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Our projects are designed to empower policy makers to create positive change. With a focus on collaboration and outreach, we provide original, standards-based research on key policy issues.
SCEPA joined with the Economic Policy Institute on Capitol Hill to brief congressional staff and policy experts on tax expenditures, or incentives given through the tax code without scrutiny by Congress.
SCEPA economists are working on the prospects for a more progressive economic order to emerge from the shock of the recession. They have published papers and documents that place current events in a longer-term context as well as policy proposals to deal with short-term concerns. They are also documenting the emerging discussion of how the discipline of economics is reacting to the Great Recession and the questioning of conventional economic analysis.
Lance Taylor, a SCEPA Faculty Fellow, presents an overview of his new book, Maynard’s Revenge, in a Google Tech Talk.
The book, published this November by Harvard University Press, is a timely analysis of mainstream macroeconomics, posing the need for a more useful and realistic economic analysis that can provide a better understanding of the ongoing global financial and economic crisis.
The government spends $143 billion through tax breaks in an effort to expand pension coverage and security. Yet, over half of the American workforce does not have a pension. Retirement insecurity hurts business plans, workers’ lives and retiree well-being. Reform is needed.
SCEPA’s Guaranteeing Retirement Income Project, sponsored by the Rockefeller Foundation and in collaboration with Demos and the Economic Policy Institute, has a plan to guarantee safe and secure retirement income for all Americans.
Eduardo Porter summarizes his point in today's Economic Scene column in the New York Times when he states, "Tax expenditures die hard." SCEPA's economists have long called for reform, raising the issue during the many deficit commission and budget negotiations since the 2008 recession took over the nation's headlines. As Porter correctly notes, a little sunshine on tax expenditures could be a game-changer in terms of who gets what from Washington.
Porter echoes our argument that tax expenditures are both inefficient and regressive through his analysis of the lopsided effects of $1.1 trillion in tax breaks that are designed to promote social policy - like housing, medical insurance and retirement savings- but operate through the back door of the budget. Because these tax breaks – or foregone tax revenue – never see the light of day in a budget hearing or as part of the annual appropriations process in the U.S. Congress, it often goes unnoticed that they don't work.
In April of 2007, SCEPA co-hosted "Tax Expenditures and Social Policy: Are We Getting Our Money's Worth?" with the New American Foundation. The event focused on three of the largest tax expenditures in the U.S. budget: the health care premium exclusion, the home mortgage interest deduction, and the retirement plan exclusion. SCEPA next went directly to Capitol Hill, holding a briefing for lawmakers, their staff and advocates in October of 2010. David Walker, former Comptroller General of the U.S., called for the need to implement statutory budget controls that address tax preferences, and and Eric Toder of the Urban Institute presented data supporting the fact that the well-off are more likely to benefit.
Teresa Ghilarducci, SCEPA director and long-time advocate for reform in retirement policy, notes that retirement savings tax breaks are particularly lopsided. Rather than increasing retirement plan coverage and savings rates, most of these subsidies go to high earners who already have adequate retirement savings and can simply shift savings to tax-favored accounts. A 2005 GAO report cites research showing that no more than 9% of savings under the IRA tax expenditure are new savings engendered by the program. Taxpayers in the highest-earning 20% claim nearly 80% of the total benefits of entitlement programs for retirement accounts. If the total sum of these tax breaks were turned into tax credits, every taxpayer would receive $600 per year.
This behind-the-scenes tradition trickles down to the states. With little fanfare or acknowledgment, many states pass through these tax breaks. In Connecticut, New York and California, a credit would yield an extra $53, $158, $145, respectively. This means that on top of a federal tax credit, taxpayers in New York could receive as much as $758 per year to contribute to their retirement account. This may not sound like much, but it would be seed money for the workers who need it most: those that have little to no retirement savings.
A March 7, 2012, New York Times article by Steven Greenhouse, "After the Storm, the Little Nest Eggs That Couldn't," provides an in-depth look at how a lack of savings and the damaging effects of the financial crisis is eroding the dream of a comfortable retirement for older Americans without traditional pensions or personal fortunes. To compensate, many elderly workers are staying in the workforce longer, while many more struggle to survive on Social Security alone.
"There's a crisis situation because near-retirees lost 25 percent of their assets in the financial crisis," said Teresa Ghilarducci, a retirement expert at the New School. "It looks like most middle-class Americans will become poor or near-poor retirees."
by Rick McGahey, SCEPA Faculty Fellow
This morning's release of the February monthly employment report shows steady job growth in the economy, but provides no reason to cut government spending or stop calling for more economic stimulus. Nonfarm payroll employment rose by 227,000 jobs, across almost all sectors. In the last three months, jobs have risen by an average of 245,000 per month, and by 3.5 million since the low point in February of 2010. The unemployment rate stayed at 8.3 percent, because labor force participation increased as some of those out of the labor market come back in, lured by growing employment.
So why isn't this unambiguously good news? First, we are still far, far from full employment. The Atlanta Federal Reserve has a nice jobs calculator on their website, allowing easy estimation of how long it will take to reach a certain unemployment rate. To get to 5.5 percent unemployment, we need another 30 consecutive months of job growth at February's level.
Well, isn't that possible if the economy is growing steadily? A second problem is that falling unemployment will increase calls for cutting government spending, which will in turn slow economic and job growth. As this chart shows, Macroeconomic Advisors has estimated that the current deficit reduction package resulting from Congressional failure to reach a deal last year will produce a static fiscal drag (that is, before multiplier effects) of close to a full percentage point of GDP. The economic recovery still needs stimulus, not drag, especially if the Eurozone crisis continues.
And this federal fiscal drag will come on top of continuing contraction caused by cuts in state and local government spending. While the federal government has been running a stimulative deficit, state and local governments (who are required to balance their budgets annually) are continuing to cut spending. Jared Bernstein estimates that the state and local cuts cost us 0.3 percentage points of GDP in 2011, with more to come this year.
Politically, the February job numbers are good for President Obama. Ronald Reagan was re-elected in 1984 in a landslide, when unemployment was at 7.2 percent. If the February job rate keeps up, it would take the economy another 11 months to hit that number, but if the trend stays in the right direction, Obama will be stronger. There's no chance he will win in a Reagan-esque landslide, but continuing job growth will help him substantially. The data shows that job growth is still fragile, and any economic policy that calls for contraction or imposes austerity would choke off confidence and stall recovery.