In Case You Missed It…

December 2, 2011 at 5:41 pm

This week on Off the Charts, we focused on the federal budget and the economy, federal taxes, and income inequality.

  • On the federal budget and the economy, Chad Stone presented charts providing context for the November jobs report. We also featured Robert Greenstein’s Senate testimony on the economic problems that a balanced budget amendment would cause and James Horney’s report on the spending cuts that a Republican proposal would impose to pay for extending the payroll tax cut. And Arloc Sherman noted that extending the payroll tax would keep 1.1 million people out of poverty.
  • On federal taxes, Chuck Marr explained that extending and expanding the payroll tax cut would help small businesses and highlighted a recent op-ed explaining why “taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.” Chuck also warned that enacting another tax holiday for “repatriated” foreign corporate profits would likely fail to boost the economy.
  • On income inequality, Chad Stone began our special series on the issue by outlining the major trends in inequality since World War II. In subsequent posts in the series, Hannah Shaw described the loss of broadly shared prosperity beginning in the early 1970s, highlighted the widening of inequality since the 1970s, looked more closely at income trends in the 1979-2007 period, and examined the concentration of income and wealth. In addition, Chad Stone pointed to an essay from Nobel Prize-winning economist Kenneth Arrow exploring the causes of the sharp rise in income inequality, and Jared Bernstein noted a new study showing that income mobility isn’t increasing to help offset the growth in income inequality and may in fact be declining.

In other news, we released Robert Greenstein’s testimony on the perils of a balanced budget amendment, Chad Stone’s statement on the November jobs report, a guide to examining income inequality, and reports on how the across-the-board cuts in the Budget Control Act will work, the Republican proposal to pay for extending the payroll tax cut, a proposed constitutional spending cap, and the proposed change in minimum rents for families receiving federal housing assistance.

Extending Payroll Tax Cut Would Keep 1.1 Million People Out of Poverty

December 2, 2011 at 5:15 pm

The goal of a payroll tax holiday is to temporarily shore up consumer spending for working households; no one would mistake it for targeted antipoverty policy.  Yet, it does have the added benefit of reducing poverty.

Using Census Bureau data for 2010, I estimate that the current payroll tax holiday, which expires at the end of the month, would keep roughly 1.1 million low-income workers and their family members above the poverty line next year if Congress extends it.  (A bill by Senator Casey to extend and expand the tax holiday, which the Senate rejected yesterday, would have kept 1.7 million people out of poverty.)

Those figures reflect only the tax cut’s direct impact on workers; they don’t include any effect of the tax cut on preserving jobs in the broader economy by boosting consumer spending— which, after all, is the main point of the tax holiday.

To make this estimate, we can’t use the official poverty measure because that only counts pre-tax, cash income.  Instead, we use a broader measure recommended by the National Academy of Sciences and preferred by many experts; it counts income after taxes and non-cash benefits, subtracts certain medical and work expenses, and uses a slightly modernized poverty line.

The fact that the tax holiday reduces poverty somewhat doesn’t mean that it mostly benefits struggling families — it targets virtually all workers, and only about 7 percent of the money goes to families with cash income below $30,000.  Compare that, for instance, with another credit that targeted virtually all workers:  the President’s Making Work Pay Tax Credit, which expired last year, provided 18 percent of its money to that group.

Still, by extending the payroll tax cut — as well as expanded federal unemployment insurance, which kept more than 3 million people out of poverty last year but expires at the end of the month — Congress can provide critical help to a still-weak economy while fighting poverty at the same time.

Exploring Income Inequality, Part 5: The Concentration of Income and Wealth

December 2, 2011 at 2:57 pm

Yesterday’s post illustrated the magnitude of the income gap.  Today, we’ll take a closer look at the distribution of income and wealth, focusing especially on the share accruing to the top 1 percent.

As the slideshow below shows, the share of the nation’s before-tax income going to the richest 1 percent of households has been rising since the late 1970s and in the past decade has climbed to levels last seen in the 1920s.  Wealth is even more concentrated.

The slideshow is based on research from economists Thomas Piketty and Emmanuel Saez, who examine IRS data on the highest-income taxpayers, and from economist Edward Wolff, who analyzes trends in wealth using data from the Federal Reserve’s Survey of Consumer Finance.  (See our guide for more information on these data sources and historical trends.)

While the recent recession caused a sharp drop in the share of income and wealth in the top 1 percent, the surge in corporate profits and the recovery of the stock market since 2009 suggest that incomes at the top will recover quickly in the coming years, as they did following the dot-com collapse of the early 2000s.

Thank you for tuning into the series; we’ll combine all of the slides into a single slideshow for easier viewing and post it on the CBPP website (cbpp.org).  Stay tuned for future analyses.

GOP Payroll Tax Proposal Would Mean Even Bigger Cuts in Discretionary Programs

December 2, 2011 at 2:34 pm

CBPP issued a report today that takes a close look at the Republican proposal to pay for extending the payroll tax cut.  Here’s the opening:

The plan of Senate Republican leaders to extend and expand payroll tax relief includes a smaller payroll tax cut and would provide less than half of the economic boost of the Democratic alternative. The plan claims to offset the costs of its payroll tax cut by freezing federal employee pay and cutting federal employment, but that claim is misleading. The plan actually secures these savings by cutting the overall funds available for defense and non-defense discretionary programs for the next ten years. Senate Republican leaders also say their offset reflects a proposal from the “Bowles-Simpson” commission, but their plan would force discretionary cuts of more than $500 billion more than Bowles-Simpson.

The Senate defeated both the Republican leadership and the Democratic plans last night. With President Obama and many lawmakers committed to extending or expanding the payroll tax cut, however, the contents of both plans remain relevant. With the parties now likely to move toward negotiating a final agreement on the payroll tax, participants in those talks may well raise elements of these plans for consideration.

Click here for the full report.

Today’s Jobs Report In Pictures

December 2, 2011 at 9:27 am

Today’s employment report shows continued moderate growth in private payroll employment but a further decline in government jobs.  As a result, the overall jobs deficit remains huge and jobs remain hard to find.

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.

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