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.

Child Mortality, Inequality, and the ACA Medicaid Expansion

October 9th, 2014 at 8:33 am

Starting back to the 1980s, I and others wrote about the growing trends in income, wages, and wealth inequality with some alarm. That early work was important, but it was also missing something important: the impact of rising inequality.

There’s now a growing body of research documenting this impact on various dimensions of opportunity and even macroeconomic growth. Add to that this new study, already reported on in various venues, which finds that income disparities in the US are a significant factor in our high infant mortality rate, a rate that makes us a big outlier among advanced economies (see WaPo link above for that figure).

The authors, Alice Chen, Emily Oster, and Heidi Williams, write:

This postneonatal mortality disadvantage [deaths in months 1-12] is driven almost exclusively by excess inequality in the US: infants born to white, college-educated, married US mothers have similar mortality to advantaged women in Europe. Our results suggest that high mortality in less advantaged groups in the postneonatal period is an important contributor to the US infant mortality disadvantage.

It’s a careful study allowing for the type of “all else equal” comparisons that are essential is teasing out international differences. The authors find that most of the U.S. shortfall comes not from the neonatal period (first month after birth), but the postneonatal period.

Using comparable data from Finland and Austria, they show that mortality rates in the postneonatal period are essentially indistinguishable between different economic groups and education levels.  And the U.S. mortality rates for infants born to white, educated, married mothers is essentially indistinguishable from the mortality rates for infants in those two other counties. Again, the outlier is less-advantaged groups in the U.S., who have significantly higher mortality rates.

The authors suggest that having nurses make home visits in the first year after birth, much more common in Europe, could help narrow the differences they document. Since such home visits are also associated with health coverage, this led us (CBPP’s Brandon DeBot and I) to think about the Medicaid expansion under the Affordable Care Act. While it’s true that many poor children are already covered under the child version of Medicaid—CHIP—their parents are often uncovered and disconnected from health systems that could help them in these circumstances.

There’s also great variation among states. According to the WaPo, “If Alabama were a country, its rate of 8.7 infant deaths per 1,000 would place it slightly behind Lebanon in the world rankings. Mississippi, with its 9.6 deaths, would be somewhere between Botswana and Bahrain.”

Putting these facts together leads to a discomforting finding: child mortality rates are significantly higher in states that have thus far declined to accept the Medicaid expansion part of Obamacare. While the overall average infant mortality rate in 2010 was 6.15 deaths per 1,000 births, the average for states expanding Medicaid was 5.72 deaths per 1,000 births, compared to 6.70 deaths per 1,000 births in the non-expansion states.

Correlation not being causation, it’s not that child mortality is higher because fewer parents have access to health coverage in these states. They’re also poorer. But it does not feel like a reach to argue that expanding affordable health coverage to places where far too many children perish in their first year of life would be a positive change. To not do so based on ideological opposition to the expansion of a government programs is unconscionable.

Book Review: Edward Kleinbard’s “We Are Better Than This.”

October 8th, 2014 at 4:23 pm

When it comes to fiscal policy—government taxes and spending—there’s a lot we Americans get wrong.

We think we’re taxed a lot more heavily than our counterparts in other countries.

If we’re conservative, we think any bump up in tax rates will have terrible unintended consequences.

If we’re liberal, we insist on progressivity—higher tax rates on higher incomes—on the tax side without much thought about the spending side.

We’re endlessly told that reducing the budget deficit is essential.

Then we’re told that we can have all the government we want while cutting taxes.

And don’t even think about trying to get to the bottom of these assertions from the media or many of today’s “think tanks.” Vested interests purchase not only the airspace to promulgate their biases; they buy the think tanks to give them the answers they want.

Forget truth. You’ll be lucky if you uncover some truthiness.

What’s that? You’re headed over the Congressional Budget Office website to get the nonpartisan story straight from the budget wonks? Well, I hope you’ve decided which “baseline” to use (current law vs. alternative), not to mention which economic and technical assumptions you accept. You’ll also need an intravenous caffeine feed.

Let’s face it, America. We really need someone to help us to get to bottom of these existential fiscal questions in a way that goes down pretty easy.

Turns out, we’re in luck. Ed Kleinbard is a tax expert who embodies one of my personal touchstones: if you really understand something, you can explain it to anyone. His new book, We Are Better Than This: How Government Should Spend Our Money, will not only help you separate the sense from the nonsense in America’s fiscal debate. Far more importantly, it will remind you why we need a functional federal government and the extremely high costs in terms of our economic well-being, today and tomorrow, of its absence.

Kleinbard describes himself as a “Dutch uncle” which the dictionary tells me is someone who admonishes sternly and bluntly…tells us the hard truths whether we want to hear them or not. But he’s actually considerably friendlier than that, and while the book is dense with subject matter that ranges from the national income accounting system to the precise definition of capital income in the tax code, he works hard to make it all reader friendly.

Moreover, though Kleinbard is a technical analyst with long experience in both the private and public sector, his heart is as big as his brain. The book has a strong moral compass and even amidst the underbrush of the national revenue and outlays tables, he consistently summons his compass to point the way back to his theme.

Which is this:

Yes, markets are often highly efficient and good at what they do. But they don’t do everything by a long shot. We need a highly functional and amply funded government sector to invest in public goods, offset market failures, and provide social insurance.

Each chapter explores some dimension of this theme. The early chapters take on the government-disparaging market triumphalists (his term), emphasizing their need to ingest a sizable chill pill. Markets fail all over the place, with the Great Recession as exhibit A (and don’t try to tell Kleinbard that it was government housing programs that inflated that bubble; he’s got the evidence to show otherwise). Moreover, their view that government is always and everywhere the enemy of markets is ahistorical extremism that has helped give birth to the dysfunctionality that now plagues us.

And Kleinbard puts not too fine a point on it:

“Market triumphalism confuses national income with national welfare; it ignores the positive returns to government insurance and government investment; it confuses life outcomes with the hand of Providence; and it justifies a distasteful narcissism and possessiveness toward all material goods. It enables the unreflective affluent to sleep at night, their consciousness assuaged by its message that their success is explained by their own admirable virtues alone.”

As my 14 year-old would say: “shots fired!”

One of the more important subthemes here is that taxes are not by definition job-killing or spirit-crushing. They are, in fact (and he’s got these facts in there too), on the low side compared to that of other advanced economies. Also, to get slightly technical, Kleinbard importantly stresses that far too much of the tax debate today assumes huge, negative “elasticities,” meaning undesirable responses to higher taxes.

This is the idea that if taxes on earnings or wealth go up at all, people will react by working less, saving less, investing less, and they’ll generally just mope around instead of being productive (the obverse of this—cutting taxes will increase growth—is the thoroughly debunked notion of trickle down economics).

Kleinbard points out that reality, unsurprisingly, is a lot more nuanced, and the historical record shows that the US economy has done well when tax rates were higher while other countries manage to flourish with a much larger public sector than our own. He reasonably calls for a return to the Clinton-era tax rates, a period when not only jobs, growth, and productivity performed significantly better than today, but prosperity was more broadly shared and the budget achieved surplus.

He also, however, has an important message for liberals: stop being so obsessed with progressivity in the tax code (a progressive tax code is one where rates rise with incomes). It’s not, as you can pretty easily glean from the above quote, that his heart bleeds for Romney’s “makers” versus the left’s “takers.” In fact, he shows how wrong that construct is, demonstrating that once you factor in the full spate of taxes, almost everyone contributes something.

But what matters to Kleinbard, and he’s surely got a point, is the progressivity of taxing and spending. He writes: “Our greatest public finance mistake over the last few decades has been to obsess over tax policy, while simultaneously failing to have serious and rational debates over spending policy.”

For the record, I’d argue that our greatest recent fiscal mistake, and Europe is getting this even more wrong than we did, was austerity in the face of recession. But broadly speaking, he’s right. By putting taxing so far in front of spending, we’re putting the cart before the horse and it has profoundly distorted our national debate. Instead of thinking clearly about where, in advanced economies, markets leave off and government must pick up, we fight tooth and nail over basis points (hundredths of a percentage point) on tax rates.

Of course, and Kleinbard gets this, the debate we’re having is much the one that those who benefit from the status quo would like us to have. If we were instead to recognize the essential role of government in fighting climate change, the deteriorating quality of our public goods, the need to invest in the education and mobility of the poor, the inherent efficiency of pooling risk through the large social insurance programs, including Social Security, Medicare, and now Obamacare, and critically, the positive interaction of these functions with the market economy, we’d have a much more meaningful national discussion.

Sure, that conversation would cause great discomfort to the market triumphalists, which Kleinbard would view as a feature, not a bug.

That’s the conversation Kleinbard’s trying to generate here, but while I found his book uplifting and optimistic in terms of its aspirations for us, I fear that he will not succeed in steering us there.

The reason is in the very first word of the title: “We Are Better than This.” Just who is this “We” he keeps talking about? More than any time in our recent history, we are balkanized by income, class, ideology, religion, politics, race, and pretty much every other dimension you can think of. And if there is no coherent “we” then there can be no clear path for “us” to take together that will make us “better than this.”

Popular graphics like this one show that we are a more partisan than ever, and this is a fundamental problem for anyone seeking a solution that makes sense to a majority willing to take action to get us on a better path.

Kleinbard’s book doesn’t deal with this. That’s not so much a critique—the book covers more than enough ground and does so in fact-based detail. Like Adam Smith, whom he cites throughout, Kleinbard is a moral philosopher. He sits astride society with tax tables and charts and thinks clearly, with great depth and insight, about what a better society would look like.

But not unlike the progressives whom he insists mustn’t obsess over taxes without considering spending, a vision of where we should be doesn’t get us there. Somehow, we need to get to a place where there is enough of a national “we” that wants to be better than we are today. At that point, this book will be invaluable.