Blog Post by: Benjamin Landy, on February 29, 2012
For years, conservatives have been arguing that the United States ought to lower the top marginal tax rate and "broaden the base"—a careful euphemism for eliminating loopholes and deductions, many of which benefit the poor. Now, President Obama is putting that orthodoxy to the test, proposing an overhaul of the corporate tax code that would eliminate numerous loopholes and deductions while lowering the top rate to 28 percent. Since few large corporations pay anywhere near the current rate of 35 percent, an effective rate of 28 percent should amount to a tax hike for serial tax avoiders—and a revenue boost for the Treasury.
The proposed framework is not perfect—TCF budget policy analyst Andrew Fieldhouse has an excellent summary of the plan's merits and shortcomings here, and a follow-up post on debt financing here—but it's a step in the right direction, and there is a lot at stake. According to a press release this week from Citizens for Tax Justice, General Electric's latest SEC filing shows that the company paid "at most 2.3 percent of its $81.2 billion in U.S. pretax profits in federal income taxes over the last 10 years." And GE is not alone—an earlier CTJ report revealed that 280 of the most profitable Fortune 500 companies paid an average rate of just 18.5 percent from 2008 to 2010, while 78 actually paid zero or less. All together, those 280 companies cost the United States nearly a quarter-trillion dollars in taxes that would otherwise have helped balance the federal budget. High profits and low taxes: this is why we need corporate tax reform.
Blog Post by: Halley Potter, on February 23, 2012
Earlier this week, the U.S. Supreme Court decided to hear Fisher v. Texas, the most recent legal challenge to affirmative action. Century Foundation Senior Fellow Richard D. Kahlenberg has been following the case and explaining the issues at stake. “It’s not whether we should have affirmative action or whether we shouldn’t, it’s what kind of affirmative action should we stress: race-based or race-neutral?” said Kahlenberg in Slate. “The best thing the Supreme Court could do is make universities focus on the looming class divide in higher education.” Learn more about the debate over the use of race in college admissions by following Kahlenberg’s commentary on Fisher v. Texas.
Blog Post by: Benjamin Landy, on February 22, 2012
Yesterday I commented on what Mark Thoma and Karl Smith both identified as one of the most significant graphs in the White House's Economic Report of the President. That graph showed how the historical post-war relationship between wages and prices—or more fundamentally, between labor and capital—has broken down over the last thirty years. You can probably guess who has gotten the short end of the stick.
Traditionally it has been the case that a competitive market prohibits businesses from raising prices too high or pushing labor costs too low, as both consumers and labor will look elsewhere for a better price. And historically, that dynamic has held: from 1947 until the mid-1980s, American wage earners accrued a proportionate share of economic output as productivity rose. But since the Reagan Revolution, corporate profits have surged while wages have flatlined, breaking the post-war trend that essentially created the American middle class.
Blog Post by: Benjamin Landy, on February 22, 2012
The White House's new Economic Report of the President—broadly, an annual overview of how the president and his Council of Economic Advisors (CEA) view the state of the economy—is generally optimistic for 2012, noting better-than-expected job growth and economic expansion for ten straight quarters. It also underscores just how severe the financial crisis was that the president faced, with revised estimates showing that the economy contracted at an 8.9 percent annualized rate in the last quarter of 2008, not the 3.8 percent initially claimed.
The outlook on wages, productivity, and prices is less rosy. The CEA notes ominously that for the first time since World War II, the historical link between wages and prices has broken. For the last ten years, inflation has been driven by rising price markup, while unit labor costs have fallen behind productivity gains. In other words, prices are increasing and corporate profits are soaring—but workers are being left behind, with labor share of output (the inverse of price markup over labor unit costs) at its lowest level in seventy years.
Blog Post by: Benjamin Landy, on February 14, 2012
“Even Critics of Safety Net Increasingly Depend on It,” read a recent New York Times headline, capturing in a sentence the uncertain and contradictory sentiment of millions of middle class Americans who say they want the government out of their lives, but admit they count on Social Security, Medicare, and other benefits to stay afloat. Chisago, Minnesota—the archetypal heartland county in which much of the events in the article take place—is illustrative: a former Democratic stronghold, now with a declining middle class and a decidedly conservative outlook, whose residents struggle to reconcile their resentment with reliance on entitlement programs.
Blog Post by: Benjamin Landy, on February 9, 2012
My colleague Greg Anrig's critique of Charles Murray's Coming Apart: The State of White America 1960-2010, discusses Murray's claim that top-tier universities perpetuate a genetically superior elite, whose privilege further isolates them from working-class Americans. As Anrig points out, class privilege in higher education is a problem The Century Foundation takes seriously (our own research shows that 74 percent of the students at highly selective colleges come from the richest socioeconomic quartile, while just 3 percent come from the bottom fourth).
The fact is that among high school students who score in the top 25th percentile on standardized tests, socioeconomic background remains the most significant predictor of whether they will go on to earn a college degree. According to a 2010 Century Foundation report, high-scoring students from a poor socioeconomic background were only about half as likely to attend a four-year college as their wealthy peers, but five times more likely to attend no college at all. And with the cost of a four-year college education skyrocketing, is it really any wonder that affordability has become a major obstacle for equally intelligent and deserving students? Murray's argument that the wealthiest students dominate selective colleges simply because they are the smartest doesn't stand up to scrutiny. The data below is from the U.S. Department of Education.
Blog Post by: Greg Anrig, on February 9, 2012
Social Security benefits could be subject to cuts under new legislation currently being crafted by a bipartisan group of senators. The group’s proposal would trigger new taxes and budget cuts if Congress fails to meet a set of mandatory spending targets and other fiscal goals aimed at reducing federal deficits.
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