Local Governments Still a Drag on the Economy

February 3, 2012 at 3:32 pm

Today’s encouraging jobs report would have been even more encouraging if local governments weren’t still slowing the economic recovery.

Local governments — mostly school districts — cut another 11,000 jobs last month.  Total job losses at the state and local government levels have reached 668,000 since employment in this category peaked in August of 2008.

Public Workforce Has Declined Sharply Since 2008

To put these figures in historical context, it’s useful to separate education workers (teachers, librarians, administrators, and so on in public schools, colleges, and universities) from other state and local workers (police, firefighters, garbage collectors, bus drivers, and so on).  The education side of state and local employment has employed more people than the non-education side since the early 1990s, in part because of state education reforms that increased teacher hiring.

However, the public education workforce has shrunk over the last three years to its lowest level, relative to the U.S. population, since the late 1990s (see chart).  The non-education state and local public workforce has shrunk to its lowest level since the mid-1980s.

Unfortunately, the downward trend in overall state and local employment shows no signs of slowing, due to continuing and upcoming budget cuts at the local, state, and federal levels.  (About one-sixth of the federal budget goes to grants for state and local governments.)

A shrinking public-sector workforce as a share of the overall population can have a real impact on residents’ quality of life, since the services that states and localities provide — education, public safety, health care, and the like — tend to be pretty labor-intensive.  It also risks undermining future economic growth, since businesses need educated, healthy workforces and safe streets to prosper.

Despite Promises, Tax Breaks Not Expanding Health Coverage in Georgia

February 3, 2012 at 12:56 pm

Georgia in 2008 enacted tax breaks to expand health coverage by encouraging people to buy high-deductible insurance plans that they could pair with a Health Savings Account (HSA).  Newt Gingrich’s Center for Health Transformation designed and promoted the law, claiming that 500,000 Georgians would gain health coverage using the tax breaks.

Despite HSA Law, Georgia's Uninsured Rate Rose Faster Than in the Nation and Rest of the SouthBut, as our new analysis shows, these claims didn’t hold up.  Georgia’s uninsured rate has gone up since then, not down, and at a faster rate than in the region and the country as a whole (see chart).

Some policymakers have called for repealing the Affordable Care Act and have promoted HSAs as one of the alternative ways to expand coverage.  Our new report’s findings (which are consistent with our 2008 analysis of the Georgia law) cast serious doubt on that approach:

  • There are 319,000 more Georgians without health insurance now than before the law was enacted.
  • Georgia’s uninsured rate has increased more rapidly than the rest of the South and the nation as a whole.  This is also true among the law’s stated target population — people making more than $50,000 a year.

These findings reinforce earlier studies on the limitations of federal tax breaks related to HSAs.  These studies have shown that HSAs mostly benefit high-income people — the group that is least likely to be uninsured.  That’s not surprising since the higher a person’s federal income tax bracket, the greater the value of the benefit.

The Affordable Care Act will cover 34 million Americans who would otherwise be uninsured, according to the Congressional Budget Office.  Georgia’s experience provides some further evidence that promoting HSAs is not a viable alternative.

Today’s Job’s Report in Pictures

February 3, 2012 at 9:30 am

Today’s jobs report is encouraging, but we should judge it against the overall sluggishness of the economic recovery and a persistently large jobs deficit that remains after 23 straight months of private sector job creation. Payroll employment is still 5.6 million jobs short of where it was at the start of the Great Recession in December 2007, there are four jobless workers for every job opening, and long-term unemployment remains at an historic high level.

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

See our chart book for more charts.

States Pressing Out-of-State Retailers to Collect Sales Tax

February 2, 2012 at 5:18 pm

States and localities lose up to $23 billion in revenue a year in sales taxes that are legally due on interstate sales but that online retailers and other “remote sellers” do not collect.  That hurts local retailers, too, since they have to collect sales taxes but their online competitors don’t.

Fortunately, the past week has seen two significant developments in states’ fight to force remote sellers to collect and remit sales taxes.

First, on January 27, the Tennessee Court of Appeals ruled that Scholastic Book Clubs must collect sales taxes on book sales in which teachers distribute the company’s marketing materials to students, collect the money, and distribute the books.  Tennessee is the sixth state to sue the company and the third to win.

Of course, the way Scholastic sells its products is not typical of most remote sellers.  The decision, however, reinforces the principle that a remote seller’s use of people within a given state to help make sales can obligate the company to charge sales tax in that state.

This legal principle is at the heart of much more far-reaching legislation — which New York and seven other states have enacted and several other states are considering — that requires remote sellers to charge sales tax when they hire independent websites in a state to solicit customers on their behalf.  Amazon has challenged the New York law.  Should the case reach the state’s top court or the U.S. Supreme Court, the Tennessee Scholastic decision will bolster New York’s argument.

Second, and perhaps more importantly, Arizona has handed Amazon a bill for $53 million in back taxes for its failure to charge sales tax to customers there, the Seattle Times reported today.  Amazon has warehouses in Arizona but claims that, because an Amazon subsidiary owns them, it doesn’t have to charge sales tax there.  (In the 1992 Quill decision, the U.S. Supreme Court held that a state can require a remote seller to charge sales tax only if the seller has a “physical presence” in the state.)  Arizona apparently is dismissing Amazon’s argument — as did Texas, which imposed a similar $269 million assessment on Amazon last year.  Amazon says that it is challenging the Arizona and Texas charges.

Clearly, states are trying to chip away at the costly problem of untaxed remote sales using their current legal authority.  Bipartisan legislation now before Congress is the only really comprehensive way to solve the problem, but these state actions move the ball forward and pressure Congress to act.

Economy Struggling to Be All That It Can Be

February 2, 2012 at 3:23 pm

In my blog post this week for US News & World Report, I look at the disturbingly slow economic recovery:

The economy has been moving in the right direction for two and a half years, but so slowly that the Congressional Budget Office (CBO) says in its latest The Budget and Economic Outlook that “the economy remains in a severe slump” and will not be back to operating on all cylinders until the first half of 2018.

This chart shows CBO’s estimates of potential GDP (what the economy could produce if it Economy Projected to Operate Well Below Capacity for Yearsmade full use of labor and factories and other capital) and actual GDP.  As it shows, the economy is operating well below capacity and will have to grow substantially faster than CBO now projects in order to eliminate the gap between actual and potential GDP before 2018.

Policymakers should be pursuing temporary policies that give the economy more of a boost in the short term (so that we get back to operating at full capacity faster) while enacting longer-term deficit-reduction policies that don’t take effect until the economy is stronger (since large spending cuts or tax increases now would weaken the recovery).

For more charts on the recovery, see our chart book, The Legacy of the Great Recession.