legislation, most of which are expected to reduce taxes even more for the richest 1% of Pennsylvanians while not having a significant impact on anyone else. 

Source: Americans for Tax Fairness based on data from the Institute for Tax and Economic Policy. 

The table shows that in 2019 11.8% of Pennsylvanians in the 81st to 95th percentile will see their taxes go up by an average of $1,420. In the fourth quintile, that is, the 61st to 80th percentile, 6.2% of taxpayers will pay an average increase of $950. Overall, 5.7% of taxpayers will pay more under this “tax cut” bill, with an average increase of $890.

Now, normally, we at the Pennsylvania Budget and Policy Center would not complain about upper middle-class taxpayers paying more. We believe that given the serious public investment deficit in the country as a whole, those with higher incomes should pay more. However, we do think it is grossly unfair for upper middle-class taxpayers to pay more in taxes in order to give unnecessary tax cuts to the richest Pennsylvanians and wealthy businesses.    States and congressional districts are more likely to be affected by the elimination of the deduction than others. Although Pennsylvania is not among the states with the highest level of state and local taxation, the tax burden is higher in the parts of the state with higher incomes and wealth and that raise more local revenues for their schools.    If we look at the likely geographic location of the taxpayers who will pay more in Pennsylvania, the burden clearly falls in Southeast Pennsylvania which is represented by Republican members of the House of Representatives who have not yet announced their position on the tax bill, Ryan Costello (PA-6), Pat Meehan (PA-7), and Brian Fitzpatrick (PA-8).   The table below shows that the percent of taxpayers that currently use the state and local tax deduction is much higher in some congressional districts than others. Among Pennsylvania taxpayers as a whole, 28% use the state and local deduction for sales and income taxes. There is substantial variation among Congressional districts, however. In the fifth district in central Pennsylvania, only  17.2% of taxpayers used the state and local tax deduction. The percent of taxpayers who used the state and local tax deduction is highest in the three districts in the Philadelphia suburbs, with all of them at 42% or above. Similar variation can be found in the average deduction for those who take state and local tax deduction. The average in the entire state is $11,170. In the three suburban Philadelphia congressional districts the average state and local tax deduction is $13,547.  (Note that variation from one district to another in the average deduction is going to be limited because we are only looking at taxpayers whose state and local taxes are high enough for them to make use of the deduction.)    Source: PBPC calculations based on the data found in Michael Leachman, House District Map: Partial SALT Repeal Kills Most Valuable Part of Deduction, Center on Budget and Policy, December 5, 2017.   We do not have numbers on the percentage of taxpayers in the three congressional districts in the Philadelphia suburbs who will see their taxes go up under the GOP tax bill. But we do know that the main reason some taxpayers will see their taxes go up under the GOP tax bill is that they will lose part of the state and local tax deduction. So we can make fairly assuem taht the assumption that the percentage of  taxpayers who will see their taxes go up will be proportional to the percent of taxpayers who take advantage of state and local tax deduction. This gives us a rough estimate that 8.75% of all taxpayers in these three districts will pay higher taxes in 2019 as a result of this tax legislation and that 18% of taxpayers in the 81st to 95th percentile in these three districts will pay more.   Again, we don’t in principle oppose asking upper middle-class taxpayers to pay more. But we don’t think their taxes should go up in order to cut taxes for the richest corporations and other businesses and the top 1%. This tax bill is unfair, not just to the bottom sixty percent of household who will y 2027 see their taxes go up, but is also to upper middle class taxpayers who will see their taxes go up even sooner in 2019.   The impact on Pennsylvania as a whole   The second serious consequences of limiting the SALT deduction is for the the state as a whole. Limiting the SALT deduction makes it more difficult for the state to increase taxes as the SALT deduction substantially reduces the burden on taxpayers of state and local taxes. Yet at least some increase in taxes is necessary to resolve Pennsylvania’s long term structural budget deficit.    Last month the General Assembly decided to borrow $1.5 billion based on tobacco settlement funds to pay for last year’s budget deficit. Over half of the new revenues used to balance this year’s budget deficit are non-recurring. The Independent Fiscal Office expects a deficit of at least $1 billion in the fiscal year that begins on July 1, 2018 and increasing deficits in the future.    As we have pointed out many times before, the source of the structural deficit is not that spending has increased—it has declined as a share of the economy—but that corporate and business taxes have been drastically reduced. And, whatever the cause, resolving the state’s deficit problem will require some combination of cutting spending and raising taxes, which is politically difficult as well.     If raising taxes becomes more difficult the General Assembly will have to look to budget cuts to resolve the state’s structural deficit. It is difficult to cut an already austere state budget in which a great deal of spending is mandated by state contractual obligations, pension costs., debt service, and the requirements of meeting federal matching funds. The areas in which cuts are easiest to make are education and in human services. Republicans in the General Assembly have already sought cuts to Medicaid (Medical Assistance in PA) this year.    But the problem created for the state by limiting the SALT deduction is not just likely reductions in spending on education and human services. There are many areas in which Pennsylvania faces a public investment deficit. On almost every measure of education spending Pennsylvania ranks among the bottom ten states. Spending on environmental protection has fallen by a third since 2007. Our roads and bridges and public transit systems are in serious disrepair. We are lagging behind neighboring states in Pre-K education. And we continue to have the most unequally funded K-12 schools in the country. Resolving all of these problems will be more difficult if the SALT deduction is even partially eliminated.   And, as Michael Bloomberg pointed out in a recent article, reducing public investment by the states will undermine economic growth in the future which. That is to say that limitations on the state and local deduction totally undermines the supposed benefit of the tax cut bill.    Yet reducing spending by states like Pennsylvania is exactly what Republicans in Congress seek. They have targeted the SALT deduction for elimination for two malignant reasons. First, they want to reduce spending and taxes not just at the federal level but in state governments as well. The hypocrisy of seeking this result appears to be lost on them since, during the fight over repealing the ACA they claimed that states should be doing more to fund Medicaid.    The second reason Republicans support a limitation on the state and local tax deduction is that the states that have higher spending and taxes and who citizens take the most advantage of the deduction elect more Democrats than Republicans to both state and federal office. This proposal is certainly bad public policy for many reasons. That it's highly partisan public policy is one more.       

Fight Rising Inequality by Pushing Back on Tip Theft!

December 15, 2017 - 1:58am

Hello from Paris everyone!

I will resist here posting pictures of me eating fancy cheeses and drinking wine.

I’m in Paris with my long-time co-author Estelle Sommeiller for a presentation of our preliminary findings on top incomes across U.S. states and counties at the first conference of the World Wealth and Income database (The Economic Policy Institute will release the final version of our paper in the New Year). The database hosted at the Paris School of Economics and is an open source effort by dozens of scholars from around the world to assemble a complete picture of trends in the distribution of wealth and income in every country in the world. 

The conference kicked off with the release of the World Inequality Report (the executive summary / the full 300+ page report).  One of the important message to emerge from the report is that although income and wealth inequality are rising in much of the world, to borrow a phrase from our colleagues in Ohio, policy matters.  You can see that in the two figures below which plot out the share of income held by the top 1% and the bottom 50% in the U.S. and Western Europe. The share of income captured by the top 1% is rising in both places but it is rising much faster in the U.S. because economic policy in the U.S. has been much more favorable to the top 1% with steep cuts in taxes for the top, a falling minimum wage and the declining power of unions.

Of course, these are the trends through the last several years there is wide agreement here that the tax plan emerging from Congress will make sure that a large share of the benefits of economic growth in the future continues to flow to the top 1% (see the impact in Pennsylvania).  Similarly, a Trump proposal to allow employers to pocket the tips you leave for your server is bound to put more downward pressure on the incomes of bottom 50% of people. Visit the Restaurant Opportunities Center to find out how you can help push back on this effort to legalize wage theft.

 

The GOP-Backed Tax Bill: A Lose-Now, Lose-More-Later Plan for Low- and Middle-Income Americans

December 14, 2017 - 3:38pm

GOP-backed tax bills have passed both the House and the Senate. Many of us have already seen charts which show how, under these plans, low and middle-income families will eventually see their taxes raised (by 2027), while the top 1% sees huge savings (see, for example, the chart below showing the Senate bill’s impact on Pennsylvania). What hasn’t been discussed as much is that these bills are step one in a two-part process, designed to severely cut critical government programs.

 As the New York Times reported on December 2, “... Republicans are preparing to use the swelling deficits made worse by the package as a rationale to pursue their long-held vision: undoing the entitlements of the New Deal and Great Society, leaving government leaner and the safety net skimpier for millions of Americans.”

In both versions of the tax bill, federal revenues would decrease by more than $1.4 trillion in the next decade, primarily because of tax cuts to the wealthy and corporations. But, as a new report from the Tax Policy Center (TPC) shows, federal tax cuts are not free. Tax cuts will need to be paid for with higher taxes or lower spending.

Given the GOP’s stated priorities, these tax bills are a not-so-veiled attempt at cutting spending.

in the long run, the TPC report shows that, once you consider plausible ways of financing the tax cut, low- and middle-income people will end up worse off – “in other words, they will lose more from the financing mechanisms than they will gain from the tax cuts themselves.”

We don’t know exactly how the Republicans will chose to pay for this tax plan with spending cuts. What they have called for is cuts to entitlements, including Social Security, Medicare, Medicaid, SNAP (Food Stamps) as well as to other programs such as community development block grants, and funds to help low-income people pay their heating costs in winter.

Given uncertainty about where the cuts will come, we can only estimate their impact by looking at the overall impact of spending cuts on household incomes. The chart below shows how U.S. taxpayers at different income levels will fare in 2019 if the Senate bill goes through as is (see the yellow bars). The red bars show how much taxpayers would lose if each household were to pay for the tax cuts equally. (In fact, middle- and low-income taxpayers who depend more heavily on government programs will likely pay more for the tax cuts than higher-income families.) 

The bottom 60% of households will be, on average, net losers, while the richest will continue to gain. The poorest will be the hardest hit – nearly all households in the bottom fifth (with incomes less than $25,400) would lose money, seeing on average an 8.1% reduction in their after-tax incomes (a loss of about $1,170). Pennsylvanians will see similar trends.

These calculations underestimate the burden on low- and middle-income Americans who are likely to pay disproportionately for the tax cuts if Republicans have their way and cut Medicare and Social Security. The calculations also do not take into account the rising cost of health care if the Affordable Care Act’s individual mandate is repealed. With the individual mandate repeal, our rough estimate is that in 2019 almost 100,000 Pennsylvanians whose incomes are too high to receive a subsidy to purchase insurance in the ACA marketplace will see premiums increase by $876 per year. Up to 500,000 could lose insurance all together.

And, finally, this chart looks at the impact of the tax bill with offsets in 2019 when individual tax cuts are in place. However, as the first chart in this post shows, by 2027 when the individual tax cuts have expired, those in the bottom 60% will be paying more taxes than they would under current law.

This GOP-backed tax plan is a wolf in sheep’s clothing. Republicans are trying to spin the plan as a boon to low- and middle-income Americans, but their plan is clear: pass costly tax cuts that primarily benefit the wealthy and corporations and pay for them by cutting social programs down the road. And then, in 10 years, eliminate the tax cuts for individuals without restoring the spending programs cut to pay for the deficits they created.

For the top 1% this is a win-win. But for most Americans, it is a lose-now, lose-more-later plan.

For more information, see CBPP’s blog post found here: https://www.cbpp.org/blog/vast-majority-of-americans-would-likely-lose-from-gops-tax-bills-if-gop-use-spending-cuts-to

The GOP Tax Bill: An Assault on Economic Equality and Democracy

December 2, 2017 - 12:20pm

Budgets, it is frequently said, are an embodiment of our moral ideals and commitments. If so, the tax plan adopted by the Senate on Friday represents an extreme moral failure on the part of the senators from the Republican Party who voted for it. At a time when incomes are becoming ever more unequal, the Republican tax plan will ultimately make the rich richer and the poor and middle class poorer. Not only will working people and the middle class suffer, but so will our whole country. 

And not only that: one has to wonder what kind of democracy America has, when our government acts in such utter disregard of a majority of the country and the common good. 

Many of the features of this bill that work to help the rich and harm everyone else are now well known. So let’s quickly review them with links to the hard evidence that supports our claims.

To begin with, there are all the ways the tax cuts benefit the wealthy and upper middle class while doing little in the first few years to reduce taxes for the poor. And ultimately, by 2027, the bill actually increases taxes on working people and the middle class.

Then there are all the other provisions — both tax and non-tax — that will undermine government support for working people and the middle class.

  • About 13 million Americans — 500,000 in Pennsylvania — will no longer have health insurance through Medicaid, the individual market or their employer as a result of a repeal of the individual mandate according to analyses based on a Congressional Budget Office report. That will lead to 1,000 to 2,000 premature deaths in our state alone. By 2027, most Pennsylvanians who purchase insurance on the individual market will see their insurance premiums go up more than their taxes are cut.
  • Federal spending on Medicare will be cut by $25 billion next year and $400 billion over ten years according to the Congressional Budget Office (CBO) because of the impact of the PAYGO provisions already in federal law, which require mandatory cuts when deficits increase. The same law will lead to mandatory reductions in the Social Services Block Grant program and student loans.
  • People who suffer from chronic and debilitating medical conditions or disabilities that are very expensive to treat will suffer because the legislation eventually eliminates the provision that allows people to deduct medical expenses that are more than 10% of adjusted gross income. (The threshold amount temporarily drops to 7.5% for two years and then the provision is eliminated entirely.)
  • An increase in the child care tax credit (CTC) in the tax law is heavily touted by Republicans. Families with higher incomes than in the past will benefit from the program. Yet because it limits how much of the tax credit is refundable to those who owe payroll taxes but not income taxes, the full benefits of the program will not be available to 26 million children in very low-income families nation-wide, including 1.4 million in Pennsylvania. In addition, the Senate tax bill denies children of immigrants, including those who are American citizens, benefits under both the Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC).
  • Access to higher education for those who are not wealthy will be undermined because of new taxes on the university endowments that provide scholarships for low-income students and also because the free tuition and other benefits now given to graduate students will be taxed under the bill.
  • Another provision of the tax law will undermine the ability of the states to fund education and human services. Most pre-K, K-12, and higher education spending; about half of Medicaid spending for senior care and health care for those with low incomes; and a great deal of the human services provided to those who are disabled or suffer from problems like opioid addiction comes from state and local governments not the federal government. The Senate tax bill, however, will no longer allow taxpayers to deduct state and local income and / or sales taxes from their federal taxes and will limit property tax deductions as well. The result will be that states with high levels of state and local taxation, and even states like Pennsylvania with moderate tax levels, will feel pressure to cut taxes. And raising taxes for education, health care, human services, and infrastructure improvements will become far more difficult.

And then there is the deficit and the consequences of it for not just our economy but the future of of public life.

Republican senators such as Marco Rubio and Pennsylvania’s Pat Toomey already admit what those of us who follow their strategy already know: the additional $1 to $1.5 billion in deficits created by this legislation will soon lead Republicans to again propose deep cuts to Medicaid as well as bring back the cuts to Medicare and Social Security they have proposed in the past. In the middle of the debate Senator Orrin Hatch said that it is difficult to continue the CHIP program because “we don’t have money anymore.” A reduction of Medicare by $500 billion and Medicaid by $1 trillion is already allowed under the budget resolution passed this year. And we know that their strategy has long been to cut taxes and create deficits in order to justify deep reduction to the programs that help working people and the middle class. There is no mystery about why this is their goal. On the one hand, they simply do not believe that the rich owners of American business — as the prime beneficiaries of not only good fortune but of our history of public investments in research and development, infrastructure, and education — have a responsibility to ensure that the benefits of our prosperity are broadly shared. Nor do they recognize or care that equality of opportunity — the basic notion that every child deserves the same opportunity to make the best use of his or her talents and abilities and that the community benefits when this happens — as well as political equality is undermined when economic inequality becomes too severe.

These lawmakers attempt to defend their policies by saying that everyone will benefit from the economic growth created by tax cuts. But this claim is a sham in two different ways.

First, reputable economic analysts, including the Joint Committee on Taxation (JCT) staff, conclude that the Republicans are far overstating the economic benefit of tax cuts.According to the JCT, the $1.4 billion increase in deficits over ten years will only be reduced by about $400 million of additional economic growth.

This conclusion should come as no surprise. The American economy continues to grow as the effects of the Great Recession move into the past. While additional investment might lead to faster growth, there is little reason to think that tax cuts for businesses will spur a great deal of new investment. Business profits are near record highs, as are corporate savings, while interest rates are near record lows, which means that businesses have little trouble finding funds to make additional investments.

And even if one does believe that we need to spur investment, the real barrier to additional business investment is not access to money to invest but slow growth in consumer demand. Even very large tax cuts for the richest Americans are not likely to increase consumer demand as the rich are likely to save much of their additional income. If we want to spur investment we should be increasing wages for people who will spend their additional earnings by increasing the minimum wage, restoring the Obama overtime rules, and creating new jobs by investing in infrastructure and education.

So we come back to where we started: the dispute about the Senate GOP tax bill is fundamentally not about different economic theories but about our morality, about whether we believe the benefits of our economy — that is, of the work we all do — should be broadly shared among the American people or whether it should be concentrated in the hands of the owners of corporations and other large businesses.

Thinking about that question raises an even deeper one: should Senate approval of this bill lead us to wonder whether our democracy itself is at risk? How could legislation that is so heavily weighted towards the top 1% of households and is so harmful to 60% to 70% of American families even get a hearing, let alone a majority in a democratically elected Congress?

The most plausible answer is disturbing. It appears that our democracy is being distorted by many factors that give the rich too much sway over public policy — from the Citizens United decision that allows them to make unlimited political contributions, to laws that suppress the vote of those with low incomes to the gerrymandering of political districts to favor Republicans. And of course, the very inequality that has been growing so rapidly in the last forty years gives the very rich a greater capacity to skew our politics to serve them.

The consequences of a political system that is tilted to the corporate elite is seen in this tax bill, which should shock the conscience of anyone who believes in caring for those who need a hand, in equality of opportunity, and in democracy.We should all be fearful that this tax bill will make our country so much more economically unequal that it will be difficult to restore democratic control over our government and. among other things, repeal this utterly immoral piece of legislation. 

  That's why we must stop it. And if we can't, organize and mobilize to build power to reverse it.