No, Ed Kleinbard Does Not Want a Less Progressive Tax System

October 10th, 2014 at 12:19 pm

I favorably reviewed Ed Kleinbard’s book here the other day so I’m obliged to step in and correct what looks to me like a misimpression growing out of an oped he has in today’s NYT.

Because the oped is entitled “Don’t Soak the Rich” and because Ed, IMHO, doesn’t articulate the nuances in his argument the way he needs to, the oped is being misrepresented as a call for a less progressive tax system (I also think Ed’s mistaken in his claim that the US tax system, all in, is the most progressive across advanced economies—in fact, it’s only mildly progressive…but more on that in a later post).

For example, responding to the oped, Len Berman, a DC tax expert, tweeted “a progressive’s call for less progressive taxation.”

I can see where Len gets that from the piece, and obviously Ed will have to speak for himself, but Ed’s book clearly supports progressive taxation. He may not see the need to make the tax system more progressive, though his book calls for just that in ways I’ll note in a moment. But he certainly does not call for less progressivity.

Ed’s argument, which is a good one, is that what matters in terms of progressivity at the end of the day is the not just taxing, but spending as well.

…achieving equality through the tax structure is the wrong way to think about the issue. Reformers have blundered by confusing what seems fair — more progressive taxation — with what is actually important, and lacking: a progressive fiscal system. As other developed countries have figured out, reducing inequality is not about where the money comes from, but where the money goes, and how much of it is spent.

Now, to be clear, the way things stand today, as I myself wrote in the NYT a few months ago, “To Lift the Poor, You Can’t Avoid Taxing the Rich.” The vast majority of growth in recent years has gone to those at the top of the scale, and since their income has grown faster than their tax liabilities, their effective tax rate—taxes paid as a share of income—has generally gone down over the decades. In the near term, it makes no sense to increase taxes on those who’ve seen so little pretax growth go their way.

And while Ed clearly doesn’t want to raise the marginal tax rates of the wealthy, he devotes a whole chapter of his book to cutting a boatload of their tax breaks in ways that would unquestionably raise their effective rates. If Len is thinking there’s a pending love match between Grover and Ed, I assure you, it ain’t happening.

Here’s what Ed says in defense of progressive taxation in his book:

If one accepts the fundamental premise of this book, that material outcomes are determined by an undifferentiated porridge of personal efforts and brute luck, by virtue of which we all have a bit less control over our material successes than we like to pretend, then some tax rate progression functions as a broad social insurance program to address the brute luck competent.

In fact, Ed advocates going back to the Clinton-era marginal tax rates, which would raise tax rates on more than just the rich, and here too he’s got an important point. As I wrote in my piece on this:

To be clear, the tax burden on all Americans, not just the wealthy, is low both in historical and international terms. We’re collecting less revenue than many other advanced economies and less than we have in the past. So it’s not just the rich that will ultimately have to pony up if we’re going to continue to fund the things we want and need in a sustainable way.

At any rate, it’s a nuanced argument, and Ed lost the nuance in his oped today. And as he’s probably finding out as we speak, the DC tax debate doesn’t do nuance.

High-Stakes Musical Chairs: Fixing the Downward Bias in the Unemployment Rate

October 10th, 2014 at 8:29 am

Ever since the JOLTS (Job Openings and Labor Turnover Survey) came into existence, labor market analysts have looked at the ratio of unemployed to job openings. In fact, the BLS publishes that very metric monthly (see chart 1 here). My old EPI colleague Jeff Wenger used to call it the “musical chairs” number, as when it goes up (high levels of job seekers per job), you can envision a bunch of folks trying to get the one seat/job when the music stops.

The figure below replicates the BLS line—it’s the non-blue one (sorry, color blindness strikes again)—and it shows that while the number of job openings per worker climbed to almost seven during the downturn, it’s now pretty close to its pre-recession level.

But that’s partly because our measure of unemployment is biased down right now, for reasons I articulate here. And if that’s the case, then a measure like this will look better, where “better” means a tighter match between labor supply and labor demand, than it really is.

We’ve (CBPPs Bryann DaSilva and I) developed our own version of a more complete measure of the job market slack based on the work of IMF economist Andrew Levin. It’s built off of three inputs: the ‘unemployment gap’ (the unemployment rate minus the so-called “natural rate of unemployment”—the lowest jobless rates associated with stable inflation according to CBO), and gaps in labor force participation and involuntary part time work.

This result is a measure which arguably adjusts for the downward bias in the current unemployment rate and therefore paints a more realistic picture of the amount of slack in the labor market.

Turning back to the figure, unlike the standard measure, the more comprehensive alternative has not reverted to its prerecession levels. It has fallen considerably, but its current level is just about equal to its peak in the previous downturn.

In other words, when we correct for current biases in the number of unemployed, the jobless are still engaged in high-stakes musical chairs, with too few chairs when the music stops.

jolts_2

Source: BLS, our version of Levin’s slack measure (see text)

 

Talking Poverty…LIVE!

October 9th, 2014 at 3:45 pm

Just did this online session–TalkPoverty LIVE!–as part of the Poverty to Prosperity Program at the Center for American Progress. Rebecca Vallas hosted and Jodie Levin-Epstein and Daryl Atkinson offered many good ideas about anti-poverty policies.  Check it out.

The Importance of Extending Pro-work Supports in Key Anti-Poverty Programs

October 9th, 2014 at 12:32 pm

If you will take a brief amble with me through some budget weeds, I assure you it will be in your interest.

Even people who pay some attention to such things don’t know that an important work-support for low-income families is scheduled to expire at the end of 2017. I’m talking about parts of the refundable portions of the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) that were expanded in recent years. Without Congressional action, these improvements will go up in smoke at the end of 2017.

What would be the extent of the damage? My CBPP colleague, Chye-Ching Huang, just posted this interactive tool–pasted in below–that handily answers that question (CC also discusses the details of the set-to-expire provisions).

The tool shows the amount of the credits that would be lost to working families from both programs. Take a single mom working full-time at the current federal minimum wage of $7.25. Plugging in her annual pay–$15,080 (52 weeks * 40 hours * $7.25)—yields a loss of $1,755, a serious blow to a family that is already tightly squeezed.

Suppose we raise the minimum, as per the D’s proposal on the table, up to $10.10. The mom in question gains almost $6,000 in earnings, but if the expanded credits expire, she’d lose over $1,000.

Both of those losses are due to cutbacks in the CTC. But let’s say our mom gets married to a guy with his own kid. Now they’re vulnerable to the EITC cuts, which restore a marriage penalty and lose the boost for families with more than two kids.

Assuming one parent works full-time and the other half-time, still at the current minimum wage, their loss would be almost $2,500. Under a $10.10 minimum wage, they’d lose about $1,680.

Policy-wise, the thing to keep in mind about these components of the CTC and EITC is that they are pro-work. They reward and incentivize work. That’s not just theory, either. Considerable research has underscored this point.

Moreover, this is direction that poverty policy has gone in the country: our safety net has solidly tilted toward work as a path out of poverty. If you want to get ahead and you’re able-bodied, you’ve got to work. I’ve emphasized that just insisting people work doesn’t create jobs, which links up solidly to our full employment agenda. But I don’t think this tilt toward work is bad policy. In fact, it’s hard to sustain support for programs that support those who could work but don’t.

But the jobs have to be there and they have to pay a living wage. That’s the story behind these added work supports and getting rid of them is wholly inconsistent with work-based poverty reduction. Note that permanent extensions of these CTC and EITC provisions are in both the President’s and the Senate democrats’ budgets. Now we just need the rest of the Congress to come aboard.