Blog postings by CEPR staff and updates on the latest briefings and activities at the Center for Economic and Policy Research.

ICYMI, the new GOP tax law has a provision specifically designed to punish Democratic-leaning states with relatively high taxes that reflect that state’s commitment to providing better social services to low- and moderate-income people. California and New York are the two most prominent states targeted for this tax punishment. Both states are intrigued by CEPR’s hack, championed by senior economist Dean Baker, as a way to thumb their collective noses at the trifling GOP tax antics.

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Baker published a simple hack in the New York Daily News that New York and other states could enact to do an end-run around the GOP’s petty misuse of the tax law; it’s the employer-side payroll tax. It has also sparked the imagination of the press and Blue state leaders still smarting from the GOP using their states as target practice. Click on any of these links for a full explanation of Baker’s hack.

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While inflation-adjusted house prices are still far below bubble peaks nationwide, they have been outpacing inflation for the last five years and are well above their long-term trend levels. However, these prices may be justified by unusually low-interest rates (both real and nominal) in the years following the Great Recession. Also, unlike the bubble period, rents have been outpacing inflation in most markets, suggesting that house prices are responding to the fundamentals of supply and demand in the housing market rather than being driven by a speculative frenzy.

Nonetheless, there are sharp divergences in trends by geographic market area. The Case-Shiller tiered house prices index has been showing the sharpest increases in the bottom third of the market in most of the cities it covers. This raises the possibility that at least this segment of the market may be driven by speculation rather than fundamentals.

In a paper in the fall of 2016, CEPR examined the evidence in some of these cities to see if rents appeared to be following in step with house prices in the bottom tier of the Case-Shiller indices (CSI). As a measure of rents, we used the Department of Housing and Urban Development’s estimate of the fair market rent (FMR) for a two-bedroom apartment. This measure is somewhat different in construction from the Case-Shiller indices. It is not measuring the rent changes for a fixed set of units, but looks at average rents for different units year-by-year. Nonetheless, it should give a reasonable approximation of trends in the segment of the rental market that most directly competes with the bottom third of the home sale market.

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Of all the provisions maintained within the Tax Cuts and Job Act that just passed, among the most devastating is the repeal of the individual mandate in the Affordable Care Act. According to estimates by the Congressional Budget Office, 4 million additional people will be uninsured within a year with a total of 13 million additional people uninsured by 2025.

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Repealing the individual mandate means that people will have the option to opt-out of the health insurance pool, increasing premiums for those that remain within the pool. It is safe to guess that those who would choose to opt-out would be those who are healthier. Needless to say, the repeal of the individual mandate will affect those that are poorer; those from low-income families and people of color.

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The Center for Economic and Policy Research (CEPR) releases the following statements on the House passage of the Republican tax bill:

From Dean Baker, Co-Director, CEPR:

“The Republican response to four decades of upward redistribution of wealth before-tax income is a $1.5 trillion tax plan to hand over even more income to the richest people in the country. Most of the people responsible for this bill rank among the richest one percent, and they constructed a bill that is tailor-made to make them even richer. This includes provisions on the estate tax, pass-through income, and special provisions for the real estate and oil industry.

“The original promise was a tax reform bill that would benefit the middle class. This bill is not reform and does not benefit the middle class. It makes the code far more complicated with its special interest provisions and the beneficiaries are overwhelmingly the highest income people in the country.”

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The Department of Treasury is big — and I do not mean that negatively.

When an agency has duties as diverse as “steward of U.S. economic and financial systems,” “influential participant in the world economy,” and playing “a critical and far-reaching role in enhancing national security,” it is a very big deal.

Given the Department’s economic influence and the law enforcement responsibilities of the Departments of Justice and Homeland Security, it is not surprising that Treasury’s law enforcement responsibilities are not broadly known.

But being unknown doesn’t mean they are unimportant.

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On Saturday, December 1, Stephen Schwarzman — CEO of private equity firm Blackstone Group and noted Trump advisor — hosted a fundraiser at his home for the President. In addition to many of Trump’s wealthy friends, the event was attended by Treasury Secretary Stephen Mnuchin, an advisor to the President on taxes. Not everyone attending the private event, including several leaders of private equity (PE) firms, expressed happiness with the tax bill despite the lopsided share of benefits they will receive. They used the opportunity to lobby the President for tweaks to the Republican tax bill. While we don’t know what the President and his wealthy friends discussed, we do know which provisions in the House and Senate tax proposals have important implications for private equity firms, their executives, and their Limited Partners. Many are favorable to partners in private equity firms and investors in PE funds and will result in substantial tax cuts. Surprisingly, perhaps, given the influential positions of PE moguls in this administration, the tax proposals are not uniformly favorable to the industry.

Along with other businesses in the U.S., private equity firms stand to gain substantial benefits from the reduction of the tax rate on corporate income, from a top marginal rate of 35 percent to a flat 20 percent in both the House and Senate tax proposals (with a 25 percent rate for personal services corporations). This change, if adopted, will cut the taxes paid by companies in PE fund portfolios. Like other taxpayers in high-tax states, however, the executives of PE firms who live in New York, New Jersey, and Connecticut — states with high housing costs, high property taxes, and high state and local taxes — will lose some or all of these deductions. They will face sizable increases in their federal income taxes if either the Senate proposal, which eliminates these deductions entirely, or the House proposal, which repeals the deduction for state and local income taxes and limits the deduction for state and local property taxes, is included in the final bill.

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The recently proposed merger of two giant players in healthcare — CVS Health, one of the nation’s largest pharmacies, and Aetna, one of the largest health insurance companies — will create a healthcare behemoth. With annual revenues of about $240 billion, the newly combined company will rank second only to Walmart among American companies. Will the merger fill unmet needs for access to healthcare, or is it going to create problems?

CVS, with its 10,000 pharmacy and clinic locations spread across the country, and Aetna, which covers about 22 million people, paint a rosy picture of how the combined company will deliver healthcare. Patients, they say, will have access to high-quality, low-cost care that’s as convenient as their corner drug store. Merging pharmacy and health insurance data, as they tell it, will help assure that patients don’t fall through the cracks, will improve the health of local communities, and will reduce overall health costs. Consumers will be the beneficiaries.

This, of course, is the case that the two companies must make to regulators. The emphasis in anti-trust enforcement is on the effect of the merger on efficiency — on whether synergies will reduce costs and benefit consumers. The effects of mergers on competition, consumer choice, and worker outcomes rarely concern the Federal Trade Commission or the Justice Department.

The conversation about the CVS–Aetna merger has focused on its effects on patient care and healthcare prices. Will the merger create “a new front door to health care,” as CVS’ chief executive claims? Or, will it further limit choices for consumers and restrict patients to silos with access only to a narrow set of pharmacies, doctors, and clinics?

Will the merger lead to lower health care costs? Or, will the market power they gain through consolidation allow them to charge prices that increase their profit margins?

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The Bureau of Labor Statistics reported somewhat stronger than expected job growth in November, with employers adding 228,000 jobs. This brought the average for the last three months to 170,000. The unemployment rate was unchanged at 4.1 percent.

While the overall employment-to-population ratio (EPOP) ticked down by 0.1 percentage point, the EPOP for prime-age workers rose by 0.2 percentage points, to 79.0 percent. This is an increase of 0.8 percentage points from the year-ago level, but is still 1.3 percentage points below the pre-recession peak.

In spite of measures indicating a continued tightening of the labor market, there is still little evidence of any notable acceleration in wage growth. The annualized growth rate of wages for the last three months, compared with the prior three months, is 2.6 percent, virtually identical to the 2.5 percent rate of increase over the last year.

The relatively low percentage of unemployment due to workers voluntarily quitting their jobs (11.3 percent) suggests that workers still do not feel very confident about their job prospects. This number was 12.3 percent a year ago and had peaked at more than 15.0 percent in 2000.

On the whole, this is a positive report, but one that indicates that the labor market can still tighten further without any major concerns about inflation.

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The Department of Housing and Community Development (DHCD) in Washington, D.C. aims to provide affordable housing and economic opportunities to underserved households and communities through its housing development projects. One of the three strategic objectives listed by DHCD is “…revitalizing neighborhoods, promoting community development and provide economic opportunities.” Like other large cities across the US such as Boston, New York, and San Francisco, Washington D.C.’s government and its stakeholders are placed with a difficult task to secure space for their communities as their cities accommodate an influx of young professionals, and as a commentator recently pointed out “…[t]hese new District residents have undeniably changed the demographic makeup of D.C., which on the whole has become whiter, wealthier, and younger over the past decade.”

By some indicators, D.C. exemplifies the displacement of people of color to a level that is explicitly contradictory to the city’s stated objectives.

Public-private residential development around the city has contributed to unsustainable rent hikes, gentrifying neighborhoods and causing displacement. Private companies push forward luxury apartment development and retail spaces that ignore the needs of the greater Washington community and the many hurdles it faces towards reaching racial and socioeconomic equity.

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I’m a big fan of The Atlantic’s Alana Semuels, but wanted to provide some additional context for her piece on the gender gap in college education (Poor Girls are Leaving Their Brothers Behind). There’s no question that women are graduating from high school and pursuing post-secondary education at higher rates than men. As Semuels notes, when it comes to BA attainment, women age 25–29 caught up with men in the early 1990s, and have outpaced them since then. Yet, there’s not much evidence that women are leaving men behind or even catching up with men because of higher education rates.

In 2000, among men and women ages 25–45, about 84 women were employed for every 100 men. The employment rate for both men and women in this age group is lower today than in 2000, but it has only narrowed slightly. Today, it’s about 85 women employed for every 100 men. By contrast, the gender employment gap has narrowed much more in other wealthy nations, largely due to substantial increases in prime-age women’s employment.

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Catching up on your reading over the long holiday weekend? Prepare yourself for Monday’s smack of reality by reading up on CEPR’s insights into the GOP tax plan. The Senate is scheduled to vote on their version of the tax bill just after Thanksgiving.

Dean Baker, Eileen Appelbaum, and Alan Barber are talking (WBAI, WDET) and writing (BTP and CEPR Blog) about the potential outcomes of both versions of the bill that now includes the repeal of ACA’s individual mandate.

Dean Baker has this statement about the House version of the tax overhaul bill passed last week:

“The Republicans in the House voted to raise taxes on people with cancer, recent college grads and young people still attending graduate school in order to help finance tax cuts to corporations — that are already drowning in cash — and the very richest people in the country. There is no basis for the promised economic boom. This is a transparent giveaway to the people who fund their election campaigns. It is taking the corruption of politics in the United States to a new level.”


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This is the fifth in a series of blog posts based on the CEPR report, Organizational Restructuring in U.S. Healthcare Systems: Implications for Jobs, Wages, and Inequality, that examines the experiences of healthcare workers over a decade of change from 2005 to 2015.

This post examines the disconnect between the growth in employment of two healthcare occupational categories – medical technician and health aides and assistants – over the decade from 2005 to 2015, and the stagnation or decline in real wages these workers earned. We smooth out year-to-year changes in real wages by using a three-year moving average. For consistency, we also report the three-year moving average for employment.[1]

Between 2007 and 2015, the three-year moving average of total employment increased by about 16 percent in the healthcare industry, which includes five major segments – hospitals, outpatient care centers, physicians’ offices, home healthcare services, and nursing homes. These five healthcare segments account for about three-quarters of all healthcare jobs. Hospitals are the largest employer by far, but employment in this segment grew by just half of the overall growth rate of healthcare jobs. Employment in the much smaller outpatient care center segment grew five times faster than it did in hospitals. Employment in the two largest non-professional patient care occupational categories – medical technicians (mainly allied health technicians and licensed practical/vocational nurses) and health aides and assistants grew at about the same rate as overall employment in healthcare and hospitals. However, outpatient care centers saw even more rapid growth of medical technicians than of overall employment – a more than 60 percent increase for med techs compared with the almost 50 percent increase in overall employment in this healthcare segment.

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The private equity industry likes to say that it brings operational and financial knowledge to the companies that its PE funds acquire, improves their performance and makes them more valuable, and then sells them for a profit. Rosemary Batt and I, in our book Private Equity at Work: When Wall Street Manages Main Street, document that there are indeed private equity firms that make money by improving the performance of the companies they buy. But most PE funds make money by engaging in financial engineering — loading the companies in their portfolios with excessive amounts of debt to boost returns and get a tax advantage; engaging in aggressive tax avoidance; causing the companies they own to issue junk bonds and use the revenue to pay dividends to their private equity owners; requiring the portfolio companies to pay fees to the PE firm for services they may or may not receive; having the companies sell off real estate or other assets with the proceeds pocketed by the PE firm. In the book, Rose and I proposed policies that would rein in financial engineering and provide incentives for PE firms to focus on operational improvements. Unfortunately, the tax plan introduced in the House by Republican Congressman Kevin Brady goes in the opposite direction and provides new incentives for financial engineering.

We draw on Steve Rosenthal’s excellent analysis of the 25 percent tax rate on partnership income for this example of a new opportunity for financial engineering.

A PE-owned partnership that provides a service and is not eligible for the lower 25 percent cap could still benefit from the tax cut. The partnership could borrow money. It would be able to deduct the interest on the loan at its higher tax rate — as much as 35.22 percent (this bizarre rate is due to the complexities of the Republican tax plan). The partnership could then turn around and invest that money in a real estate investment trust (REIT) — a partnership that invests in malls, office buildings, and so on. A business whose income comes from rent is eligible for the lower 25 percent tax rate, so earnings on the investment in the REIT would be taxed at this rate. Even if the interest on the loan is the same as the earnings from the investment in the REIT, the after-tax income of the PE-owned partnership will be 10 percent higher as a result of these transactions. This is easy money compared with the effort it takes to make operational improvements that raise earnings.

High-priced tax accountants will no doubt find many other opportunities to reduce tax liabilities and increase after-tax income of Wall Street firms and their affiliates. Whatever else happens to employment as a result of this tax cut, there is certain to be more jobs for lawyers.

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It’s a new era in America. Fake News, grandiose claims, misinformation, obfuscation…you name it. When the President of the United States tweets things like:

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We all feel like we’re going crazy. We can’t understand how this can be happening. It’s all so daunting.

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The Labor Department reported the unemployment rate fell to 4.1 percent in October, another new low for the recovery. The establishment survey showed the economy created 261,000 jobs in the month. The high number is due to a bounce-back from the hurricane-affected growth in September, which has now been revised up to show a small gain of 18,000. The average growth rate for the last three months is 162,000.

The bounce-back from the hurricane also had a large effect on the wage data. Last month's reported 12 cent gain in average hourly wages was heavily impacted by the hurricane. Many new hires in low-paying jobs did not take place and lower-paid hourly workers likely saw their time on the job reduced, thereby raising the overall average. The October data showed a 1 cent decline in the average wage. Nonetheless, wages are still rising at a 2.4 percent rate over the year, which is a bit less than a percentage point above the inflation rate. This puts wage growth in line with productivity growth over the last year, although it means that we are still not seeing any evidence of acceleration even as the market has tightened.

Other data in the report are mixed. The fall in the unemployment rate was associated with a drop in labor force participation. The employment-to-population ratio fell by 0.2 percentage points, partly reversing a 0.3 percentage point jump in September. On the other side, there was a sharp drop in involuntary part-time employment to 4,753,000, bringing this measure down to pre-recession levels. We also see that less-educated workers continue to be big gainers from the tight labor market. The unemployment rate for workers with just a high school degree fell to 4.3 percent, 1.2 percentage points below its year-ago level. The unemployment rate for workers without a high school degree fell to 5.7 percent, 1.7 percentage points below its year-ago level.

In short, the labor market is continuing to improve, but there is no basis for concerns that excessive wage growth will lead to an inflationary spiral. Workers are now seeing respectable wage gains that give them their share of productivity growth, but there is much ground to regain.

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Women in the United States across races and ethnicities make approximately 80 cents to a man’s dollar. However, some groups of women make disproportionately less than that; namely blacks and Hispanic/Latina women, making the wage gap an issue that strongly depends on gender, race, and ethnicity.

A closer look at Bureau of Labor Statistics data on usual weekly earnings by race, ethnicity and gender shows that the gender wage gap increases as earnings increase across all races and ethnicities. In addition, the divide between men and women’s earnings widens at a steeper rate among whites and Asians than with blacks and Hispanics/Latinos. At the first decile, black women and Hispanic/Latina women make earnings far closer to that of their black and Hispanic/Latina male counterparts than white and Asian women do to their respective male counterparts.

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In mid-October, the International Monetary Fund (IMF) and the World Bank Group held their Annual Meetings in Washington, DC. In events throughout the week, the Fund and the Bank stressed the importance of globalization, emphasizing “Its long-acknowledged benefits to economic growth, poverty reduction, and consumers’ access to varied goods at lower prices.” Missing from the schedule was a broader discussion of the IMF’s role in globalization, and the effects of its policies on developing countries.

On October 9, the Center for Economic and Policy Research hosted a panel in which the renowned economist Jeffrey Sachs, CEPR Co-Director Mark Weisbrot, and Nancy Alexander of the Heinrich-Böll-Stiftung provided their perspectives on both the Fund’s policies and global trends in development. The event centered on the release of CEPR’s “Scorecard on Development 1960-2016: China and the Global Economic Rebound,” the fourth report in a series examining global macroeconomic trends over the past 50 years. Previous “Scorecard” reports found a dramatic slowdown in economic growth and social indicators in low- and middle-income countries during the 1980–2000 period when the IMF’s policies were most influential in developing countries. Critically, the latest report found that China was responsible for much of the improvement in economic and social indicators sometimes attributed to the “Washington Consensus” variety of globalization.

Below are excerpts from each panelist’s presentation, as well as links to each panelist’s lecture:

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Jeff Hauser runs the Revolving Door Project, an effort to increase scrutiny on executive branch appointments and ensure that political appointees are focused on serving the public interest, rather than personal professional advancement.

Today’s announcement that the Trump Administration would install David Kautter as the Commissioner of the Internal Revenue Service on November 12th, 2017 without a Senate confirmation process marks a further erosion of the Senate’s “Advice and Consent” power and a great day for all tax evaders, past and future.

Kautter, a tax avoidance professional, has no history of work at the IRS, which many people have incorrectly assumed is (as it ought to be) a precondition for an ostensibly temporary hire.

However, Kautter does have experience with the IRS. When Kautter was Director of National Tax at EY (formerly Ernst and Young) National Tax practice, their practices were so abusive that they ultimately had to pay $123 million to avoid criminal indictment.

Why would the American people trust Kautter to rein in tax evasion when his firm behaved so egregiously under his ineffective and/or malevolent watch?

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Last week, Donald Trump met for an hour-long meeting with economist John Taylor, who is now regarded as a potential candidate for the opening Fed chair seat, currently occupied by Janet Yellen. Taylor, the man behind the Taylor Rule, which attempts to set rules-based guidelines for the Fed regarding inflation and interest rates, is among the candidates for the chair position, as is Kevin Warsh. Nominating either of these candidates would be a tremendous step backward for the economy, especially following the recent and promising signs of growth for those who are less educated, as well as for blacks and Hispanic/Latinos, since the devastation of the recession.

The Federal Reserve website suggests that the lowest level of unemployment that the US can withstand without causing excessive inflation is within a range of 4.5 and 6 percent. However, in this past quarter in 2017, unemployment averaged 4.3 percent, well below the Fed’s accepted range with no signs of inflation above the target rates. Following strict rules-based policy, as celebrated by economists like Taylor and Warsh, would have led to the maintenance of higher than necessary unemployment rates, as well as a loss in employment, and would contribute to slowing the already lagged recovery since the financial crisis. According to an analysis conducted by the Federal Reserve Bank of Minneapolis, had the Fed complied with the generally accepted rules surrounding target unemployment levels, 2.5 million people would have been kept out of work.

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This is the fourth in a series of blog posts based on the CEPR report, Organizational Restructuring in U.S. Healthcare Systems: Implications for Jobs, Wages, and Inequality, that examines the experiences of healthcare workers over a decade of change from 2005 to 2015.

Employment trends in hospitals and outpatient settings are consistent with the strategies of organizational restructuring that hospitals have undertaken. Hospitals continue to hire the largest share of workers, with employment rising from 5.25 million jobs in 2005 to 5.75 million in 2015 — a growth rate of almost 10 percent. Outpatient centers account for a much smaller number of jobs, just 737,000 in 2015, but the rate of growth of employment was almost six times that of hospital job growth.

The pattern of rapid job growth in outpatient centers held for all race/ethnicity groups. Employment of white workers in these centers increased 47 percent while black workers’ jobs grew by 65 percent, those of Hispanic workers by 103 percent, and of Asian/other workers by 82 percent. Employment of white women increased by just 17 percent.

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Consider Figure 1, which shows the trade deficit as a percent of total trade. Since the early 1970s, there have been three large swings toward bigger deficits: the mid 1970s, the mid 1980s and the early 2000s. Each of these swings was more sustained and each subsequent movement toward balanced trade was less complete than the last, leaving a trend of greater imbalances. By the second quarter of 2017, the United States spent $124 in imports for every $100 worth of goods and services exported. At the end of 1974, however, trade had been balanced.

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To some extent, this trade imbalance reflects oil imports. However, as Figure 2 shows, removing both petroleum imports and agricultural exports from the trade data does not hugely change the story. If anything, restricting to this core trade amplifies the trend.

rosnick trade 2017 09 fig2


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