Adding Up States’ K-12 Funding Cuts

October 11, 2011 at 2:50 pm

We reported last week that 30 states are spending less per pupil on K-12 education this year than in the 2007-08 school year, before the recession started to take its toll on state budgets.  We’ve tallied those funding cuts and found that, in aggregate, those 30 states are sending $25.5 billion less to school districts under their basic education funding formulas than they did in 2008.

School districts must make up for that lost funding by increasing property taxes or other revenues, or — more commonly — by cutting their own budgets (reducing staff, buying fewer textbooks, deferring repairs and renovations, and so on).  Either way, that’s a hit on the local economy that families and businesses just about everywhere are feeling.

How much is $25.5 billion?  Enough to have a very big impact.  To give a sense of the magnitude, it’s enough to pay the salaries of about 460,000 teachers, at the average U.S. teacher salary rate of $55,000.

Schools haven’t covered the spending cut solely by laying off teachers, of course, but they have laid off many thousands of people and taken other actions that reduce economic activity.  Already since 2008, schools have cut 278,000 education jobs, even as student enrollment has grown. This year’s widespread funding cuts mean that the job losses and broader economic damage are likely to continue.

In Case You Missed It…

October 7, 2011 at 3:33 pm

This week on Off the Charts, we focused on the federal budget and taxes, the Labor Department’s September jobs report, and cuts in K-12 education and TANF.

  • On the federal budget and taxes, Robert Greenstein noted the recent op-ed from fiscal commission chairs Alan Simpson and Erskine Bowles that stated, among other things, that policymakers can and should reduce deficits in a way that strengthens the safety net.  James Horney cautioned lawmakers against embracing biennial budgeting.  Chuck Marr outlined the major flaws in a new proposal to give corporations a tax holiday for repatriated foreign profits.
  • On the jobs report, Chad Stone showcased a series of charts putting the new figures in context. Michael Leachman noted the continuing large job losses among state and local public employees, especially in education.
  • On cuts in state education and TANF, Phil Oliff previewed a major new report on widespread cuts in state K-12 funding and then presented its main findings.  Liz Schott reported that Michigan’s tightening of its TANF time limit is temporarily on hold.

In other Center news, Liz Schott and LaDonna Pavetti explained that states are cutting TANF benefits despite high unemployment and unprecedented need.  Phil Oliff and Michael Leachman released a report on the major cuts in state funding for schools.  And Chad Stone took an in-depth look at the September jobs report

Education Jobs Still Disappearing

October 7, 2011 at 3:07 pm

The nation’s schools shed 24,000 jobs in September, continuing a troubling and accelerating trend, according to today’s Labor Department jobs report.

In the last three years, schools have cut 278,000 jobs, with over 40 percent of the job cuts occurring in the last year.

These job losses are one consequence of large declines in state funding for K-12 education.  As we reported yesterday, elementary and high schools are receiving less state funding than last year in at least 37 states, after adjusting for inflation.  In at least 30 states, school funding now stands below 2008 levels — often far below.  In the long term, these cuts will reduce student achievement and the economy’s potential.

Major job losses are occurring in other areas of state and local government, as well.  State and local employment has shrunk by 646,000 jobs since peaking in August 2008, including 35,000 jobs last month.  Besides teachers, this sector includes police, firefighters, courtroom secretaries, aides for the severely disabled and their families, and many others whose work the private sector is unlikely to replace, even when the economy improves.

Federal action is needed to help protect the country from the damage that these cuts are causing.  The President has proposed emergency aid that would enable schools to rehire or avoid laying off thousands of teachers and other education workers.  That’s a good idea for the economy, and for the country’s future.

Today’s Jobs Report in Pictures

October 7, 2011 at 9:58 am

Today’s jobs report shows that more than two years after the end of the recession, a strong jobs recovery remains elusive. With job creation still sluggish, unemployment still very high, and the proportion of the population with a job still severely depressed (see chart), policymakers should enact a serious jobs package posthaste.

Below are some charts to show how the new figures look in historical context. Here is our statement with further analysis.

See our chart book for more charts.

Unemployment Rate Remains Stubbornly High
Job Losses Far Exceed Other Recessions
Private Payrolls Have Grown for 19 Straight Months, But Slowly
Long-Term Unemployment At Record Levels

Latest Corporate Tax Repatriation Proposal Fails the Test of Sound Policy

October 6, 2011 at 4:51 pm

Senators Kay Hagan (D-NC) and John McCain (R-AZ) announced a proposal today to allow multinational corporations to bring home (or “repatriate”) earnings held overseas, for a temporary period of time, at a tax rate of just 8.75 percent — a fraction of the regular 35 percent corporate tax rate.  They, and the massive corporate lobbying campaign that’s pushing for a corporate repatriation holiday, claim it would create jobs and boost the economy as firms invest the repatriated profits in the United States.  The reality, however, is that the new proposal suffers from the same serious flaws as other “repatriation” proposals.

As Goldman Sachs concluded in an analysis of repatriation proposals it issued yesterday, “The short-term economic benefits of such a policy would likely be minimal.”  Goldman Sachs explained, “we would not expect a significant change in corporate hiring or investment plans:  most firms with large amounts of overseas profits are likely to have adequate access to financing, so the availability of cash on hand is unlikely to be a constraint on investment at the present time.”

The proposal includes an advertised “incentive to create jobs”:  a rate as low as 5.25 percent for firms that increase their payrolls.  This is a fig leaf because companies can get a deeply discounted rate of 8.75 percent (from 35 percent) with absolutely no strings attached, even if they create no jobs.

The proposal as a whole is deeply flawed:

  • It would repeat an embarrassing policy failure. Congress enacted a corporate repatriation holiday in 2004, following a similarly intense lobbying campaign.  A wide range of studies — by the National Bureau for Economic Research, Congressional Research Service, Treasury Department, and outside analysts — found no evidence that it produced any of the promised economic benefits.Firms mostly used the repatriated earnings not to invest in U.S. jobs or growth but for purposes that the legislation sought to prohibit, such as repurchasing their own stock and paying bigger dividends to their shareholders.  Moreover, many firms actually laid off large numbers of U.S. workers even as they reaped multi-billion-dollar benefits from the tax holiday and passed them on to shareholders.
  • It would be an even bigger mistake the second time around. Enacting a second repatriation holiday within a decade would send a clear signal to companies that more would come in the future, encouraging them to invest overseas (resulting in more jobs outside rather than inside the U.S.), sit on the profits, wait until the U.S. unemployment rate spikes, and then lobby for a new repatriation holiday.  Such a cycle only deepens the deficit and nation’s debt problems.  That’s why Congress, in enacting the 2004 tax holiday, explicitly warned that it should be a one-time-only event.A second tax holiday would also encourage companies to shift profits actually earned in the United States to offshore tax havens to avoid U.S. corporate taxes, and then bring them back during a future tax holiday at a massively reduced tax rate.
  • It’s entirely unnecessary, as the corporate sector is flush with cash. Corporations have a record $2 trillion in domestic cash and liquid assets on hand, the Federal Reserve reports — money they aren’t investing because they haven’t found good investment opportunities in the current weak economy, with consumer and business spending depressed.  As a recent Bank of America Merrill Lynch analysis concluded, “Today, businesses are investing slowly not because their tax burden is high but because demand for goods and services is soft.  Supply-side measures such as a tax repatriation holiday will have limited effect in what remains a demand-deficient economy.” 
  • It’s unfair to domestic companies. Small and large companies around the country have invested in the United States, created jobs, and paid their taxes.  Yet these domestic firms wouldn’t be eligible for the huge tax breaks the repatriation holiday would lavish on the foreign profits of large multinational corporations. 

  • It’s no free lunch. Senator McCain claims the new proposal would increase federal revenues (a central part of the lobbying campaign). Congress’s Joint Committee on Taxation has evaluated similar proposals and found they would do just the opposite — cost the Treasury tens of billions of dollars over the next decade by encouraging U.S. multinationals to shift more and more of their investments overseas.