Talking Point

Minimum Wage Hike: Stimulus When We Need It

Isaiah J. Poole — Fri, 24 Jul 2009 07:38:28 -0700

On July 24, the federal minimum wage increased to $7.25 an hour. At a time when getting money into the hands of workers—and thus consumers—is key to jump-starting the economy, a 10.7 percent wage increase will mean $1.6 billion in extra purchasing power for the estimated 4.5 million workers directly affected by the increase.

Here are some facts to remember, based on research from the Economic Policy Institute:

An individual earning $7.25 an hour in a standard 2,000-hour work year would earn an annual income of $14,500—still slightly below the 2009 federal poverty level of $14,570 for a family of two.
More than three-quarters of the workers who will be affected by the wage hike are 20 years old or older and more than half live in a family where the total family income is less than $35,000.
For workers earning the minimum wage, even after the upcoming increase takes effect, their incomes will still be about 18 percent below the real value of minimum wage in 1968. Rather than getting ahead on July 24, they will only be partially catching up.
An estimated 430,000 single parents with children under 18 will benefit from this minimum wage increase. Single parents will benefit disproportionately from an increase—single parents will make up 10% of workers affected by this increase, but they make up only 7% of the overall workforce. In addition, approximately 2.2 million children will benefit as their parents’ wages are increased.
Women are 63 percent of workers who will benefit from the increase, the largest group that would benefit.
People of color will get a disproportionate share of the benefit from a minimum wage increase. African Americans represent 11 percent of the total workforce, but are 18 percent of workers affected by an increase. Similarly, 14 percent of the total workforce is Hispanic, but Hispanics are 19 percent of workers affected by an increase.
An additional 1.6 million workers who currently earn only slightly more than $7.25 an hour will likely see an increase too, as employers maintain internal wage ladders. This could serve as additional stimulus, further increasing the buying power of more Americans and putting more money back into the economy.

Learn more about the minimum wage though this Making Sense fact sheet.

How Even People With Jobs Are Falling Behind

Isaiah J. Poole — Thu, 23 Jul 2009 08:55:40 -0700

A BusinessWeek magazine article notes: "Buried in the June jobs report is this critical bit of information about the labor market: The average workweek for the month fell 0.1 hours, to 33 hours, the lowest ever recorded for data that go back to 1964. Average weekly earnings, meanwhile, actually fell to $611.49 in June, from $613.34 in May. Hourly earnings remained flat. Economists say the combination of reduced hours and pay, along with continued job losses, could significantly slow a recovery as even the employed lack the means to boost their spending."

The combined impact of layoffs and salary cuts works out to the equivalent of losing 800,000 jobs in June, according to David Rosenberg, chief economist and strategist for Gluskin Sheff & Associates, who was quoted in the article.

Workers who have seen their salaries cut as much as 20 percent are in no position to lead an economic recovery. We need a jobs stimulus that quickly restores lost jobs and wages. We'll have to increase the federal deficit in the short term in order to have an economic recovery robust enough to lower the deficit in the long term.

Protecting Jobs: A Lesson From Germany

Isaiah J. Poole — Thu, 25 Jun 2009 15:03:58 -0700

Germany’s active labor market policy has enabled it to keep unemployment at a relatively stable rate while unemployment in other countries, including the United States, has risen sharply during the global economic crisis. While unemployment in Germany is currently around 8 percent and is averaging slightly lower than it was in May 2007, in the United States the unemployment rate is 9.4 percent and moving higher.

Why does Germany, which usually has a higher unemployment rate than the United States, now have lower unemployment? One reason, according to the Economic Policy Institute, is a “short work” program that encourages employers not to lay off workers. If an employer’s production falls by 10 percent or more, the government will pay the employer 67 percent of a worker’s salary (60 percent for workers without children) if the employer keeps the worker on payroll.

This policy, along with a “cash-for-clunkers” program, has meant that, as of June 1, Germany had not lost a single full-time job in auto manufacturing, according to German Labor Minister Olaf Scholz. By comparison, 92,500 American auto manufacturing workers have lost jobs in the last 24 months. The Big Three U.S. automakers and their suppliers have closed plants and dramatically reduced production, resulting in a loss of 354,000 jobs in U.S. auto and auto parts manufacturing over the past two years alone.

Some Tax Facts You Won't Hear At A Tax Protest

Isaiah J. Poole — Wed, 15 Apr 2009 08:21:11 -0700

Anti-tax protesters are often grossly misled about federal tax burdens and how the tax system has been rigged to favor the very people who are orchestrating false populist anger. Some facts:

An April 2009 Gallup poll found that 61 percent of respondents felt that the federal income tax they will have to pay this year is “fair.”
Thirty-nine percent of respondents with incomes below $30,000 said that they thought the federal income taxes they pay are “too high.” Says a Citizens for Tax Justice study, "This is remarkable, because only 32 percent of taxpayers in this income group will pay any income tax at all on their 2008 income." The remainder will pay an average of 2.6 percent of their earnings in federal income taxes.
Tax burdens on middle-class families are already at their lowest levels in decades, according to a Center for Budget and Policy Priorities report and "Tax Policy Center data. Households in the middle fifth of the income spectrum paid an average of 14.2 percent of their income in federal taxes in 2006.
But the tax burden for those at the very top—like the people who bankrolled the April 15 Tax Day protests—have fallen even farther, according to economists Thomas Piketty and Emmanuel Saez. And they've gotten a disproportionate benefit from conservative tax policies. Almost one-fourth of the benefit of the the Bush administration tax cuts by 2010 will have gone to the 0.3 percent of households with incomes of more than $1 million per year, according to the Tax Policy Center. Less than one-sixth of the total value of the tax cuts will go to the bottom 60 percent of households.

The "Tax Freedom Day" Scam

Isaiah J. Poole — Tue, 31 Mar 2009 15:12:54 -0700

The Tax Foundation releases an annual report that declares a "Tax Freedom Day," the day at which "Americans...have earned enough money to pay this year's tax obligations at the federal, state and local levels." This year, that date falls on April 13.

Conservatives use the Tax Foundation report to get people riled up about the amount of taxes they pay. But the Center for Budget and Policy Priorities says the Tax Freedom Day brouhaha is deceptive. The reason is simple: The Tax Foundation only looks at taxes as a percentage of the total economy. But that doesn't take into account the reality of the average family. Because the federal tax system is progressive, the share of income that most Americans pay in federal taxes is considerably lower than the overall level of revenues as a share of total national income. In fact, about 80 percent of U.S. households pay federal tax at rates lower than the Tax Foundation’s reported average, according to the Congressional Budget Office.

But the even more fundamental fallacy is that people spend part of the year working for "the government" and the rest of the year working for themselves and their families. Government tax dollars also serve you and your family—or at least they should. Conservatives use rhetorical gimmicks like "Tax Freedom Day" to drive a wedge between government and the people (but use government to serve their friends and supporters). Progressives work to make sure government serves the public good. There's no need to declare a "tax freedom day"; we need to stay focused on making sure government works as it should for all of us.

Spending Better Than Tax Cuts In Jump-starting Employment

Isaiah J. Poole — Wed, 28 Jan 2009 20:43:59 -0800

Conservative assertions that tax cuts are more effective and efficient in promoting employment growth during a recession defy basic generally accepted economic understanding as well as common sense. A yardstick known as "Okun's Law" by economists suggests that a 2 percent increase in gross domestic product leads to a 1 percent decrease in unemployment. The Center for Economic and Policy Research estimates that about $100 billion in government spending would lead to a 1 percent increase in GDP and a 0.5 percent drop in unemployment, or 1 million new jobs. But $100 billion in corporate tax cuts would lead to only a 0.2 percent increase in GDP and only 200,000 new jobs. The proceeds from corporate tax cuts could be used in a number of ways that don't produce jobs—stock buybacks, higher shareholder dividends, or overseas investments. But government purchases of goods and services directly translate into saved or created jobs, and that in turn creates a multiplier effect through the economy.

The Truth About Government Waste

Isaiah J. Poole — Wed, 22 Oct 2008 09:26:35 -0700

Conservatives promise to crack down on “earmarks”—federal spending allocated in legislation for a specific project or location. No more "bridges to nowhere." That’s great, but it doesn’t add up to much—$18 billion of a $3 trillion federal budget. Want to root out waste in government? Over the past eight years, you’d do better to look at the Iraq war ($656 billion), subsidies for big corporations ($100 billion a year), waste and fraud in the Pentagon’s budget, and tax breaks for the rich (which amounted to a $1 trillion transfer to the richest 5 percent of Americans).

Our Sinking Economy

Isaiah J. Poole — Mon, 06 Oct 2008 09:04:46 -0700

On Monday morning, the Dow Jones Industrial Average fell below 9,900. It was the latest sign that that the $700 billion bailout bill passed by Congress last week at the behest of the Bush administration will do little, if anything, to address the fundamentals of the economic crisis.

Nonetheless, last week Senate Republicans used a filibuster to kill a modest stimulus bill that would have pumped needed money into Main Street. We need help for the real economy, not just for the mess on Wall Street.

But that's not all. Conservatives promise to continue and expand the Bush trade policies that are costing Americans their jobs.Conservatives also continue to push another huge tax cut for corporations, while rejecting direct job creation and new economic stimulus proposals. One analyst estimates that the major components of a so-called "jobs plan" proposed by Sen. John McCain would cost $280 billion and create fewer than half a million jobs in 2009—a drop in the bucket when compared to the jobs that are expected to be lost if this recession unfolds with the ferocity of recessions of the past 30 years. (More details in this Making Sense alert, "What About Our Sinking Economy?")

Here's the alternative: public investment in renewable energy and rebuilding projects for schools and infrastructure, expanded unemployment benefits, and aid to cities and states to avoid layoffs of teachers and cops. In the long term, we need a national strategy in the global economy that works for working people, while supporting workers with universal health care coverage, union-organizing rights, and fair wages.

State Budget Cuts Will Worsen Economy

Isaiah J. Poole — Mon, 09 Jun 2008 15:25:02 -0700

Twenty-nine states and the District of Columbia face a combined budget shortfall of about $48 billion in their 2009 budgets, which in most states take effect in July. Already, state and local governments modestly trimmed jobs in the past year, but to close the looming shortfalls states will have to make more dramatic job cuts, and program and project cuts will have ripple effects in the private sector as well. This will worsen economic conditions in states that are already struggling economically, including Arizona, California, Illinois, New Jersey, New York and Rhode Island. Congress should pass an aid package to states that will help them balance their budgets without deepening the recession.

'Tax Freedom Day': Misleading Propaganda

Isaiah J. Poole — Wed, 23 Apr 2008 13:22:39 -0700

A right-wing group called The Tax Foundation declared April 23 "Tax Freedom Day," representing the time it takes "Americans" to earn enough money to pay their federal, state and local taxes. A YouTube video dramatizes the organization's contention that average Americans are overtaxed, with a song that says, "I think it's too late in the year for Tax Freedom Day." But their annual proclamation is bogus.

Their calculation averages the tax burdens of the wealthy and the non-wealthy. And because the income increases experienced by the wealthiest 20 percent of taxpayers during the Bush administration far outstrip the income stagnation of the bottom 80 percent, the increase in tax receipts from that higher income bears no relationship to the tax burden of average families, which has actually gone down.

It's also misleading to say that families are paying more of their income in taxes than they are spending on food, clothing and other necessities. That is definitely untrue for low-income families, who may pay little or nothing in federal taxes, and is likely to be untrue for a number of middle-income families, depending on the tax deductions available to them.