Posts from December 2012

Additional Focus

2012

Blog Post by: Nezam Aziz , on December 31, 2012

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The Best and Worst in National Security: 2012

Blog Post by: Michael Cohen , on December 29, 2012

Presidential campaigns are rarely, if ever, fonts of restrained, nuanced, or comprehensive discussions of foreign policy and national security—but 2012 seemed to reduce this already lowest common denominator conversation . . . even lower.

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Meet “Dirty Dozen” Tax Break #9: Timber Subsidies

Blog Post by: Benjamin Landy , on December 21, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

For years, the timber industry profited from a number of unusually large tax breaksincluding a 60 percent capital gains exclusion for individuals and a special 28 percent corporate capital gains tax ratebefore they were eliminated by the 1986 Tax Reform Act. Two significant tax breaks, however, remain: one that allows companies to deduct multi-period timber growing costs, and another that allows certain timber income to be taxed at the lower capital gains rate.

Together, these tax breaks cost the Treasury around $400 million a year in lost revenue, and nearly $4.8 billion in the ten years since The Century Foundation's 2002 report Bad Breaks All Around first recommended eliminating timber subsidies. Absent any convincing reason why taxpayers should continue to support the timber industry, which has enjoyed both strong profits and a growing market capitalization, it is time for these handouts to end.

Timber subsidies

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Workers & Economic Inequality

Finding Solutions to the Household Debt Problem

Blog Post by: Greg Anrig , on December 21, 2012

On Longreads.com, writer Maria Bustillos justifiably praises a “breathtaking debate” on debt relief in Boston Review as one of the best features of 2012. The lead essay in that package by Roosevelt Institute Fellow Mike Konczal lays out a compelling case that the still cavernous overhang of household debt in the aftermath of the housing bubble collapse is the central reason why the economic recovery remains so stubbornly sluggish.

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Workers & Economic Inequality

Lessons from the Great Recession: Best and Worst Monetary Policy of 2012

Blog Post by: Mark Thoma , on December 21, 2012

The recovery of output and employment from the Great Recession has been far too slow, in part because of the failure of both monetary and fiscal policy authorities to pursue sufficiently aggressive policies. But there is reason to be hopeful that policy will improve as some of the worst ideas fade, and better ideas take their place.

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Workers & Economic Inequality

Labor Becomes Part of the National Conversation: The Best and Worst of 2012

Blog Post by: Amy Dean , on December 21, 2012

This was a tumultuous year for working people and their families. From the grassroots uprisings last winter to the low-wage workers’ strikes at year’s end, 2012 saw many people coming together for the first time and finding their voices. Below are the items that I would highlight as the best and worst developments of 2012 in the world of labor and progressive social movements.

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Workers & Economic Inequality

Boehner’s “Plan B” Would Result in an Austerity-induced Recession

Blog Post by: Andrew Fieldhouse , on December 21, 2012

With headlines like “Boehner Drops Effort to Avoid ‘Fiscal Cliff’” saturating the Internet today, a little clarification is sorely needed: Speaker of the House John Boehner’s (R-Ohio) so-called “Plan B” may have been many things, but it was certainly not a plan to avoid an austerity-induced recession in 2013—which is what people should be talking about, anyway, when they refer to “avoiding the fiscal cliff.”

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Meet “Dirty Dozen” Tax Break #8: The Exemption of Credit Union Income

Blog Post by: Benjamin Landy , on December 20, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

Credit unions in the United States have been exempt from the federal income tax since 1937, following an amendment to the Federal Credit Union Act of 1934, in recognition of their not-for-profit, cooperative status. Although credit unions still pay property, sales and employment tax, some groups (particularly for-profit banks) have challenged this tax-exempt status. The Century Foundation's 2002 Working Group on Tax Expenditures recommended revoking this status a decade ago in order to raise around $1 billion a year in currently foregone revenue.

However, as a general institutional policy, The Century Foundation does support the continued tax exemption for credit unions, which are chartered under a "common bond" that gives each member a share of ownership in proportion to their deposits. These cooperative bonds, along with their not-for-profit corporate structure, lend credence to the idea that credit unions fill an important social role in their communities by providing financial services to otherwise disadvantaged populations. All profits are reinvested or paid back to credit union members, and taxed as dividends.

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Workers & Economic Inequality

Developments in Tax Policy: The 2012 Edition

Blog Post by: Edward D. Kleinbard , on December 20, 2012

In recent years, developments in tax policy, and political economy more generally, have been dominated by two themes: rafts of new technical rules of great import to practitioners or affected taxpayers, but no one else, and legislative paralysis. The past year fits squarely into this modern tradition.

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Workers & Economic Inequality

Best Fiscal Policy Development of 2012

Blog Post by: Andrew Fieldhouse , on December 20, 2012

The best fiscal policy development of 2012 has been the near-universal refutation of the expansionary austerity hypothesis, and a better understanding of the risks of austerity-induced recessions. International evidence and economic research has lent credence to the welcomed realization that, in the United States, expansionary fiscal policy has been largely responsible for propping up anemic growth rates, and that recent pullback of fiscal support has already contributed to decelerating recovery.

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The Arab Spring Turns Two

Blog Post by: Thérèse Postel , on December 20, 2012

On December 12, The Century Foundation held a panel discussion on the foreign policy challenges that await President Obama in his second term brought about by the Arab Awakening two years ago. The panel, moderated by James Traub of Foreign Policy and the Center for the Responsibility to Protect, included Michael Hanna and Thanassis Cambanis of The Century Foundation, as well as Tamara Coffman Wittes of the Saban Center for Middle East Policy at the Brookings Institution. Written by Therese Postel. 

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Foreign Policy

Fellow Patrick Radden Keefe Makes Top Ten Longform Reads of 2012

Blog Post by: Website Administrator, on December 20, 2012

TCF Fellow Patrick Radden Keefe makes Longform's Best of 2012 list. His New York Times Magazine article on how the Mexican drug cartels makes their billions, titled Cocaine Incorporated, comes in the #3 spot.

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Meet “Dirty Dozen” Tax Break #7: Medical Savings Accounts

Blog Post by: Benjamin Landy , on December 19, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

Since 2004, Americans with high-deductible health plans (HDHP)—a form of catastrophic coverage favored by the wealthy—have benefited from a tax exemption on savings for medical expenses held in Health Savings Accounts (HSA). These tax-free accounts, which replaced the earlier Medical Savings Account system, allow consumers to deduct income deposited into HSAs from their federal income tax, much like a traditional IRA contribution. However, both HSA deposits and investment earnings accrue tax-free, and are also tax-exempt when they are withdrawn for qualified medical expenses—a "rare triple play in the world of tax breaks," as the New York Times puts it.

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Workers & Economic Inequality

2012 Was a Year of Confirmations

Blog Post by: Daniel Alpert , on December 18, 2012

On the one hand, the developed world has placed itself on a dismal trajectory in its effort to avoid the pain of constructive solutions to enormous economic problems, with the result of kicking those issues into 2013 and beyond, as I predicted throughout this past year. On the other hand, in the United States, an electorate rejected—rather decisively—a stale and adulterated set of economic solutions that had a three-decade track record of failing to deliver anything but one economic crisis after another, confirming that a democratic polity can eventually be relied upon to take competent measure of things. I am far more optimistic about the latter confirmation than the accuracy of my predictions relative to the former.

As one who believes that meaningful change to, and repair of, economies faced with systemic dilemmas can occur only when no other choice exists, we nonetheless managed to delay repair, instead opting for another twelve months of unprecedented central bank money pumping (in all its guises, conventional, quantitative and credit easing) throughout the developed world.

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Meet “Dirty Dozen” Tax Break #6: Tax Credits for Nonconventional Fuels

Blog Post by: Benjamin Landy , on December 17, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

#6: Tax Credits for Nonconventional Fuels

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Meet “Dirty Dozen” Tax Break #5: Exemption of Interest on Municipal Bonds

Blog Post by: Benjamin Landy , on December 14, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

As Washington hurtles toward the $607 billion wall of austerity policies known as the "fiscal cliff," policymakers are struggling to agree on which tax breaks and corporate loopholes to close as part of a larger deal to avert an economic recession in 2013 while reducing the budget deficit in the long term.

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The Best and Worst in Education and Labor: 2012

Blog Post by: Richard D. Kahlenberg , on December 14, 2012

The biggest news for education and labor watchers in 2012 was, of course, the reelection of a president far more supportive of investing in students and worker rights than his opponent.  But 2012 also saw important setbacks for public school advocates in Louisiana and Indiana and for workers and labor unions in Wisconsin and Michigan.

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Additional Focus

Kludgeocracy—Yeah It’s a Problem, but Policy Complexity Is Also a Fact of Life

Blog Post by: Harold Pollack , on December 14, 2012

My buddy Steve Teles wrote an excellent and provocative essay for the New America Foundation called “Kludgeocracy: The American Way of Policy.”

You can’t solve a problem until you can name it. We have names for one axis of our politics—right vs. left, big versus small government. But voters and politicians have no name for what should be an equally important set of questions that cuts straight through those ideological divisions, which is complexity versus simplicity. The name, for a lack of a better alternative, is kludgeocracy.

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Education

2012 Review. Kahlenberg on education and labor

Blog Post by: Richard D. Kahlenberg , on December 14, 2012

The biggest news for education and labor watchers in 2012 was, of course, the reelection of a president far more supportive of investing in students and worker rights than his opponent.  But 2012 also saw important setbacks for public school advocates in Louisiana and Indiana and for workers and labor unions in Wisconsin and Michigan.

On the plus side of the ledger, 2012 witnessed the revival of tough and innovative teacher union leadership in Chicago and Washington; the emergence of center-right interest in school integration; improved prospects for class-based affirmative action at selective colleges and universities; and the beginnings of an innovative private sector union movement that intelligently re-frames organizing as a civil right.
 

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Meet “Dirty Dozen” Tax Break #4: The Graduated Corporate Income Tax Rate

Blog Post by: Benjamin Landy , on December 13, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

According to most economists, progressive taxation is justified by the fact that taxpayers across the income spectrum vary significantly in their “ability to pay.” A millionaire, for instance, can afford to contribute more of each additional dollar earned than a family near the poverty line. This framework, while contested by some on the right, is generally accepted as an ethical way to reduce income inequality in capitalist societies and improve the welfare of the poor.

The same cannot be said, however, of the graduated income tax for corporations, which have no such welfare to consider, and therefore no necessary limit to their "ability to pay" tax on their profits.

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Meet “Dirty Dozen” Tax Break #3: Regional Economic Development Incentives

Blog Post by: Benjamin Landy , on December 12, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

Incentives for regional economic development have long been used by state and county governments to stimulate local economic growth and to encourage business relocation. This common practice escaped media scrutiny until the 1980s and 1990s, when interest in regional incentives grew in response to a number of high-profile bidding wars between states and towns to attract new businesses, particularly automobile manufacturing facilities. But while interest in these tax breaks—and the size of the tax breaks themselves—has grown over the years, most research on the exact size and effectiveness of these expenditures has been inconclusive or otherwise unsatisfactory.

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Is Student Debt the Next Financial Crisis?

Post by: Benjamin Landy , on December 12, 2012

Americans have paid off some $1.7 trillion in mortgage, home equity, car loan, and credit card debt since the height of the recession, according to the latest Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York. The overall delinquency rate has fallen, too, as consumers have gotten better at paying their loans back on time. But one sector of the credit market continues to grow unabated. Outstanding student loan debt has increased $350 billion since the third quarter of 2008, when every other form of credit was collapsing. Student loans surpassed credit card debt for the first time in 2010, and now total more than one trillion dollars.

Making matters worse, the percentage of that trillion dollar debt that is 90 days delinquent or more spiked unexpectedly last quarter, from 8.9 percent to 11 percent—an increase representing more than half a million delinquent borrowers in three months, for a total approaching 6 million. But almost half of all student loans are in deferment or in grace periods, and "therefore temporarily not in the repayment cycle," according to the NY Fed. That means the real number of loans that should be considered delinquent is "roughly twice as high"—closer to 22 percent. The spike last quarter in the reported figure in the direction of that upward bound likely has a lot to do with the three-year maximum that students are allowed to defer their loans due to unemployment or economic hardship. For many borrowers, the three-year grace period that began at the height of the recession in 2009 is now over.

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Meet “Dirty Dozen” Tax Break #2: The “Percentage Depletion” Deduction

Blog Post by: Benjamin Landy , on December 10, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

To encourage domestic production, the U.S. government provides subsidies through the tax code to the oil and gas industries worth billions of dollars each year. One of the largest of these tax expenditures is the so-called "percentage depletion" deduction, which allows independent oil and gas (and other fuel mineral) producers to automatically deduct 15 percent of their gross income from production, rather than simply writing off the real cost of their investments based on the fraction of resources extracted ("cost depletion"). Since the "percentage depletion" deduction is a flat rate, the resulting tax break often exceeds the normal depreciation or cost depletion deduction, thus acting as a sizable subsidy to qualifying energy companies.

Although the total revenue loss from the excess of percentage depletion over cost depletion has fallen somewhat since the deduction was first created in 1926, it still costs taxpayers over $1 billion annually—a substantial increase since 2001.

Excess of percentage over cost depletion

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TCF Fellows Make List of Top Economists to Follow on Twitter

Blog Post by: Website Administrator, on December 10, 2012

Today, the Huffington Post released a list of 26 Economists You Should be Following on Twitter. As Bonnie Kavoussi writes, Twitter can be a great place to find economic news, policy and analysis. However, it can be difficult to figure out who to follow. We are happy to report that this comprehensive list includes two Century Foundation fellows, Mark Thoma and Harold Pollack. For more policy news and analysis be sure to follow The Century Foundation on Twitter and see a list of all our expert fellows.

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Meet “Dirty Dozen” Tax Break #1: Export Tax Incentives

Blog Post by: Benjamin Landy , on December 7, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

In 1952, the corporate income tax accounted for about one third of of all federal tax revenue. But, over the years, U.S. multinationals have devised increasingly complex tax avoidance schemes, far beyond the ability of the IRS to credibly monitor or enforce. Although the corporate tax rate was also lowered significantly in 1986, tax avoidance is one of the primary reasons why corporate taxes supply less than 9 percent of federal revenues today.

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Education

Anrig: Tearing Down the Classroom Walls

Blog Post by: Greg Anrig , on December 7, 2012

Vice-President for Programs, Greg Anrig's piece in the Huffington Post

Creativity comes about from interdisciplinary ways of seeing things, Sir Ken Robinson tells us in his TEDTalk. One of the central reasons that most schools fail to nurture the ability of students to connect dots across different disciplines is that they are rigidly structured, much like old-fashioned assembly lines. Each classroom is a box in which a teacher imparts information about a particular subject. Students move through the day from one box to the next, while teachers stay in their own boxes isolated from colleagues and following the same instructional practices they have always used. In essence, the walls of the classroom create walls in the minds of students and teachers, inhibiting the learning process.

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Workers & Economic Inequality

Graph: Why Construction Employment May Not Rebound Until 2014

Post by: Benjamin Landy , on December 7, 2012

Among the more interesting reactions to today's decent jobs report (146,000 new jobs in November, unemployment down to 7.7 percent) was Matthew Yglesias's post at Slate, which notes a startling divide between housing starts and construction sector employment:

You should never get too worked up about one months' worth of anomalous economic statistics since there are always sample errors and other statistical noise to worry about, but the divergence between new housing starts and residential construction employment looks to have been going on for months now. In the chart above, the blue line is new starts of housing projects—an index that's clearly ticked well up over the past six months. The red line is employment in residential construction, which has been flat or even falling.

So what's going on? Is something being mis-measured? Is the construction industry experiencing a productivity boom? Are hours per worker surging but firms aren't adding staff for some reason?

Here is his graph:

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Workers & Economic Inequality

Introducing the “Dirty Dozen” Tax Breaks

Blog Post by: Benjamin Landy , on December 6, 2012

As Congress and the White House move forward on a bipartisan deal to avert the fiscal cliff, policymakers are looking with increased scrutiny at the hundreds of tax expenditures that cost the United States as much as $1.2 trillion a year (about the size of the annual budget deficit), distort market behavior and complicate the tax code. Whether they are called subsidies, loopholes, deductions or tax breaks, all tax expenditures amount to the same thing: targeted spending for special interests through the tax code, which allows politicians to claim they are lowering taxes rather than increasing spending.

But selectively lowering taxes by allowing deductions and increasing spending are essentially the same thing, from the Treasury's point of view. The only people who benefit from this distinction are the thousands of corporate tax lawyers and personal accountants who make a living off the tax code's complexity.

That doesn't mean that all tax breaks are handouts to Big Business. Two of the largest and most popular deductions benefit middle class households: the exclusion for employer-sponsored health insurance cost $177 billion last year, while the home mortgage interest deduction cost $105 billion. The five year total for both, through 2015, is estimated at nearly $1.7 trillion.

Other tax expenditures, like the $350 million spent last year on subsidies for the timber industry, represent smaller, but no less entrenched, special interests.

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. Each fails the test established by the Working Group: Does the tax break address a market failure? Can we measure its success or failure? Is the tax break cost-effective? And why is this tax break better than a direct spending program?

(Download the Working Group Report and Background Papers.)

These "dirty dozen," which today cost a combined $73.4 billion a year, are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

The "Dirty Dozen" Tax Breaks:

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Social Insurance

Can States Sabotage Obamacare?

Blog Post by: Greg Anrig , on December 4, 2012

Read Washington Monthly's Can the States Sabotage Obamacare? by TCF's Greg Anrig below:

After surviving near-death experiences on Capitol Hill, in the Supreme Court, and during the presidential election, the Affordable Care Act is now confronted with unanticipated sabotage in conservative state capitols. The passive aggression of many Republican governors and state legislatures, who are balking at implementing key elements of the law, threatens to create severe political blowback against health care reform upon its launch in a little over a year while undermining the effectiveness of the legislation. Policy analysts always recognized that relying heavily on states to administer the act posed major challenges, but the unexpected depth and breadth of state-level resistance has created the real possibility of a fiasco come 2014.

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Workers & Economic Inequality

Graph: Corporate Profits Rise to New Heights as Wages Decline

Post by: Benjamin Landy , on December 4, 2012

Corporate profits in the United States rose to new heights last quarter, according to a report last week from the Bureau of Economic Analysis. Profits from current production (which takes into account inventory valuation and capital consumption adjustments) grew $67.3 billion, to a record $1.99 trillion.

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