Staring Down the Debt Limit
·July 22, 2019
Brookings Institution and Tax Policy Center
Brookings Institution and Tax Policy Center
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Fiscal Policy
Fiscal Policy
WHAT WE ARE TALKING ABOUT
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Tax Policy
Tax Policy
Taxing the Rich
·July 9, 2019
Reed College
Reed College
The Issue:
Tax increases for those at the top can achieve two aims: providing revenue resources from those that have experienced the greatest gains in income, and countering economic and social inequalities. Toward that end, policy-makers have several proposals for increasing taxes on the rich.
The Facts:
- Economic inequality has increased dramatically in the U.S. and gains in real GDP per-capita are often not felt by many in our society (see chart.) Despite increasing inequality, recent changes in tax policy have generally not made our tax system more progressive.
- Taxing capital is an important part of taxing the rich. Capital income is more concentrated than labor income, and it is a growing share of national income. The wealthiest taxpayers often have some discretion in terms of the form in which they earn their income. If labor income is taxed more heavily than capital income, those with discretion may choose to receive more of their income as capital income.
- Several policy-makers have proposals for increasing tax burdens on the rich. Senator Elizabeth Warren has suggested a wealth tax of 2 % on those with wealth over $50 million (with a surcharge for those over $1 billion). In theory, taxes on investment income should be equivalent to a wealth tax, since investment income is simply a return on one’s stock of wealth, and tax rates could be adjusted to reach the same burden.
- However, capital gains are only taxed upon realization (when they are sold), which gives investors an incentive to keep financial assets in order to benefit from the tax-free accumulation of returns. Therefore, some have suggested taxing capital income as it accrues. Repealing the step-up in basis at death would also be an important reform. Currently, when a capital asset is inherited, those that receive it avoid capital gains tax on the unrealized gain, as the new basis is the price of the asset upon transfer.
- There are also proposals to increase estate taxation, including a proposal from Senator Bernie Sanders. While some have informally suggested increasing tax rates at the top as high as 70 percent, such high tax rates are likely to be more distortionary than tax increases at lower levels.
- At present, there is substantial room to raise revenue on the rich by simply closing the loopholes affecting corporate income and the income of top taxpayers.
What this Means:
In recent decades, gains in national income have failed to reach many Americans due to increasing income inequality; countering such trends requires increasing the progressivity of our tax system. Proposals that seek to reduce tax avoidance and harmonize the tax treatment of different types of income are likely to raise more revenue at lower rates than more narrow proposals. Many new proposals provide a useful starting point, but they all need careful consideration in order to be ready for implementation. It is also important to remember that economic inequality is not just a “top end” problem. The tax system can also usefully help those at the bottom of the income distribution who have experienced stagnant wage growth in recent decades.
Labor Markets
Labor Markets
Do Summer Youth Employment Programs Work?
·June 28, 2019
School of Public Policy and Urban Affairs, Northeastern University
School of Public Policy and Urban Affairs, Northeastern University
The Issue:
Every year, tens of thousands of youth participate in summer employment programs sponsored by cities and other local jurisdictions. What do we know about the effectiveness of these programs for improving outcomes and reducing inequality among youth?
The Facts:
- Youth employment has been falling over the past few decades and there is evidence that the labor market has become more challenging and competitive for youth.
- Summer youth employment programs (SYEP) sponsored by policymakers and business leaders exist in many U.S. cities and can be quite large. Participants typically work a maximum of 25 hours per week for a six-week period from early July through mid-August and are paid the minimum wage. Initially, the motivation for the programs was to keep youth off the streets and out of trouble while improving “soft skills”. Increasingly, policymakers also seek to use SYEPs as a vehicle to provide meaningful employment experiences that can lead to a career or some type of postsecondary education.
- With a price tag of roughly $2,000 per participant, these efforts are often constrained by a lack of funding, particularly at the federal level.
- There is evidence that summer employment programs reduced crime among youth in several cities. The effects persisted beyond the summer months, suggesting that something beyond keeping youth "busy" during the summer could be at play.
- Findings on educational and labor outcomes have been mixed. Youth who participated in the Boston program reported feeling better prepared for future jobs, with the gains being larger among minority youth. While participation in the programs initially increased earnings and the probability of employment, there is little evidence of any permanent improvement that can be attributed to summer jobs programs. Similarly, participation has been shown to improve school attendance and passing statewide exams but not longer-term academic outcomes such as graduating from high school or college enrollment.
What this Means:
Summer youth employment programs make it easier for youth to find jobs and, unlike year-round undertakings, they happen when youth are likely to be idle rather than competing with academic studies or extracurricular activities. While evidence of the long-term effects in education or employment is mixed, the positive impacts associated with the reduction in crime indicate that the benefits of summer jobs programs exceed the costs. Looking ahead, SYEPs can lay a strong foundation upon which additional interventions can be layered to achieve more sustained and meaningful outcomes — perhaps by providing greater linkages between summer and year-round employment programs, full-time work, community college enrollment or apprenticeships.
Required reading
Fiscal Policy
Fiscal Policy
The Political Considerations in Fiscal Policy (VIDEO)
·June 20, 2019
The Brookings Institution and The Fletcher School, Tufts University
The Brookings Institution and The Fletcher School, Tufts University
Decisions on government spending and taxation have a direct impact on the economy. Yet fiscal policy is inherently political.
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Social Policy
Social Policy
Widening Socioeconomic Differences in Children’s Family Structure
·June 17, 2019
University of Maryland
University of Maryland
The Issue:
There has been a substantial decline in the share of children in the U.S. living with married parents over recent decades. Importantly, this decline has not been made up for with a rise in the share of children living with unmarried parents; rather, many more children today live with a lone parent than in the recent past. Furthermore, this decline is driven almost entirely by parents with less than a college degree, leading to wide class gaps in the rate at which children are living with two parents.
The Facts:
- Only 63 percent of children in the U.S. today live with married parents down from 77 percent in 1980. The next most common type of family structure for children to be living in is with a lone mother: 21 percent of children live with a mother with no likely partner present, up 3 percentage points since 1990.
- The decline in the share of children living with married parents over the past four decades has been concentrated among parents with lower levels of education (see chart). Children of mothers with four-years of college (32 percent of kids in 2017) are still being raised predominantly by married parents.
- Non-Hispanic White and Asian children are significantly more likely to live with married parents, as compared to Hispanic and black children.
- These trends and gaps matter for children’s outcomes and economic security because married-parent homes generally have much higher levels of resources, including higher levels of income, family stability, and parental time, among other benefits. Conditional on other family and parental characteristics, children who grow up with an unmarried mother have lower levels of educational attainment and higher levels of teen childbearing, among other outcome differences.
What this Means:
The decline in the share of children being raised by married parents raises important concerns about the trends in children’s economic well-being. In addition, the wide socioeconomic and racial/ethnic gaps in this share raise concerns about socioeconomic and racial/ethnic gaps in economic outcomes for children.
Immigration Policy
Immigration Policy
Immigrants and Public Benefits (VIDEO)
·June 11, 2019
The Public Charge rule is a proposal that would change the way immigrants access U.S. public benefits. An underlying assumption to this rule is that immigrants are a burden on native-born U.S. taxpayers. But is this true? Economists at Cornell University and University of California at Berkeley looked at the evidence. We explain their findings in our new segment
Keen to know more? Have a look at the EconoFact memo on whether immigrants cost native-born taxpayers money.