Enlighten Radio:Talking Socialism: Socialism and the Biden adminstration

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Tim Taylor: The Broken Promises of the Freedman's Savings Bank: 1865-1874 [feedly]

Tim Taylor reviews a racially tainted, but very revealing study of a publicly sponsored private bank targeted at a specific community. The North Dakota public state bank is often held as a quasi socialist banking model. It has the virtue of discouraging speculation but difficult to compete outside of its agricultural origins. Corruption killed Freedman's bank, even though it did initially permit African American workers and soldiers to get paid, and accumulate some wealth. 

Be interesting to see if, in the wake of Glass-Steagall, credit unions could be transformed into micro-investment banks. Might be especially beneficial in rural areas, like West Virginia!

The Broken Promises of the Freedman's Savings Bank: 1865-1874
https://conversableeconomist.blogspot.com/2021/01/the-broken-promises-of-freedmans.html

The Freedman's Savings Bank lasted from 1865 to 1874. It was founded by the US government to provide financial services to former slaves: in particular, there was concern that if black veterans of the Union army did not have bank accounts, they would not be able to receive their pay. In terms of setting up branches and receiving deposits, the bank was a considerable success. However, the management of the bank ranged from uninvolved to corrupt, and together with the Panic of 1873, the combination proved lethal for the bank, and tens of thousands of depositors lost most of their money. 

Luke C.D. Stein and Constantine Yannelis offer some recent research on lessons the grim experience in "Financial Inclusion, Human Capital, and Wealth Accumulation: Evidence from the Freedman's Savings Bank" (Review of Financial Studies, 33:11, November 2020, pp. 5333–5377, subscription requiredhttps://academic.oup.com/rfs/article-abstract/33/11/5333/5732662). Also, Áine Doris offers a readable overview in the Chicago Booth Review (August 10, 2020). 

Stein and Yanellis note: 

The Freedman's Savings Bank was an early government-sponsored private enterprise that was created by Congress to provide financial services to formerly enslaved African Americans. ... The bank spread rapidly, and at one point had more interstate branches than any other U.S. financial institution, and approximately one in eight Blacks in the South lived in a family that held an account with the bank. ... We obtain novel data on Freedman's Savings Bank account holders from 27 branches with surviving bank records. These 107,197 account records include names of main account holders and their family members, totaling 483,082 non-unique individuals, roughly 12% of the 1870 Black population in the American South. 

The main focus on the paper is that authors match the actual names of these depositors to data from the 1870 census, and then carry out a variety of calculations: for example, those who lived in the same county or within 50 miles of a branch of the bank, and those who did not. They can compare those who lived in areas where a branch was actually established, and those in similar areas where a branch was planned but never established. The result of these and other comparisons makes a persuasive case that access to a bank account had a clearly positive effect: "We find that individuals in families that hold Freedman's Savings Bank accounts are more likely to attend school, are more likely to be literate, are more likely to work, and have higher income and real estate wealth." For example, the freed slaves with access to banks and savings were more able to buy land, start businesses, and build and attend schools (at the time, many adult freed slaves immediately sought to become literate and numerate). 

Stein and Yanellis also offer some suggestive evidence that the failure of the Freedman's Savings Bank had long-lasting intergenerational effects on black attitudes about banking. They write: 

Historians, notably Osthaus (1976), have long noted that the collapse  of Freedman's Savings Bank—which many African Americans thought was fully backed by the federal government—and loss of savings led to a lack of trust in financial institutions by African Americans, and at least in part explains persistent gaps in utilization of financial services. The FDIC National Survey of Unbanked and Underbanked Households concludes that African-American households are considerably more likely to be unbanked: 2015 survey results indicate that 18.2% of African-American households were unbanked, compared with 3.1% of white households. Almost one-third of households indicate a lack of trust in banks as the primary reason that they did not have bank accounts, with this explanation more common among African Americans. ... [W]e show that African Americans in the present day who live in counties that once had a Freedman's Savings Bank branch are more likely to list mistrust of financial institutions as a reason for being unbanked; this association is not present for Whites.

I dug back a little bit to get more information on what why the Freedman's Savings Bank collapsed. The US Office of the Comptroller of the Currency has a website with a smattering of details.  Although the OCC had been founded in 1863 to provide oversight to banks and limit risk-taking that would put deposits at risk, but the Freeman's Savings Bank was exempted from OCC oversight and instead was to be overseen by Congress. The result was a lesson in the potential for dysfunction of boards, with a takeover by the corrupt.  

For those who would like heart-breaking and angry-making details of how the Freedman's Savings Bank was mismanaged, I found especially useful the account of historian Walter Fleming, "The Freedmen's Savings Bank," published in the Yale Review, May 1906, pp. 40-76, and available via the magic of HathiTrust).

I should note that Fleming's essay has the curious trait of making occasional racist statements about black Americans, and then going on to provide evidence that the racist statements are not actually correct--without apparently noticing the contradiction. For example, Fleming states early in the paper: "Before the close of the war several experiments in the way of savings banks had been made among the negro soldiers for the purpose of preventing them from squandering their pay and bounty money, as it is the nature of the race to do." But  a few pages later, Fleming is writing about how black Americans flocked to deposit money in the bank. He writes: "The negroes, believing that their deposits would be secure in these banks, which they understood were supported by the government, eagerly availed themselves of the opportunity to lay up small sums for the future." 

But even with his prejudices hanging out in the open, Fleming provides a useful step-by-step overview of what happened with the bank. The law did not specify that the bank was allowed to open branches, but several of those involved in passing the law clearly saw it as part of the mission. They travelled around the South together with officials of the Freedman's Bureau (which was not legally connected to the bank) talking to those who had run military savings banks, many of which became the basis for branches, as well as those in prominent black communities.  Those who deposited money in the bank had often been led to believe that the federal government stood behind the bank. Bank officials wore US uniforms. Depositors were given a passbook, which had pictures of Lincoln, Grant, the US flag on the cover. The version of the passbook used in New York City had printed on the cover: "The Government of the United States has made this bank perfectly safe." In Fleming's words: 

The negroes were given to understand that the bank was absolutely safe, being under the guarantee of Congress, and having the funds invested in United States securities, which were safe as long as the government should last, and that it was a benevolent scheme solely for the benefit of the blacks. The profits, they were told, would be returned to the depositors as interest, or would be expended for negro education.

Many of the early discussions of the banks at the time were quite positive. The bank branches offered a safe haven for funds, and education on savings and accumulation of interest. As Fleming writes: 

In the branch banks and at Washington, after 1868, an efficient body of negro business men was being trained. There was a sentiment that, since the bank was for the benefit of the negroes, the latter should be its officers as much as possible, and about one-half the employees were colored. At nearly all of the branches, especially after 1870, when some of the branch banks were allowed to do a regular banking business, there was an advisory board, or board of directors, of responsible colored property holders. These men were very proud of the Freedmen's Bank and of their position in connection with it. They took a deep interest in all that pertained to the institution, advised in regard to loans and investments, and promoted in every way the habit of saving on the part of their people.

But the inner workings of the bank went badly. Some of it was incompetence, a lot of it was corruption, but the underlying issue was that far too many people viewed the money in the bank as a large pot of honey, just waiting for them to scoop up what they could. Fleming describes a range of problems. Expenses were high, including $260,000 for building a pricey new headquarters building in Washington, DC. State governments often disliked the bank because the deposits were flowing to US securities, and out of their influence. Many of the employees were deeply inexperienced,  and the financial accounts were a mess. There was one inspector who was supposed to cover all the branches. 

Although the branches of the banks were not supposed to make loans before 1870, when a prominent community leader wanted to draw out more money than was in his account, the cashiers often found it hard to say "no"--and hard to get the money back later. Then the banks were allowed to make loans under supposedly strict conditions, but many of of them. After 1870, Fleming writes:   

As soon as the authority was given to the cashiers to make loans, they were besieged by a dangerous class of borrowers, who would have received scant consideration at the ordinary bank. Often the law of 1870, requiring that loans be made only on property worth double the loan, was violated and the cashiers proceeded to make investments on their own responsibility. Some of them loaned funds on the worthless script issued by the carpet-bag State and local governments; others loaned on cotton; some even made loans on perishable crops. The Jacksonville branch put money on everything that offered, from saw-mills out in the woods to shadowy claims on property. ... Most of the incompetent officials, it seems, were blacks; most of the corrupt ones were white. There was a belief, often expressed after the failure of the bank, that when a white cashier had stolen funds and involved the accounts of a branch, a negro official would be put in his place to serve as a scapegoat. The white clergymen who were cashiers proved to be quite unable to withstand the temptations offered by the presence of the cash in the vaults. One of the trustees (Purvis) afterwards said: "The cashiers at most of the branches were a set of scoundrels and thieves—and made no bones about it—but they were all pious men, and some of them were ministers."

Bt the real coup-de-grace for the bank was a result of what should have been criminal actions, even under the laws of the time, at the top levels of management.  As Fleming points out, the original bill named the 50 people who would be trustees of the institution. In his telling, the original 50 were (white) businessmen of good character. They were to meet at least once a month. However, it only needed nine members (one of whom had to be the president or vice president) to form a quorum, and a decision could be made with support of seven out of those nine. The trustees were to receive no compensation, and were not allowed to borrow funds from the bank. The original bill said that deposits would be invested in US securities only, except for an amount to be held as an "available fund" for withdrawals and current expenses. But then the headquarters of the bank moved from New York to Washington, DC, and the board turned over. Fleming tells the story in some detail of how the "hoarded deposits of the Freedmen's Bank drew the attention of the speculators in Washington," and how the new trustees stripped the banks of assets, but here's a quick sense of the kind of thing that went on: 

The places on the board [after the move to Washington DC] were somewhat difficult to fill, and it came about that most of those who were put in were incompetent persons elected simply to fill up the lists. They had little business capacity, no business connections, no property. The incapable ones were controlled by the few capables, who, after 1869-1870, were the District of Columbia members. These latter formed a kind of a "ring" for their mutual benefit. They were involved in other schemes that made their connection with the bank of great use to them. They were at once officials of the bank, and officers of the Bureau or of the army or of the government of the District of Columbia. Howard, Balloch, Alvord, and Smith were bureau officials and were connected with Howard University, and extensive borrowers from the bank; Cooke and Huntington were officials in another bank that put its bad loans off on the Freedmen's Bank; Cooke, Eaton, Huntington, Balloch, and Richards were officials of the notorious District government; Howard, Alvord, Eaton, Stickney, Kilbourn, Latta, Clephane, Huntington, Cooke, and Richards were connected with firms that borrowed large sums from the bank, notwithstanding the fact that officials were prohibited by law from using the funds of the bank, directly or indirectly. 

The trustees were under no penalties for the proper execution of their trust. They were not required to make any deposits in the bank. The law fixed as a quorum nine out of fifty trustees, and further required the affirmative vote of at least five on money matters. The trustees provided in the by-laws for a finance committee of five, of whom three should be a quorum. Thus three could and did habitually dispose of the financial business of the bank when the law required at least five. Often two trustees, or one, or even the actuary (cashier), negotiated important loans without reference to the trustees. 

When this situation was followed by the Panic of 1873 and crash in real estate values, there wasn't much left.  Pretty much no one was prosecuted or held responsible. Fleming tells hard-to-read stories of working people who faithfully put money in the branches for years, only to find that it had all been taken. As Stein and Yannellis write: "In June 1874, the Freedman's Savings Bank was forced to suspend operations with only 50 cents to cover obligations per depositor. The failure of a bank catering to former slaves, and the loss of their savings, led to general public concern and sympathy for the fate of depositors. Following a congressional investigation, Congress created a program to reimburse up to 62% of savings, but many depositors were never compensated." 

 -- via my feedly newsfeed

Yellen tells Congress that raising the federal minimum wage to $15 would have 'minimal' impact on jobs [feedly]

Yellen tells Congress that raising the federal minimum wage to $15 would have 'minimal' impact on jobs
https://www.businessinsider.com/minimum-wage-increase-minimal-effect-on-jobs-yellen-says-2021-1?utm_source=feedly&utm_medium=webfeeds

Former Federal Reserve Chair, Janet L. Yellen, President- elect Joe Biden pick to be Treasury Secretary

Washington Post/Getty Images

• Treasury Secretary nominee Janet Yellen said during her confirmation hearing that raising the minimum wage to $15 an hour would minimally effect jobs, if at all.
• Republican lawmakers argue that raising the minimum wage would cost the country millions of jobs.
• Democrats support raising the minimum wage to provide relief to workers who suffered from the pandemic, but it remains a partisan issue due to its potential effects on the economy.
• Visit Business Insider's homepage for more stories.

Treasury Secretary nominee Janet Yellen said that a $15 minimum wage increase will not have significant effects on the job market, responding to concerns from Republican lawmakers.

In her confirmation hearing on Tuesday, Yellen addressed President-elect Joe Biden's announcement to increase the federal minimum wage to $15 an hour in his stimulus plan. Although the plan was widely supported by Democrats and a majority of the public, conservatives said that raising the minimum wage would be detrimental to the economy and labor markets across the country. Sen. Tim Scott of South Carolina said during the hearing that increasing the minimum wage would "shutter somewhere around 3.7 million jobs on the high end, a minimum of 1.3 million jobs in our economy."

"How do we grapple with parts of this package that really are philosophical in nature and denies the practical reality that comes from it?" Scott asked.

The $15 minimum wage increase has been argued over by lawmakers and economists, with conservative economists citing the same concerns as Scott, Insider previously reported. 

But Yellen said that economic literature has shown that a minimum wage increase will only have minimal effects on job loss, overall benefitting the economy.

"Researchers often look at what happens if one state raises its minimum wage and a neighboring state leaves it alone to see how businesses fare in the two different places with different treatments, and the findings are that job loss is very minimal, if anything," Yellen said.

As a part of Biden's $1.9 trillion stimulus plan unveiled last week, raising the minimum wage remains a largely disputed issue and will be a component of the plan that will likely encounter further debate.

Overall, Yellen and Democratic lawmakers support the increase as an attempt to provide relief to families who have suffered from the pandemic. 

"Right now, we have millions of American workers who are putting their lives on the line to keep their communities functioning, and sometimes even working multiple jobs and aren't earning enough to put food on the table." Yellen said. "...They're suffering in countless ways, especially during this pandemic and really struggling to get by, and raising the minimum wage would really help many of those workers."

Read the original article on Business Insider

 -- via my feedly newsfeed

Broad structural change is needed to boost wages in a U.S. economy that is more equitable to produce strong, sustainable economic growth [feedly]

Broad structural change is needed to boost wages in a U.S. economy that is more equitable to produce strong, sustainable economic growth
https://equitablegrowth.org/broad-structural-change-is-needed-to-boost-wages-in-a-u-s-economy-that-is-more-equitable-to-produce-strong-sustainable-economic-growth/

Overview

The U.S. labor market is shackled by decades of wage stagnation for the majority of workers, persistent wage disparities by race, ethnicity, and gender, and sluggish economic growth. The steady increase of income inequality since the 1970s leaves generations of U.S. workers and their families unable to cope with the daily costs of living, let alone save for emergencies or invest in their futures—conditions that have left many families ill-prepared for the "stress test" of the coronavirus recession.

These labor market ills particularly affect women and workers of color due to decades of gender inequality and structural racism erecting barriers to opportunities. There is increasing evidence that broad structural inequality leads to a misallocation of talent and the undervaluation of different types of work, which contributes to anemic economic growth and slower productivity gains.

Boosting Wages for U.S. Workers in the New Economy

Creating an economy that works for everyone and serves those who are historically marginalized requires addressing underlying economic structures that form the foundation for U.S. labor market policies. These unequal structures entrench barriers to opportunity based on race, ethnicity, and gender, and exacerbate the power imbalances that allow employers to undercut wages and allow gains of growth to accrue to the few while stifling a robust, dynamic U.S. economy.

Existing efforts to address wage stagnation and persistent disparities tend to be limited to two narrow approaches: minimum wages and educational investments. Both are critically important, but neither are sufficient to overcome the unequal structures in the U.S. labor market. Minimum wages reach only the bottom of the wage distribution, while increasing education as a response to stagnating or falling wages at each education level amounts to asking workers to run faster on a treadmill, making little progress against the overall deterioration of worker compensation.

This book, a joint effort of the Washington Center for Equitable Growth and the Institute for Research on Labor and Employment at the University of California, Berkeley, presents a series of essays from leading economic thinkers, who explore alternative policies for boosting wages and living standards, rooted in different structures that contribute to stagnant and unequal wages. The essays cover a variety of strategies, from far-reaching topics such as the U.S. social safety net and tax policies to more targeted efforts emphasizing laws governing American Indian tribal communities and the barriers facing women and workers of color in the science, technology, engineering, and mathematics fields.

These essays demonstrate that efforts to improve workers' access to good jobs do not need to be limited to traditional labor policy. Labor income is still how most Americans achieve security and stability, but the determination of those earnings does not take place in a vacuum. Policies relating to macroeconomics, to social services, and to market concentration also have direct relevance to wage levels and inequality, and can be useful tools for addressing them.

We divide the essays presented in this book into three broad themes:

• Worker power
• Worker well-being
• Equitable wages

Here are brief synopses of each of these themes.

Worker power

In recent decades, worker compensation has failed to keep up with economic growth and productivity. This is, in large part, a reflection of eroding worker bargaining power, which has not been strong enough to ensure that workers receive their fair share of the gains. Decades of declining unionization, poorly enforced labor market protections, and competition policy biased toward corporations have eroded worker bargaining power in the United States. A critical part of boosting workers' earnings is to reverse this erosion and ensure that workers have the bargaining power to claim their share of employer profits.

A first step to boosting wages is making sure that legal protections and statutory minimum wages already on the books are enforced. In their essay titled "Strategic enforcement and co-enforcement of U.S. labor standards are needed to protect workers through the coronavirus recession," Janice Fine, Daniel Galvin, Jenn Round, and Hana Shepherd at Rutgers University's School of Management and Labor Relations highlight novel evidence on the prevalence of wage theft. This occurs when employers violate minimum wage or overtime pay statutes, essentially stealing the wages to which workers are legally entitled.

Unfortunately, workers have little recourse against this wage theft. The enforcement of these laws requires workers to file claims of their own accord, an expensive and risky proposition that is generally out of reach for exactly the groups of workers most at risk of wage theft. Fine and her co-authors propose strategic enforcement for likely violators, such as targeting wage theft investigations for employers in industries with higher rates of wage theft, and co-enforcement with organizations that are more effective at identifying violations, such as worker centers embedded within economically marginalized communities.

But the enforcement of labor standards takes place in an increasingly fissured and global economy. Work is increasingly outsourced from large companies to small contractors, where the large employer may control the work process but can disclaim responsibility for the treatment of workers. This depresses wages and reduces workers' ability to claim the benefits of their productivity.

Economist Susan Helper at Case Western Reserve University discusses what she calls "supply chain dysfunction," or when the outsourced company has little power against the outsourcing company so they must manage supply chain inefficiencies by cutting their own costs, which exerts a further downward pressure on wages. In her essay, "Transforming U.S. supply chains to create good jobs," Helper examines how production is connected across companies and space. She proposes a new industrial policy that addresses the power imbalances of production in the United States. Small companies need to be able to share in the value created by supply chains so they can provide quality jobs, and collaboration and partnership must be promoted, so that supply chain ecosystems across manufacturing and service industries create dynamic and healthy labor markets.

Another, related factor influencing worker bargaining power is the increasing concentration of the economy into a small number of large, dominant employers that are able to exert substantial wage-setting power. In neoclassical models, the fact that many employers are competing for each worker's labor ensures that workers will be compensated in proportion to their contributions, but when employment is concentrated (known as "monopsony"), this assurance falls apart. In "Boosting wages when U.S. labor markets are not competitive," Ioana Marinescu at the University of Pennsylvania's School of Social Policy and Practice reviews the evidence relating labor market concentration to wages, and proposes antitrust enforcement and increasing worker power as two tools to offset the wage-setting power that comes from further concentration.

It is not only microeconomists who are grappling with the growing disconnect between productivity and wages. This is also an important challenge to standard macroeconomic models. In "Collective bargaining as a path to more equitable wage growth in the United," economist Benjamin Schoefer at the University of California, Berkeley reviews the macroeconomic literature on the presumptions and evidence for how the macroeconomy works, and finds various policies that promote worker bargaining power, such as sectoral wage determination, may help workers share in the fruits of their own productivity growth.

The policies in any of these essays work in tandem with fostering worker voice. Growing attention on fostering worker power is evident in initiatives such as the clean slate for worker power agenda from Harvard Law School's Labor and Worklife Program. The proposals in the clean slate agenda would boost the effectiveness of each of the topics in this series, including a pathway toward sectoral bargaining and more protections for workers on-the-job.

Worker well-being

The second group of essays considers ways to improve worker well-being, given existing bargaining relationships. In "U.S. labor markets require a new approach to higher education," economist Andria Smythe at Howard University points to universities—anchors of local economic activity and innovation—as key institutions that can contribute to worker well-being. She demonstrates that broad policies that increase access to education also support the higher education industry, which, in turn, fosters an innovative U.S. economy, creating a virtuous cycle that links individual skill-building to local economic activity to a more equitable U.S. economy across cities and regions of the nation.

Furthermore, Smythe details how accessible higher education tightens labor markets by eliminating the need for students to work while in school, which often both limits their engagement with school and takes jobs that might otherwise go to nonstudents. More accessible higher education would increase demand for workers and increase worker bargaining power.

Another policy approach is to adopt labor market policies that enable workers' compensation to go further. An essay by one of the authors of this introduction, Jesse Rothstein at the University of California, Berkeley, and Columbia University's Sandra Black, titled "Public investments in social insurance, education, and child care can overcome market failures to promote family and economic well-being," demonstrates how rising costs of key necessities, such as higher education and medical and child care, as well as increasing risk faced by workers, erodes worker well-being and thus their effective wages.

Rothstein and Black argue that the public provision of early childhood education, the alleviation of student debt, and the provision of comprehensive social insurance such as Unemployment Insurance, retirement security, health insurance, and long-term care insurance would all help build the foundation for workers to have a lower cost of living and security to invest in their economic futures. This kind of social safety net would mitigate downside risks while also fostering a more resilient economy, in which economic shocks and business cycles will be less likely to lead to permanent negative consequences for workers and families.

Another aspect of promoting wage growth for workers are tax policies that influence corporate investment and sharing the gains of productivity growth. In an essay titled "Targeting business tax incentives to realize U.S. wage growth," economist Juan Carlos Suárez Serrato of Duke University describes the different ways that corporations respond to tax cuts. Do they take them as windfalls to distribute to shareholders, with no benefit for workers, or do they use them to invest in productivity enhancements that would lead to increased worker compensation? He suggests that the design of the tax cuts influences their allocation, and proposes that tax cuts need to be linked to wage gains for workers to ensure that companies share gains with workers to improve the well-being of their employees and their families.

Equitable wages

The third group of essays considers strategies for reducing wage disparities to create more equitable wage structures across the U.S. labor market for all U.S. workers. A labor market in which workers from historically marginalized backgrounds are able to access equitable opportunities is a labor market that works for everyone.

In her essay on racial and gender inclusion in the so-called STEM fields of science, technology, engineering, and mathematics, titled "Addressing gender and racial disparities in the U.S. labor market to boost wages and power innovation," economist Lisa Cook at Michigan State University demonstrates how marginalized groups, particularly women and Black workers, face barriers at each stage of the innovation pipeline, limiting economic growth and prosperity for all. Cook argues for investments, mentoring support, and other practices to not only open the doors to STEM education and research for underrepresented groups, but also to allow Black and women innovators to share in the gains from their work.

Sociologist Robert Manduca at the University of Michigan demonstrates that a great deal of wage inequality ranges across geographic regions. In his essay, "Place-conscious federal policies to reduce regional economic disparities in the United States," he proposes place-conscious universal policies to address geographic wage inequality. Increasing geographic inequality is exacerbated by deregulation in the transportation and communications industries and by weak antitrust enforcement, which favors increasingly powerful companies and well-connected urban areas. Manduca points out that the enforcement of national antitrust policy is especially important in those locations where there are dominant employers, such as those described in Marinescu's essay. Universal programs, such as a broader social safety net and creating jobs through direct public investment and employment, can help boost wages in communities that have been left behind, increasing economic security for workers and families located in these economically depressed regions of the nation.

This book closes with an essay examining one of the most marginalized groups in the U.S. labor market, Native Americans, who face extremely high rates of poverty and unemployment due to myriad economic, social, and political injustices inflicted over centuries of oppression. In his essay, "Sovereignty and improved economic outcomes for American Indians: Building on the gains made since 1990," Randall Akee at the University of California, Los Angeles reviews the current status of tribal communities across the United States. He considers what is needed to create structures, including improving infrastructure and education, that allow for economic growth and prosperity after centuries of marginalization, oppression, and genocide.

Policies that address structural economic issues in tribal reservations can also impact economic inequality in the surrounding regions, particularly in states in the West and Southwest, where American Indians make up larger shares of the population. Akee writes that the specific historical and cultural context of tribal sovereignty is a critical aspect of boosting wages for workers from these communities. He also calls for improving outcomes in tribal communities by  improving data collection and researching the barriers to economic development.

Worker empowerment matters for all policies

A theme that runs across all of these essays is that worker empowerment is crucial to ensuring wage equality and financial security across the U.S. labor market. The essays provide a set of roadmaps for encouraging wage growth and reducing wage inequality by the creation of underlying economic structures that allow workers, particularly those who face the greatest barriers, to advance in their careers, contribute to productivity growth, and share in the gains of a robust and resilient economy.

As the U.S. economy eventually recovers from the coronavirus recession and progresses into another period of economic growth, the policies developed by top academics in this series of essays provide a pathway for more equitable growth. Dealing with the baleful economic consequences of economic inequality now, which the current pandemic has laid bare, would result in stronger and more sustainable economic growth in the years and decades ahead.

 -- via my feedly newsfeed

Cutting State Income Taxes Counterproductive to Prosperity, Racial Justice [feedly]

Cutting State Income Taxes Counterproductive to Prosperity, Racial Justice
https://www.cbpp.org/research/state-budget-and-tax/cutting-state-income-taxes-counterproductive-to-prosperity-racial

As states enter their 2021 legislative sessions, lawmakers in several states including Arkansas, Mississippi, Montana, and West Virginia are calling for cutting personal income taxes. This would sap revenues needed for an effective response to the COVID-19 pandemic and threaten states' recovery from the recession. And, by weakening state finances, it would undermine efforts to advance racial justice — just when growing understanding of the nation's shameful history of racism, as well as white supremacist opposition to American democracy itself, demand the opposite approach.

FIGURE 1

Cutting Income Taxes Would Likely Worsen Racial Inequities

MOST STATE TAX SYSTEMS ALREADY DEEPEN RACIAL AND ETHNIC INEQUITIES BECAUSE THEY ASK THE MOST, AS A SHARE OF INCOME, OF LOWER-INCOME HOUSEHOLDS, WHICH ARE DISPROPORTIONATELY HOUSEHOLDS OF COLOR.Most state tax systems already deepen racial and ethnic inequities because they ask the most, as a share of income, of lower-income households, which are disproportionately households of color.[1] In some cases, states have also used their taxing power to worsen the profound challenges facing people of color deliberately.[2] For example, Mississippi enacted the nation's first modern retail sales tax, during Jim Crow, in part to reduce property taxes and shift state taxes from (mostly white) property owners to consumers with little or no property to tax (many of whom were Black).[3]

Because most states' income taxes are progressive (meaning people pay higher rates on higher incomes), they foster at least some degree of racial equity in state tax codes; white families are three times likelier than Black and Latinx families to be in the top 1 percent, for example.[4] In contrast, regressive taxes — especially sales taxes and fees — fall more on low- and moderate-income people. This means cutting state income taxes can worsen racial inequities by disproportionately benefiting taxpayers at the top, most of whom are white. For instance, when North Carolina slashed personal income taxes in 2013, Black residents received only 10 percent of the tax cut, though they made up 22 percent of the state's population.[5] (See Figure 1.)

Cutting Income Taxes Hasn't Boosted State Economies in the Past

States that sharply cut income taxes in the past have reaped sharply lower state revenues, as common sense would predict, and the tax cuts have consistently failed to produce an economic boom. In the early 2010s, Kansas, Maine, North Carolina, Ohio, and Wisconsin cut personal income taxes by large amounts in hopes of boosting their economies. But all five saw slower growth in private-sector gross domestic product than the United States as a whole over the next few years, and four of the five saw slower growth in private-sector jobs.[6] (See Figure 2.) Kansas' massive income tax cuts wreaked so much havoc on the state's ability to pay its bills and save for the future, let alone invest in people and infrastructure, that lawmakers voted on an overwhelming, bipartisan basis to reverse them in 2017. [7] States that cut income taxes in the 2000s and 1990s didn't see much economic gain either.[8]

FIGURE 2

Other evidence indicates that raising income tax rates — in particular through targeted tax hikes on high incomes — doesn't harm states' ability to compete economically with their neighbors.[9] It's also worth noting that states without broad-based income taxes have higher sales and property taxes[10] and haven't enjoyed especially strong economic performance. The nine states with the highest top marginal income tax rates over the last decade saw their economies grow slightly faster, on average, than the nine states without income taxes, for example.[11]

More broadly, mainstream research finds that tax differences among states aren't the main driver of states' relative economic performance. Fifteen of 20 major studies published in academic journals from 2000 to 2018 that examined the broad economic effect of state personal income tax levels found no significant effects, and one of the others produced internally inconsistent results.[12] As a pair of university researchers described in a comprehensive literature review in 2018, "The vast majority of the academic studies that examined the relationship between state and local taxes and economic growth found little or no effect."[13]

Cutting Personal Income Taxes Doesn't Promote Small Businesses or Jobs

One reason state income tax cuts don't unleash economic growth is that they don't help small businesses to the degree often advertised. The vast majority of taxpayers are in no position to create a job, with or without a tax cut: only 2.1 percent of personal income taxpayers own a small business with any employees other than the owners. Also, most small businesses don't earn enough for tax cuts to make a crucial diff­erence. More than 8 in 10 small businesses have less than $50,000 in annual taxable income, so even eliminating the tax wouldn't come close to paying one full-time worker's salary.[14]

For entrepreneurs considering where to launch a company and create jobs, states' education systems, workforce talent, and general quality of life are much more important factors than tax differences, evidence suggests.[15]

Cutting Income Taxes Hinders Investments to Create Thriving, More Equitable Economies

Another reason income tax cuts don't unleash economic growth is that, since states must balance their budgets, they must offset the lost revenue by cutting support for schools, infrastructure, social services, and other building blocks of a strong economy.

States need adequate revenues in good times to pay for investments that promote long-term growth, such as by knocking down long-standing barriers to opportunity. States also need adequate revenues in bad times such as the COVID-19 recession, to help families and small businesses stay afloat and limit short-term harm, especially for people of color and struggling communities. Without adequate revenues, states will be hard pressed to advance antiracist policies needed in the wake of the pandemic to address structural barriers that limit states' economic potential, such as the massive disparities in wealth and incomes and persistent racial discrimination.[16]

Instead of cutting income taxes, states can help create stronger, more equitable economies by raising taxes on high incomes. This can generate substantial revenue, disproportionately from white taxpayers,[17] for public investments that improve schools in communities of color, repair often-neglected water systems and other public infrastructure in these communities, increase family incomes, dismantle racist and sexist barriers to innovation and opportunity,[18] and otherwise help build an economy whose benefits are widely shared.

TOPICS: 

State Budget and Tax

End Notes

[1] Institute on Taxation and Economic Policy, "Who Pays? 6th Edition," October 2018, https://itep.org/whopays/. In 45 states, lower-income households pay a larger share of their income in state and local taxes than high-income households.

[2] Michael Leachman et al., "Advancing Racial Equity With State Tax Policy," CBPP, November 15, 2018, https://www.cbpp.org/research/state-budget-and-tax/advancing-racial-equity-with-state-tax-policy.

[3] Michael Leachman, "Mississippi Governor Irresponsibly Proposes to Repeal State's Income Tax," CBPP, November 30, 2020, https://www.cbpp.org/blog/mississippi-governor-irresponsibly-proposes-to-repeal-states-income-tax.

[4] Cortney Sanders, "State Millionaires' Taxes Can Advance Racial Justice," CBPP, March 15, 2019, https://www.cbpp.org/blog/state-millionaires-taxes-can-advance-racial-justice. At the other end of the income spectrum, 22 percent of the nation's households are Black or Latinx, but they make up 28 percent of the nation's poorest households.

[5] The 2013 tax cuts reduced the taxes of the highest-income state residents by 1.5 percent of their income, on average, but by just 0.1 percent of income for the lowest-income North Carolinians, according to the Institute on Taxation and Economic Policy. See Leachman et al., op. cit.

[6] CBPP, "Big Cuts in State Income Taxes Not Yielding Promised Benefits," updated February 21, 2018, https://www.cbpp.org/research/big-cuts-in-state-income-taxes-not-yielding-promised-benefits.

[7] Michael Leachman, "A Kansas Wake-Up Call for Other States Considering Big Income Tax Cuts," CBPP, February 23, 2017, https://www.cbpp.org/blog/a-kansas-wake-up-call-for-other-states-considering-big-income-tax-cuts.

[8] Four of the six states that cut personal income taxes significantly in the 2000s saw their share of national employment decline after enacting the cuts. And, in the 1990s, states with the biggest tax cuts grew jobs during the next economic cycle at an average rate only one-third as large as more cautious states. Michael Leachman and Michael Mazerov, "State Personal Income Tax Cuts: Still a Poor Strategy for Economic Growth," CBPP, updated May 14, 2015, https://www.cbpp.org/research/state-budget-and-tax/state-personal-income-tax-cuts-still-a-poor-strategy-for-economic.

[9] Of the eight states (including the District of Columbia) that enacted lasting "millionaires' taxes" from 2000 to 2018, seven had per capita personal income growth at least as strong as their neighbors after raising taxes; six had growth in private-sector gross domestic product about as good as or better than their neighbors; and five added jobs at least as quickly as their neighbors. Wesley Tharpe, "Millionaires' Taxes a Smart Way for States to Invest in Their Future," CBPP, February 7, 2019, https://www.cbpp.org/blog/millionaires-taxes-a-smart-way-for-states-to-invest-in-their-future.

[10] Nicholas Johnson and Erica Williams, "Without A State Income Tax, Other Taxes Are Higher," CBPP, March 22, 2012, https://www.cbpp.org/sites/default/files/atoms/files/3-22-12sfp.pdf.

[11] Carl Davis, "Another Reason to Tax the Rich? States with High Top Tax Rates Doing as Well, if Not Better, than States Without Income Taxes," Institute on Taxation and Economic Policy, September 23, 2020, https://itep.org/another-reason-to-tax-the-rich-states-with-high-top-tax-rates-doing-as-well-if-not-better-than-states-without-income-taxes/.

[12] Wesley Tharpe, "Raising State Income Tax Rates at the Top a Sensible Way to Fund Key Investments," CBPP, February 7, 2019, https://www.cbpp.org/research/state-budget-and-tax/raising-state-income-tax-rates-at-the-top-a-sensible-way-to-fund-key

[13] Dan S. Rickman and Hongbo Wang, "U.S. State and Local Fiscal Policy and Economic Activity: Do We Know More Now?" August 7, 2018, https://mpra.ub.uni-muenchen.de/88422/1/MPRA_paper_88422.pdf.

[14] CBPP, "Tax Cuts Don't Boost Small Business Employment," https://www.cbpp.org/sites/default/files/atoms/files/5-11-15sfp-fact_4.pdf.

[15] In a survey of the founders of many of the country's fastest-growing firms, only 5 percent cited low tax rates as a factor in deciding where to launch their company. Endeavor Insight, "What Do the Best Entrepreneurs Want in a City? Lessons from the Founders of America's Fastest Growing Companies," February 2014, p. 6, https://issuu.com/endeavorglobal1/docs/what_do_the_best_entrepreneurs_want.

[16] Erica Williams and Cortney Sanders, "3 Principles for an Antiracist, Equitable State Response to COVID-19 — and a Stronger Recovery," CBPP, May 21, 2020, https://www.cbpp.org/research/state-budget-and-tax/3-principles-for-an-antiracist-equitable-state-response-to-covid-19.

[17] Cortney Sanders, "State Millionaires' Taxes Can Advance Racial Justice," CBPP, March 15, 2019, https://www.cbpp.org/blog/state-millionaires-taxes-can-advance-racial-justice.

[18] Wesley Tharpe, Michael Leachman, and Matt Saenz, "Tapping More People's Capacity to Innovate Can Help States Thrive," CBPP, December 9, 2020, https://www.cbpp.org/research/state-budget-and-tax/tapping-more-peoples-capacity-to-innovate-can-help-states-thrive.

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The Trump Administration’s Health Care Sabotage [feedly]

The Trump Administration's Health Care Sabotage
https://www.cbpp.org/research/health/the-trump-administrations-health-care-sabotage

President Trump bookended his Administration with efforts to repeal the entire Affordable Care Act (ACA) — first through legislation and, after that failed, through the courts. Late in 2020 the Trump Administration and Texas attorney general's office, with the support of 17 other Republican state attorneys general, argued before the Supreme Court that it should strike down the entire ACA as unconstitutional. If it does, some 21 million people would become uninsured, and millions more could be charged more or denied coverage altogether because they have a pre-existing condition or would lose other important protections.

Along with pushing for full ACA repeal, President Trump also took administrative actions throughout his time in office that caused people to lose coverage or made coverage less comprehensive or less affordable. Despite strong economic growth and falling unemployment between 2016 and 2019, the number of people without health insurance coverage rose by 2.3 million, including over 700,000 children. This is likely due in large part to the following and other Trump Administration actions to undermine the ACA and Medicaid.[1] The Trump Administration:

Made It Harder for Eligible People to Get Coverage

• Slashed consumer outreach and enrollment assistance. The Centers for Medicare & Medicaid Services (CMS) slashed funding for outreach by 90 percent and for the navigator program's enrollment assistance and outreach by more than 80 percent. These cuts alone caused an estimated 500,000 to 1 million people to lose coverage.
• Discouraged immigrants and their family members from enrolling in coverage. The Trump Administration issued immigration rules in 2019 that severely restricted family-based immigration to the United States and created a climate of fear among immigrants and their family members. This led many people to forgo Medicaid or marketplace coverage and other assistance programs for which they were eligible, likely contributing to uninsured rate increases among Hispanic adults, Hispanic children, and children who were not born in the United States.
• Encouraged over-verification in Medicaid and the marketplaces. The Trump Administration pressed states to add burdensome paperwork requirements and other complexity to their systems for verifying Medicaid coverage. This likely caused low-income people — among them eligible children with complex health care needs — to lose coverage and forgo needed medical care, with some states seeing large Medicaid enrollment declines for both children and adults. Likewise, the Administration added new paperwork and verification requirements in the marketplaces, for example making it harder for people to enroll mid-year through special enrollment periods and harder for some very low-income people to enroll at any time.

Encouraged States to Cut Coverage

• Took coverage away from people who didn't meet work requirements. The Administration released guidance in January 2018 that encouraged states to take Medicaid coverage away from people who weren't working or engaged in work-related activities for a specified number of hours each month. Where implemented, these policies terminated or threatened health coverage for 20 to 40 percent of those subject to them; meanwhile, studies of Arkansas' policy found it increased uninsured rates, worsened access to care, and did not increase employment. Federal courts struck down CMS' approval of demonstrations that included work requirements in several states. The Supreme Court has agreed to hear the Trump Administration's appeal of the courts' decisions.
• Imposed premiums on people in poverty. The Trump Administration gave states unprecedented authority to require people in poverty to pay premiums for their Medicaid coverage, in spite of extensive research showing that premiums significantly reduce coverage for low-income people. For example, in October 2018, it approved a Wisconsin demonstration requiring some people with incomes as low as $500 per month to pay premiums to keep their coverage.
• Threatened coverage for HealthCare.gov enrollees. In November 2020, the Trump Administration approved an unprecedented ACA waiver under which Georgia plans to exit HealthCare.gov without creating an alternative state marketplace, requiring its residents to enroll in marketplace coverage exclusively through private brokers and insurers. Tens of thousands of Georgians could lose comprehensive coverage under this fragmented and confusing system. On January 14 the Administration finalized a rule that lets other states make the same harmful change without even requiring a waiver.
• Invited state "block grant" demonstrations. The Trump Administration issued guidance in January 2020 inviting states to apply for demonstrations that would convert their Medicaid programs for adults into a form of block grant, with capped federal funding and new authorities to cut coverage and benefits. This guidance could have led to state policy changes resulting in large coverage losses and reduced access to care. In its final days in office, the Trump Administration approved an unprecedented Tennessee demonstration project that incorporates several policies from the guidance. It creates a financial incentive for Tennessee to restrict access to care for Medicaid enrollees, while offering the state a federal "slush fund" that it can use to supplant state spending with no benefit to Tennesseans needing Medicaid coverage.

Cut Financial Assistance

• Raised costs for millions with marketplace or employer plans by changing insurance payment formulas. In April 2019, the Administration finalized a rule changing the formula for how premium tax credits are updated each year. In 2022, the formula change will raise premiums, after tax credits, by almost 5 percent for millions of marketplace consumers by cutting their premium tax credits. Based on the Administration's own estimates, the rule change will likely reduce coverage by over 100,000 people in 2022.
• Other cuts to premium tax credits. In April 2017, the Trump Administration finalized a regulation letting marketplace insurers reduce the value of coverage provided in marketplace silver plans, on which premium tax credits are based. This likely reduced the value of premium tax credits for millions of people.

Weakened Consumer Protections

• Expanded subpar health plans. In October 2018, the Trump Administration finalized a regulation expanding the availability of so-called short-term health plans, which are exempt from benefit standards and protections for people with pre-existing conditions. The new rules define short-term plans as those lasting less than a year, up from three months under the previous rules, and let insurers extend them for longer. The Administration also changed rules to expand the availability of association health plans, which are also exempt from many ACA standards. Expanded availability of these subpar plans exposes consumers to new risks and raises premiums for those seeking comprehensive coverage — especially middle-income consumers with pre-existing conditions.
• Weakened standards for access to care in Medicaid. The Trump Administration significantly weakened standards for access to care for Medicaid enrollees who receive care through both the managed care and fee-for-service systems. In November 2020, the Administration finalized a rule undermining key sections of the managed care rule. In July 2019, it proposed to rescind the access rule entirely (though this change was not finalized).
• Restricted access to qualified family planning providers. The Trump Administration rescinded guidance in January 2018 that affirmed Medicaid's "free choice of provider" provision, which allows beneficiaries to receive family planning services from all qualified providers of such services. It then approved state proposals preventing qualified family planning providers, in particular Planned Parenthood, from participating in Medicaid's family planning program if they also provide abortions. This policy significantly limits access to care in many places.
• Attempted to gut anti-discrimination policies. In June 2020, the Trump Administration finalized a rule gutting anti-discrimination protections for LGBTQ+ people, women, people with limited English proficiency, and people with disabilities. Among other things, the rule eliminated specific non-discrimination protections based on sex, gender identity, and association and removes requirements ensuring that people with limited English proficiency can get important information about their health care and coverage. Within days, the Supreme Court issued a historic decision that undercuts the Trump Administration's changes, yet they are likely to create confusion and fear, causing people to delay or avoid seeking medical attention or health coverage.

January 15, 2021

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