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Even with Exemptions, Chained CPI Proposal Will End Up Hurting Low-Income People Print
Written by Shawn Fremstad   
Wednesday, 10 April 2013 17:25

The budget documents released so far today don’t provide much detail on the President’s proposal to switch to the chained CPI. But a short section on the proposal, at page 46 of the budget, says that the shift to the chained CPI would be made for “most programs and the Internal Revenue Code” and that it “includes protections for the very elderly and others who rely on Social Security for long periods of time, and only applies the change to non-means tested benefit programs.” And a just-released White House fact sheet claims that the proposal is coupled with “measures to protect the vulnerable and avoid increasing poverty and hardship.”

Does this mean people who rely on means-tested benefits and low-income income people generally should breathe a sigh of relief? Hardly. Here are some reasons why (setting aside for the moment the impact of the chained CPI on Social Security for low-income retirees, which I’m sure my colleague Dean Baker will have more to say about):

1) Although Disability Insurance is not a means-tested benefit, the benefits it provides and the typical incomes of the workers receiving benefits are already quite modest. On average, female workers receiving Disability Insurance receive a benefit of only $993 a month and male workers receive a benefit of $1,256 a month. As a result, a woman with a disability living on her own and relying solely on an average Disability Insurance benefit has an income that is barely equal to the extremely austere poverty line (HHS’s monthly poverty guideline for 2013 is $958). Thus, for typical disabled workers receiving Disability Insurance, even seemingly modest benefits cuts over the short run can be a big deal. The White House fact sheet says that their plan includes a “benefit enhancement” for people who receive Disability Insurance benefits for more than 15 years, one that is phased in over a subsequent 10-year period. But that means 15 years of cuts first. And many disabled workers will not live long enough to see any of the subsequent phased-in "enhancement."

2) The exemption of means-tested programs (including Medicaid, ObamaCare premium assistance, Supplemental Security Income, Pell Grants, and certain nutrition assistance programs) and the poverty guidelines detailed in the White House fact sheet will almost certainly be only a very temporary exemption. Once the chained CPI is adopted for the tax code and Social Security—an immensely popular program, in large part because it is tied to workers’ contributions—it will only be a matter of time until it is applied to the less-popular, non-contributory means-tested ones. And, until the chained CPI is applied to means-tested programs, conservative opponents of those programs will have a field day decrying what I imagine they’ll label along the lines of “liberals’ special treatment for welfare recipients” and perverse preference for “welfare over work.” It’s worth remembering here that some means-tested programs have no automatic inflation adjustments. Funding for Temporary Assistance, for example, has been frozen in nominal dollars for nearly two decades. So, advocates for low-income people shouldn’t be optimistic about holding the line against the chained CPI in the means-tested programs that lucky enough to have COLAs.

Once applied to means-tested programs, the chained CPI would produce substantial cuts over time as Alison Shelton of the AARP Public Policy Institute shows in an excellent brief detailing the impact of the chained CPI on benefit programs.

3) Applying the chained CPI to the tax code will reduce the value of refundable tax credits, particularly the Earned Income Tax Credit, and increase tax rates on low-income, working class people. CBO had previously estimated that the cuts to refundable tax credits would add up to $17.9 billion over the next ten years. The Urban-Brookings Tax Policy Center has estimated that 45 percent of tax units in the lowest income quintile (below $26,000) and 84 percent of tax units in the second quintile (roughly $26,000 to $47,000) will pay about $175 more on average in taxes in 2020. Now, this may not seem like a lot, but if you’re a poorly compensated worker trying to raise two children on $10 an hour, every dollar counts.

Farmer’s Folly: Bringing the Nikkei Godzilla to America Print
Written by David Rosnick   
Friday, 05 April 2013 12:45

UCLA’s Roger Farmer has suggested that the government should bid up asset prices—say, purchasing shares of companies in the S&P 500 in order to drive up the stock market.  In essence, he argues that the wealth effect will stimulate consumption and investment and lower unemployment.

But does the S&P 500 drive unemployment?  And how much of an intervention would have been required to maintain full employment?  Farmer kindly provided me the data behind his 2012 paper The stock market crash of 2008 caused the Great Recession: Theory and evidence.  Using pre-1980 data to fit the model, I precisely reproduced his results.  Figure 1 recreates Figure 6 of Farmer’s paper.


At first glance it appears that Farmer’s model fits post-1980 data pretty well, right up until the last few quarters.  Yet Figure 2 shows the distribution of predicted and actual changes in unemployment.  It shows that Farmer’s model is biased toward optimistic predictions of unemployment.


So why does Farmer’s model appear to hold up fairly well in Figure 1?  It is largely because the model actually predicts changes in unemployment rates one quarter ahead but the unemployment rate does not change much from quarter to quarter.  So when Farmer’s prediction is low in one quarter, the model yanks the prediction back up to its historical value before predicting the next quarter.  In technical terms, Figure 1 looks good for Farmer because it takes advantage of serial correlation in the unemployment rate.



They Didn't Think Anyone Was Watching Print
Written by Dawn Lobell   
Thursday, 04 April 2013 07:45

Erskine Bowles, who served as President Clinton’s chief of staff and president of the University of North Carolina, has made several million dollars serving on the boards of companies whose stock prices have plummeted. He was a director at General Motors at the time it went bankrupt and at Morgan Stanley when it was bailed out by the government. He was also a director of Facebook during the period when the value of its stock fell by close to 50 percent. 

This is not supposed to happen. While top executives can expect to be well-compensated when their actions substantially boost stock prices, they should not get large paychecks when they have failed. It is the job of directors on corporate boards to prevent this sort of fleecing of shareholders.

But they aren’t doing their job. They don’t think anyone is watching. Well, we are. 

The Huffington Post has agreed to partner with CEPR to host a new website called Director Watch. Director Watch will bring to light the names of directors who get large paychecks even as the companies they oversee are going down the tubes. 



CEPR News, March 2013 Print
Written by Dawn Lobell   
Friday, 29 March 2013 14:40

The following highlights CEPR's latest research, publications, events and much more.

CEPR on Venezuela
CEPR marked the March 5th death of Venezuela’s President Hugo Chávez with op-eds, blog posts and articles on Chávez’s legacy. In this op-ed for Al Jazeera, CEPR Co-director Mark Weisbrot stated that Chávez will be remembered for the reforms he made to improve the lives of Venezuela’s poorest citizens. Mark followed up with another op-ed for Al Jazeera, noting the stark differences between the outpouring of honor and respect from his fellow leaders in Latin America and the cold statement from the White House that didn’t offer condolences to the Venezuelan people or to Chavez’s family.

CEPR also provided analysis in several posts on The Americas Blog. In this post, Mark corrected a New York Times article that misstates economic growth during the Chávez years. CEPR also contacted the New York Times and asked them to correct the story. After several requests from CEPR, the NYT issued this correction on March 27th: “An article on March 8 about the legacy of the Bolivarian revolution of President Hugo Chávez of Venezuela, who died earlier that week, misinterpreted data from the World Bank about Venezuela’s rank in economic growth in relation to that of other countries. Venezuela ranked 13th of 18 countries in per capita economic growth from 1999 to 2011, according to statistics for Mexico and Central and South America. It did not have one of the lowest rates of economic growth in the region during the 14 years that Mr. Chávez held office.”)

In other blog posts, Program Assistant Sara Kozameh and Research Associate Jake Johnston penned this widely-circulated graphic representation of Venezuela’s economic and social performance under Chávez. CEPR also posted several pieces on responses from world leaders to the news of Chávez’s death, including this one by CEPR Senior Associate for International Policy Alex Main and thesetwo by Sara, while CEPR International Communications Director Dan Beeton asked whether the U.S. would seek to improve relations with Venezuela following Chávez’s death and Jake examined the Chávez government’s aid and support for Haiti, before and since the earthquake.

CEPR staff was interviewed numerous times for radio and TV programs. Mark appeared on on Al Jazeera’s Inside Story to talk about “Hugo Chávez's Economic Legacy” and Alex later discussed “Chávez and the media.” Mark was also on BBC Radio's Newshour, BBC World TV, Sky News, France 24, and FAIR’s Counterspin, Alex was on the Real News where he discussed who benefits from Venezuela’s oil wealth, and was also interviewed on Russia Today as well as The Richard Kaffenberger Show (KTOX 1340 AM), Alex and Mark were both on Sojourner Truth Radio (KPFK). Director of International Programs Deborah James appeared on Latin American TV network NTN24, while Dan gave several radio interviews, appearing on the Saturday Morning Talkies (KPFA 94.1, Berkeley, CA -- Dan joins the program at 18:20), Latino Media Collective (WPFW 89.3FM, DC) and the Rev. Jesse Jackson’s Keep Hope Alive Radio Show.

In addition, CEPR was quoted in several publications about Chávez’s life and legacy, including Foreign Policy, the Boston Globe, Salon, The Hindu, The Namibian, Inter Press Service, and many others. CEPR was widely cited for its research on Venezuela’s economic performance under Chávez, noting that once Chávez got control over the oil industry, Venezuela's economy almost doubled over the next six years, poverty was reduced by half and extreme poverty by 70 percent.

In other Venezuela news, Mark was quoted in this Reuters article on the launch of Venezuela’s new Forex system, and he wrote this Guardian op-ed examining the recent currency devaluation.


Supplemental Security and Temporary Assistance: How "This American Life" Got the Story Wrong Print
Written by Shawn Fremstad   
Friday, 29 March 2013 12:15

In both her story on disability insurance and a Wonkblog interview, reporter Chana Joffe-Walt implies that lots of people are receiving Supplemental Security who don’t deserve the help, and that large numbers of families with children have simply been shifted from Temporary Assistance to Supplemental Security. I was just sitting down to write on why Joffe-Walt’s treatment of this issue is so misleading, when I noticed that Harold Pollack, a disability expert and professor at the University of Chicago, beat me to it in this terrific blog post. (Wonkblog also has an interview with Pollack discussing this and other problematic aspects of the story.)

Some key points made by Pollack:

  1. “Child SSI caseloads are not exploding. Nor are large numbers of single moms transitioning from traditional welfare (Temporary Assistance to Needy Families, or TANF) to SSI. … Rising poverty rates, not lax program rules, is the critical factor.”

  2. “[T]he rise in the child SSI caseloads is dwarfed by the decline in the number of children receiving cash assistance after the 1996 welfare reform."

  3. “Child SSI is simply a small matter when shown alongside one of the tragic policy failures of the Great Recession: TANF’s failure to remotely keep pace with macroeconomic crisis and rising child poverty.” Here Pollack points to a graph showing that the percentage of children below the poverty line receiving either Temporary Assistance or Supplemental Security has fallen by more than half since the mid-1990s. 

  4. Two graphs juxtaposed by Joffe-Walt—one showing the decline in the number of families with children receiving Temporary Assistance and the other showing an increase in the number of low-income adults generally receiving Supplemental Security—“just don’t go together. They cover different populations, whose dynamics are influenced by different processes.”

  5. Pollack points to a longitudinal study that tracked particularly disadvantaged single parents receiving Temporary Assistance between 1997 and 2003: “By the end of the survey period, 37 out of 532 women ended up on SSI or SSDI. 114 others had applied for disability benefits, but were found ineligible within a supposedly lax disability system.”


Sorry Ira: There are Factual Errors in Your Story on Disability Insurance Print
Written by Shawn Fremstad   
Wednesday, 27 March 2013 14:30

As my colleague Dean Baker has noted, a controversial This American Life piece on disability insurance “got some of the basics wrong” and “failed to recognize the actual importance of the economic collapse.”  Yet, in a statement to the press, Ira Glass says he knows of “no factual errors” in the story on disability and stands by it.

I won’t take on the entire story here, but I want to note one quite clear-cut and basic factual error. In the story, reporter Chana Joffe-Walt unequivocally states: “People on federal disability do not work.” This is factually incorrect. According to researchers at Mathematica and SSA, about 17 percent of disability beneficiaries worked in 2007. Their earnings were generally very low (about 4.8 percent had annual earnings of $1,000 or less), but that doesn’t justify the reporter’s unequivocal characterization of all disability beneficiaries as non-workers.

A related technical error in the story, Joffe-Walt goes on to say: “Yet because [disability beneficiaries] are not technically part of the labor force, they are not counted among the unemployed.” For unemployment rate purposes, the Bureau of Labor Statistics counts people as unemployed if they have no employment, were available for work, except for temporary illness, and made specific efforts to find employment during the last four weeks. So, while the vast majority of disability beneficiaries are not counted in the unemployment rate, that’s different than saying absolutely none of them are counted.

BLS has published regular data on the employment and unemployment status of people with disabilities since 2009. In February 2013, the unemployment rate for people with disabilities (those in the labor force looking for work, most of whom probably do not receive disability benefits) was considerably higher (12.3 percent) than the rate for people with no disability (7.9 percent). This disparity, which should get much more attention than it currently does, was not mentioned at all in the story. This is especially striking because, as Stephan Lefebvre, a research assistant at CEPR, reminded me, equal employment opportunity has been such a major focus of disability activists in recent decades.



Media Coverage of Poverty: Quality, Not Just Quantity, Matters Print
Written by Shawn Fremstad   
Wednesday, 27 March 2013 12:10

In a new Nieman Reports article, Dan Froomkin argues that the media pay insufficient attention to poverty. Discussing Froomkin’s piece, Margaret Sullivan, the Public Editor of the New York Times, notes: “observers like Mr. Froomkin praise the quality of The Times’s journalism on poverty and inequality issues but cite the need for more resources and greater emphasis.”

Of course, the quantity of poverty coverage is important, but the quality of that coverage, including in the Times, needs to be a more central concern. By quality I really mean the framing, substance and content of coverage. Too often, coverage focuses on the characteristics and behavior of “the poor” in negative or stereotypical ways that sharply differentiate them from working- and middle-class people.

In considering the quality of the media’s coverage of poverty, the meticulous research of Princeton political scientist Martin Gilens provides an essential starting point. In Why Americans Hate Welfare: Race, Media, and the Politics of Antipoverty Policy, published in 1999, Gilens documented the “racialization” of media images of poverty from the mid-1960s through the 1990s. As he puts it, “changes in the complexion of poverty coverage stemmed from the news media’s increasingly negative discourse on poverty and welfare and its consistent tendency to associate African Americans with the least sympathetic aspects of poverty.” He then showed how these “racial distortions in the media’s coverage of poverty are largely responsible for public misperceptions of the poor,” misperceptions that influenced anti-poverty policy. In short, Gilens’ work suggests that the quality of poverty coverage was a bigger problem than quantity, at least through the 1990s.

Similarly, in a just published paper, "Framing the Poor: Media Coverage and U.S. Poverty Policy, 1960-2008", Max Rose and Frank Baumgartner find a big increase in the Times’ coverage of poverty leading up to the passage of the Personal Responsibility and Work Opportunity Act of 1996. That Act established the (now woefully underperforming) Temporary Assistance block grant, sharply cut Supplemental Security for children with severe disabilities, and barred many immigrants with lawful permanent residence in the United States from means-tested benefits available to citizens. Based on an analysis of the frames used by the Times’ in their coverage of poverty between 1960-2008 they concluded that: "Media discussion of poverty has shifted from arguments that focus on the structural causes of poverty or the social costs of having large numbers of poor to portrayals of the poor as cheaters and chiselers and of welfare programs doing more harm than good. As the frames have shifted, policies have followed.”



Carry On, Wayward Sons Print
Written by John Schmitt   
Wednesday, 27 March 2013 08:05

I got an email yesterday from Elaine Kamarck, resident scholar at Third Way. We don't know each other, but she wanted to let me know about a new Third Way study: Wayward Sons: The Emerging Gender Gap in Labor Markets and Education (pdf). I had already read the study, so I was surprised to read her description of it. The new report, she writes:

“... makes a startling discovery. Authors David Autor and Melanie Wasserman, both of MIT, suggest that the decline in educational attainment, employment rates, and real wage levels of men is almost exclusively reserved for males born into single-parent households meaning the gap could be as much about social family structure as it is about economic forces like the demise of labor unions and globalization.” (my emphasis).

What surprised me was that the language in the email, which will likely be read by far more people than will actually read the report, was much more definitive than the language in the report itself.

Here, for example, are Autor and Wasserman on the question of the gender gap in educational attainment:

While it would be inaccurate to claim that social science has reached consensus on the differential effects that parents have on the social and educational development of their same-sex children, recent data suggest that the female advantage in educational attainment is substantially more pronounced in female-headed households and in households where the father is less educated than the mother. (p. 44)


Third Way or Dead End? Autor-Wasserman's Hypothesis that Single Mothers Contribute to the College Gender Gap Print
Written by Shawn Fremstad   
Monday, 25 March 2013 15:15

In a report for Third Way, David Autor and Melanie Wasserman hypothesize that the decline in the share of children living with both their biological mother and biological father “may magnify the emerging gender gap in educational attainment …”.           

Although male and female children within a given household are theoretically exposed to the same environment—including schools, neighborhoods, and adult guardians—the increasing prevalence of female-headed households implies that the majority of girls continue to cohabit with their same-sex role model. By contrast, male children raised in female-headed households are less likely to have a positive male adult household member that serves an analogous role.

They go on to “tentatively conclude that that boys perform less well academically than girls when fathers are not present in the home…”

 In Coming Apart: The State of White America, Charles Murray provides a more extreme, but not necessarily dissimilar, version of this line of argument when he writes:

I am predicting … over the next few decades … a scientific consensus that goes something like this: There are genetic reasons, rooted in the mechanisms of human evolution, why little boys who grow up in neighborhoods without married fathers tend to reach adolescence not socialized to the norms of behavior that they will need to stay out of prison and to hold jobs. The same reasons explain why child abuse is, and always will be, concentrated among family structures in which the live-in male is not the married biological father. The same reasons explain why society’s attempts to compensate for the lack of married biological fathers don’t work and will never work. [emphasis is mine].

In short, both Murray and Autor-Wasserman are hypothesizing that boys suffer disproportionately compared to girls when they live in family structures that do not include their biological fathers. This is an argument that opponents of marriage equality will welcome, since it implies that boys raised by lesbian couples should suffer disproportionately compared to girls. In a footnote, Autor and Wasserman explain they are “focused on heterosexual household relationships since available studies do not offer detailed information on children in same-sex marriages.” However, given their emphasis on the importance of both the biological link and parental gender to boys, they offer no reason to think otherwise.



Cheap Thoughts on Euro Area Unemployment: It's a Guy Thing Print
Written by Dean Baker   
Sunday, 24 March 2013 10:55

As we get our latest dose of euro crisis thrills with the battle of the Cypriot banks, it might be a good time and step back to reflect on the havoc wreaked by the European Central bankers. While the double-digit unemployment rates throughout much of the region have grabbed headlines, if we flip the picture over and look at employment rates we see a somewhat more complicated picture.

First, if we look at employment population ratios for the adult population as a whole (ages 16-64), the euro zone story does not look especially dire.  


Source: OECD.

If we want to do a direct comparison of employment population ratios (EPOP) for the euro zone as a whole, the relevant lines are the top line and the third line. In 2006 the United States had an EPOP for its adult population of 72.0 percent compared to 64.6 percent for the euro zone as a whole. By 2011 most of this gap had closed as the EPOP for the U.S. had dropped to 66.6 percent compared to 64.3 percent for the euro zone.

The closing of this gap is the story of two Europes. The north, led by Germany, has seen a rise in its EPOP since the downturn. While Germany had an EPOP in 2006 that was 4.8 percentage points below that of the U.S., in 2012 data (not on the chart), its EPOP was more than 6 pp higher.



Labor Market Policy Research Reports, March 16 – 22, 2013 Print
Written by Will Kimball   
Friday, 22 March 2013 14:30

Here are the latest labor market policy research reports:

Center for American Progress

The Economic Effects of Granting Legal Status and Citizenship to Undocumented Immigrants
Robert Lynch and Patrick Oakford

Center on Budget and Policy Priorities

Ryan Budget Would Undermine Safety Net’s Work Supports 
Sharon Parrott

Economic Policy Institute

Using Standard Models to Benchmark the Costs of Globalization for American Workers Without a College Degree
Josh Bivens

The Impact of a Financial Transactions Tax on Futures Trading Volume Print
Written by Dean Baker   
Thursday, 21 March 2013 15:21

One of the reasons that many proponents give for supporting a financial transactions tax (FTT) is that it will reduce trading volume in financial markets. This can be considered good for two reasons.

First it may reduce the likelihood of erratic fluctuations that have no basis in the fundamentals like the flash crash in the spring of 2010. The existence of a huge amount of rapidly traded assets can create this sort of sudden divergence from fundamental driven prices. Reducing trading volume may reduce the probability of similar occurrences.

The other reason that a reduction in trading volume is desirable is that it would reduce the amount of resources wasted in the financial sector. The labor and capital absorbed in trading are resources that could in principle be used productivity elsewhere in the economy. If greater trading volume does not in some way result in the better allocation of capital then we should be pleased to the extent that an FTT reduces trading volume in various markets.

For this reason, a paper published by the CATO Institute last summer showing that a FTT would lead to a sharp decline in the trading of futures should not be seen as negative from the standpoint of proponents of FTTs.[1] Unfortunately, the paper did not accurately measure the decline in trading volume that would result from a tax, leading to an overstatement of the actual decline that would be implied with the tax rate and elasticities assumed in the paper. This mistake wrongly leads the paper to conclude that several major future markets would disappear even with a low tax rate. When a correct calculation is done, it can be shown that this is not true.

The paper’s mistake is a simple one. Elasticities are usually calculated as point elasticities, which relate the change in quantity that would result from a small change in price. For most questions we ask, where we consider price changes that are relatively small (say under 20 percent) using a point elasticity will give us a reasonably good approximation of the change in quantity that would result from the change in price being considered.

However for large changes of the type considered in this paper (all the changes in the price of transactions resulting from the FTT are far more than 100 percent of the current cost of transactions) it is necessary to be more careful in the calculation.



Contra the Crowd-Out Thesis: Countries that Spent More on Seniors Also Spend More on Children Print
Written by Shawn Fremstad   
Monday, 18 March 2013 10:07

In a recent WaPo op-ed with the subtle title “Payments to Elders are Harming Our Future,” Harry Holzer and Isabel Sawhill claim that “our very expensive retirement programs already crowd out public spending on virtually all other priorities—including programs for the poor and those that strengthen the nation’s future—and will do so at even higher rates in the next decade and beyond unless we reform these large programs.”

If this crowd-out thesis were true, we would expect to find that nations that spend more on the elderly spend less on children. But this isn’t the case. Although a bit dated, the chart below, produced by researchers Jonathan Bradshaw and Emese Mayhew, plots expenditures on family benefits and services (per capita child) by expenditures on benefits and services for the elderly (per capita elderly).


The chart shows that counties that spend more per capita on the elderly also spend more per capita on children. Moreover, contrary to Holzer/Sawhill’s claim that we have “very expensive retirement programs”, U.S. expenditures on the elderly are moderate in cross-national terms. Bradshaw and Mayhew conclude: "we have found that if there is generational inequity it does not stem from demography alone. Nations make choices about the level of resources they commit to children and the elderly, and the countries that are most generous to children also tend to be most generous to the elderly."



Labor Market Policy Research Reports, March 9 – March 15, 2013 Print
Written by Will Kimball   
Friday, 15 March 2013 14:37

And now, this week's collection of labor market research reports:

Economic Policy Institute

Infrastructure Investments and Latino and African American Job Creation
Algernon Austin

Raising the Federal Minimum Wage to $10.10 Would Give Working Families, and the Overall Economy, a Much-needed Boost
David Cooper and Doug Hall

Institute for Women’s Policy Research

The Status of Women in North Carolina
Cynthia Hess, Ariane Hegewisch, Youngmin Yi, Claudia Williams

National Employment Law Project

Raising NY’s Minimum Wage: Economic Benefits & Demographic Impact of Increasing to $9 With Indexing

Political Economy Research Institute

Unpacking the U.S. Labor Share
James Heintz

Relative Poverty Measures Can Help Paint a More Accurate picture of Poverty in 21st Century America Print
Written by Shawn Fremstad   
Thursday, 14 March 2013 15:00

In his most recent column, Thomas Edsall says there are three ways of defining poverty in the United States: the official measure, the Census Bureau’s Supplemental Poverty Measure, and a consumption-based measure. But this leaves out an important and commonly used set of poverty measures, ones that Edsall himself has cited in previous columns: so-called relative poverty measures, which set the poverty line at a percentage of median income, typically 50 or 60 percent of median, that reflects a very basic standard of living. (I’m not a big fan of the term “relative”—it’s hard to imagine a meaningful poverty measure in a wealthy nation that isn’t relative in some way to real-world living standards—but it’s the prevailing term among researchers, so I’ll use it here.)

The idea behind relative measures is simple and goes back to Adam Smith’s definition of “necessaries” to include “not only the commodities which are indispensably necessary for the support of life, but what ever the customs of the country renders it indecent for creditable people … to be without.” As I’ve explained previously, one of the strengths of relative poverty measures is that they do a better job, compared with poverty measures only adjusted for inflation, of capturing the change over time in broad public consensus—Smith’s “customs of the country"—on the minimum amount of income that an American family needs to “get along” in their local community.

A second strength, one particularly relevant to Edsall’s column, is that relative poverty rates are calculated using nominal dollars, allowing us to assess poverty in a way that brackets questions about how to properly measure inflation (for more on those questions, see my colleague Dean Baker’s post on Edsall’s piece as well as this earlier post of mine).

The chart below compares the official and Supplemental Poverty Measures with two relative poverty measures, one set at 50 percent of median income, the other set at 60 percent of median income. The relative thresholds are calculated using a fairly comprehensive measure of income, one that subtracts taxes and includes most benefits, including in-kind ones. For a family of four, the official poverty threshold is $22,811, the supplemental threshold is $25,222, the 50% of median threshold is $25,974, and the 60% of median threshold is $31,168. All of these amounts fall far below the amount that Americans say is the minimum amount of income a family of four needs to “get along in your local community.” In fact, in 2007, the median response to this question in a Gallup poll was $45,000.

Click for a larger version


Source: CEPR using Census CPS Table Calculator.



President Obama Wants to Give a Bigger Hit to Seniors on Social Security than He Did to the Wealthy on Taxes Print
Written by Dean Baker   
Wednesday, 13 March 2013 18:02

That's what President Obama's aides keep saying. They generally don't put in those terms, probably because they assume that everyone already knows, but the cut to the typical senior's Social Security benefit from the adoption of the chained CPI would be a larger hit to their income in retirement than the increase in income taxes put in place at the start of the year is the typical affluent taxpayer.

The arithmetic on the chained CPI is straightforward. It reduces benefits by an amount that increases 0.3 percentage points each year a person is retired. This means that after 10 years the reduction in the annual benefit would be 3.0 percent, after 20 years the reduction would be 6.0 percent, and after 30 years the reduction would be 9 percent. If we assume that a typical beneficiary lives long enough to collect benefits for 20 years, their hit from the chained CPI would on average be 3.0 percent over this period.

For the typical retiree, Social Security benefits are close to two-thirds of their income. This means that the use of the chained CPI would amount to a hit to their income of approximately 2.0 percent (two-thirds of 3.0 percent).

By contrast, if we assume that a couple earning $500,000 a year is the typical household affected by the tax increase, then their additional tax burden will be 4.6 percent of their income over $450,000 or $2,300. If we assume that this couple had not unusual exemptions (or even usual ones), then their after-tax income before the tax increase would have been around $350,000. This means that the Obama tax increase would reduce their after tax income by a bit less than 0.7 percent. This means that the hit to Social Security beneficiaries from the chained CPI will be around three times as large as the hit to the typical affluent taxpayer from the Obama tax increase.

Reduction in Income:
Chained CPI and Obama Tax Increases


The Congressional Progressive Caucus Budget: A Serious Budget That the Serious People Won't Take Seriously Print
Written by Dean Baker   
Wednesday, 13 March 2013 15:47

For those upset that the budget debate is getting ever further removed from the real world problems of an economy that is suffering from a deficit of 9 million jobs, there is good news. The Congressional Progressive Caucus (CPC) has produced a budget that is intended to make the unemployment situation better rather than worse.

The story of course is that we are still in a situation where we need the government as a source of demand in the economy. This is independent of how much we like the government or the private sector. The private sector does not expand and create jobs just because governments want it to, as is being discovered now by leaders in the United Kingdom, Greece, Italy, Spain and everywhere else where deficit reduction is now in vogue. In the current economic situation, loss of demand from the government is a loss of demand to the economy. That is why recent steps to reduce the deficit, such as the ending of the payroll tax cut (which put money in consumers' pockets) and the sequester, will lead to slower growth and higher unemployment.

The CPC decided to produce a budget that recognized this reality. It provides for a mix of short-term measures aimed at immediate job creation, such as jobs programs and additional money to defray state and local government revenue shortfalls, along with an ambitious long-term infrastructure agenda. According to estimates from the Economic Policy Institute this agenda would create 6.9 million additional jobs by the end of next year compared to the CBO baseline scenario.



New CBO Estimates Show How Shifting to Chained CPI Would Harm Poorly Compensated Workers and Others Struggling to Afford the Basics Print
Written by Shawn Fremstad   
Monday, 11 March 2013 14:00

I wrote back in December about how the shift to a “chained” CPI would have negative impacts that go far beyond Social Security. On March 1, the Congressional Budget Office released a new estimate that helps quantify these impacts.

The table below shows the amount of benefit cuts that would result over the next 10 years from switching to the chained CPI. The table is limited to “mandatory” programs and the tax code. CBO assumes that shifting to a chained CPI would reduce annual adjustments to mandatory programs by .25 percent per year.


An important thing to remember about the chained CPI is that it is a cut that keeps on growing. In the first year, reducing inflation adjustments by .25 percent results in a .25 percent cut; but in the 10th year, it means a 2.5 percent cut. So, for example, as the CBO estimate shows, the cuts to the EITC and other refundable tax credits are $300 million in 2015, but grow to $3.7 billion in 2023.

Proponents of the chained CPI assume that it is a more accurate measure of inflation, including for the elderly and for low- and moderate-income people, because it better captures opportunities that people may have to respond to price increases by substituting to goods whose prices are rising more slowing. But the elderly and low-income people have more limited consumption baskets than higher-income people and don’t necessarily have the ability to substitute. As Dean Baker and many others have pointed out, the Bureau of Labor Statistics has an experimental elderly price index that shows the inflation rate experienced by the elderly has risen faster than the current CPI. (Dean participated in a recent Hill briefing on the changes involved with tying COLAs to a chained CPI.)



Labor Market Policy Research Reports, February 23 – March 8, 2013 Print
Written by Will Kimball   
Friday, 08 March 2013 15:15

The following is a collection of the latest labor market policy research reports:

Center for Economic and Policy Research

The Human Capital Dimensions of Sustainable Investment: What Investment Analysts Need to Know
Thomas Kochan, Eileen Appelbaum, Carrie Leana and Jody Hoffer Gittell

Center for Law and Social Policy

Implementing Earned Sick Days Laws: Learning from Seattle's Experience
Liz Ben-Ishai

Center on Budget and Policy Priorities

Changes in TANF Work Requirements Could Make Them More Effective in Promoting Employment
Liz Schott and LaDonna Pavetti


Discredited: How Employment Credit Checks Keep Qualified Workers Out Of A Job
Amy Traub



Let’s Not Make a Deal Print
Written by Nicole Woo   
Thursday, 07 March 2013 16:54

With news of President Obama's efforts to make some Republican BFFs, there are reports that he's trying to make a deal by yet again offering to cut Social Security and other benefits, while at the same time raising income taxes on almost everyone.  

This would be done by changing an official measure of inflation to a new index, called the Chained CPI.  As CEPR has shown, this change would lead to a painful cut in Social Security benefits and a stealth tax hike, by slowing down annual increases in Social Security and other benefits – including those for veterans, the disabled, and low-income children and their families – as well as income tax brackets. (That would lead to incomes jumping to higher brackets faster, or in other words, tax increases.)

In fact, as Howard Gleckman at the Tax Policy Center recently noted, the Congressional Budget Office has estimated that moving to the Chained CPI "would raise taxes as much as it would cut spending."



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