issue: Economy

Trump Presidency Ends With One Last Threat Of A Government Shutdown

Posted on by The Progressive Policy Institute

It was perhaps the most fitting end for a presidency plagued by crisis and mismanagement: the federal government spent the weekend racing to prevent one final shutdown under the administration of President Donald Trump. Fortunately, it seems unlikely that we will face another government shutdown for the next two years with Democrats retaining control of the House of Representatives and competent dealmaker Joe Biden ascending to the presidency in January. Simply keeping the lights on is the lowest of low bars for our elected leaders to clear, but the transition to an administration that will have no trouble doing so is a welcome one.

Read the full piece here.

Trump Raids Medicare To Swing an Election He Already Lost

Posted on by The Progressive Policy Institute

Refusing to accept that the election is over, President Trump is moving forward with one of the most desperate gambits from his campaign: raiding Medicare to give 39 million seniors a $200 prescription drug card. Fortunately, Trump’s plan to bypass Congress and act by executive order did not come to fruition before the election. But this week, it cleared a regulatory roadblock and the administration says it will start sending the cards before the end of the month.

The idea is probably illegal, because the Constitution gives Congress alone the power to spend money. It is certainly bad policy, because it cuts into Medicare’s finances to pay for a blatant vote-buying scheme. That makes no sense now that the election is behind us, but then, little that Donald Trump has done or said since he lost decisively on Nov. 3 makes sense.

Before it finishes its work, the lame-duck Congress should act to protect Medicare by killing Trump’s effort to usurp its power of the purse. For Republicans in the Senate, the opportunity to reject this political maneuver will test whether they recognize the election is over, and with it the reckless rule-breaking of the Trump administration.

Trump’s proposal would send 39 million seniors $200 cards, similar in appearance to credit cards, that they could use to buy prescription drugs. Like many things Trump does, this plan may be illegal. The Constitution gives Congress alone the power to spend money, but Congress has not authorized this program or appropriated any money towards it. Congressional Democrats have rightfully asked the Government Accountability Office to investigate whether the program is legal.

Administration officials claim the President can authorize the cards without Congress through an existing “testing” program meant to find more efficient ways to administer Medicare. The program will supposedly “test” whether the cards make seniors more likely to take their medicine on time, but it will not establish a control group or any other practices typical of an experiment. While tests of this kind are normally small in scale and cost-neutral, Trump’s plan would involve tens of millions of seniors and cost billions of dollars.

The much more likely explanation for Trump’s card plan is that it was a political effort to ingratiate himself with seniors. Trump’s own officials say he only added mention of the cards to his speech a few hours before he gave it because he felt the need to cram health care successes in before the election. The general counsel of the Department of Health and Human Services sent an internal memo warning that the plan could draw legal challenges related to election law and advised the administration to get guidance from the Department of Justice’s Public Integrity Section, which handles elections-related offenses.

The plan’s political motivations are so glaring that they gummed up Trump’s initial attempts to accomplish it. A week before Trump’s announcement, pharmaceutical executives abandoned a deal between the Trump Administration and the industry that would have included similar cards because the executives believed the cards would make the deal look political.

President Trump has said he intends to get the $7.9 billion he will need for the cards from the Supplemental Medical Insurance Trust Fund, one of the two Medicare trust funds that pay for senior citizens’ health care. But Medicare does not have money to spare. The Congressional Budget Office estimates that the net cost of Medicare will grow from 3.5 percent of gross domestic product this year year to 6 percent in just 30 years because the population is growing older and health care is becoming more expensive, drawing money away from other vital spending priorities. Medicare’s other trust fund is projected to run out of money by 2024 thanks to this budget crunch, which would automatically prompt payment cuts. Elected officials need to control Medicare spending growth, not add to it without addressing its driving forces.

Until this week, the program appeared unlikely to materialize before Trump left office. Administrators had to pull the plan together in very little time, and the effort to get guidance from the Department of Justice slowed the process down. More recently, the Special Interest Group for Inventory Information Approval System Standards (SIGIS), an industry organization that helps the Internal Revenue Service set standards for federal benefit cards, has said for weeks that limiting the cards’ use to prescription drugs was inconsistent with the standards it sets for other benefit cards. Health officials told Politico that without the group’s approval, the administration cannot mass produce working cards.

Yet after appeals from the Trump administration, SIGIS dropped its objections on Monday, for unclear reasons. Thanks to this surprising reversal, the administration plans start sending the cards to seniors by the end of this month.

Voters care about drug prices for good reason. Prices are higher in the United States than in other developed countries, and the costs of the most popular prescription drugs are growing by nearly 10 percent per year. But one-time payments from the government cannot solve a systemic problem such as the rising cost of lifesaving and life-improving drugs — they can only paper over it. Congress should keep fighting Trump on this plan so neither he nor any other President thinks they can finance political gifts by raiding Medicare’s coffers.

Successful Push For Stimulus Checks Worsens Covid Relief Bill

Posted on by The Progressive Policy Institute

The bipartisan covid relief bill working its way through Congress appears to have worsened thanks to demands by the Congressional Progressive Caucus, along with Sens. Bernie Sanders (I-VT) and Josh Hawley (R-MO), that the package include a second round of stimulus checks. Because Senate Republicans have refused to support a package that costs more than $1 trillion, the inclusion of checks is likely coming at the expense of other provisions that would better target assistance where it is most needed. As Sens. Mark Warner (D-VA) and Joe Manchin (D-WV) have argued, there is nothing progressive about taking money from people directly affected by the covid pandemic to finance a poorly targeted stimulus check.

Read the full piece here.

Without Federal Aid, Poverty Will Rise

Posted on by The Progressive Policy Institute

Dr. James X. Sullivan, a professor at the University of Notre Dame, was shocked when he and his colleagues discovered that poverty did not rise when the pandemic began, despite much of the economy freezing to a halt. He told the New York Times that “when we initially saw our results, we thought, ‘How could this be true?’… But when you look at the size of the government response, it makes sense.”

Normally, rising unemployment would increase the number of people living beneath the federal poverty line, which is $21,720 for a family of three. Unemployment certainly surged last spring as the pandemic shutdowns began, from just 3.5 percent in February to 14.7 percent in April. However, Sullivan and his partners at Notre Dame and the University of Chicago say the poverty rate actually fell from 11.0 percent before the pandemic to 9.3 percent in June, thanks to a massive infusion of federal aid.

About $560 billion of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act that Congress passed in March went towards stimulus checks for most Americans and for states to expand Unemployment Insurance (UI) benefits. The law expanded the size of all benefits by $600/week, created a new program that offered benefits for self-employed workers who do not typically qualify, and extended the duration of benefits from 26 weeks in most states to 39 weeks. The University of Chicago and Notre Dame researchers found those stimulus checks and unemployment benefits can explain the entire decline in poverty between March and June.

But the researchers also find the poverty rate began rising in July, reaching 11.7 percent in November, and is still rising. This is below the 15 percent high it reached during the Great Recession, in part because the economy was strong before the pandemic. But the figure may not capture the entire picture: the researchers’ poverty measurement understates the impact of sudden changes to a person’s income, so the rise in poverty might be more severe than their numbers show.

Meanwhile, researchers at Columbia University, whose method of measuring poverty responds more to short-term changes, found that poverty is only rising because federal aid is waning. Without stimulus checks and the unemployment expansions, poverty would have peaked at 20 percent in April, when unemployment was highest, and would have fallen by 2 percentage points by September. But that improvement was more than offset by a 4.3 percentage point decline in the impact of federal aid.

The CARES Act is not making as big of an impact as it used to because Congress let some of the law’s anti-poverty provisions expire. People only received stimulus checks once, and the CARES Act’s enhanced pandemic unemployment benefit of $600/week expired in July. Republicans refused to extend it over concerns, which have proven to be premature, that recipients would not go back to work if their UI benefits were larger than their potential wage.

The last of the CARES Act’s major anti-poverty interventions, the expansions of unemployment insurance eligibility and duration, will expire on the day after Christmas. Nine million Americans will lose their benefits, with 3 million more soon to follow, and the Columbia researchers estimate 4.8 million people will fall into poverty. Even if Congress extends the programs, it will take states so long to update their archaic information technology that many will not pay the benefits on time. The Center for Disease Control’s protections for tenants facing eviction – limited though they were– will also expire at the end of this month, when Moody’s Analytics estimates nearly 12 million Americans will owe an average of $5,850 in back rent and utilities.

Fortunately, congressional leaders are now finalizing a new aid deal built around a framework crafted by a bipartisan group of moderate members of Congress. As it stands, that bill would keep those vital unemployment expansions from expiring for 10 more weeks, boost the size of benefits by $300/week for 10 weeks as well, send most Americans a $600 stimulus check, and maintain the eviction ban along with $25 billion for rental assistance.

The bill Congress will vote on will likely do less to reduce poverty than the initial bipartisan framework would have. Republicans insist the bill must be smaller than $1 trillion, so negotiators are considering cutting the duration of the unemployment insurance provisions by 6 weeks to pay for the addition of stimulus checks. That trade would effectively take benefits from unemployed people who need the money to support themselves and give them to people who are just as well off as they were before the pandemic. Negotiators may also drop $160 billion in aid to state and local governments because Republicans fear it would be a “blue state bailout,” even though that aid would also go to red states and would prevent cuts to social services that low-income people rely on.

While those revisions would seriously undermine the bill’s protections for at-risk Americans, the deal would still offer a vital lifeline for people in or near poverty. A strong post-vaccine recovery that creates opportunities for economically vulnerable people is within sight, but elected officials should take this deal to ensure Americans can keep paying their bills as the world pushes across the pandemic’s finish line.

Thumbnail courtesy of Reuters. 

PODCAST: How One Tax Might Make Matters Worse

Posted on by The Progressive Policy Institute

Colin Mortimer, the Director of the Center for New Liberalism, is joined by two special guests. First is Adam Hartke, the co-owner of a music venue in Wichita, Kansas, and the co-chair of the advocacy committee at the National Independent Venues Association. We talk about what it has been like to be a music venue owner during this pandemic, suffering the brunt of the economic fallout. Second, PPI’s Chief Economic Strategist Michael Mandel comes on to talk about how an obscure tax cut that expires in December might make the recovery for music venues, bars, restaurants, brewers, and others even more difficult than it was already expected to be.

Listen here.

Unemployment And State Aid, Not Stimulus Checks, Must Be Priorities For Covid Relief

Posted on by The Progressive Policy Institute

A promising bipartisan compromise for another round of covid relief ran into two roadblocks yesterday that threaten to derail the effort. Senate Majority Leader Mitch McConnell has called for $160 billion in critical assistance for state and local governments to be dropped from the proposal. Meanwhile, populists such as Sen. Bernie Sanders on the left and Sen. Josh Hawley on the right have threatened to oppose the $908 billion compromise if it doesn’t contain another round of $1200 stimulus checks. Both positions undermine the most important components of the next relief bill and should be rejected by those looking to get a much-needed relief bill across the finish line.

Read the full piece here.

Cracks in the Great Stagnation

Posted on by The Progressive Policy Institute

For the last 60 years, we’ve seen consistently low productivity growth rates in the US and across the Western world. Meanwhile, recent scientific discoveries seem to be less fundamental to our understanding of the world than previous breakthroughs have been. While the growth of digital technology has been tremendous since the 1990s, it’s the only significant part of our world that seems to have been changing. To look up from our smartphones is to see a physical environment that looks basically the same as it did in 1970. Innovation has been constrained to the world of bits and left the world of atoms mostly untouched.

This might finally be changing. Last month, the economist Tyler Cowen speculated that we may be seeing signs that this Great Stagnation is ending. Since his article was published, we’ve already seen almost a dozen announcements that have only driven home the point further. There seem to be cracks in the Great Stagnation and light is peaking through on the other end.

Innovation in the physical world
Most obviously, the recent announcement of the successful development of several vaccines to the novel coronavirus are a sign that America (with some help from Germany) is still capable of achieving Big Things when we are pushed to it. Despite consistent failings of the US regulatory state in delaying the adoption of face masks and in slowing the rollout of mass testing, the US essentially bet the farm that our strong biotech clusters would be able to create a vaccine to a new disease in record time, and it looks like we’re going to be able to do it in under a year!

It’s worth highlighting just how speedy this development timeline is when compared to the vaccines for diseases like polio and measles.

And not only did we develop a new vaccine, we developed a new *type* of vaccine. mRNA vaccines have long been speculated to work, but this is the first instance of a successful vaccine application in humans using this technique.

In transportation, the promise of driverless cars has long been a centerpiece for a tech-optimistic vision of safer roads, better-designed cities, and eliminating the drudgery of a morning commute through traffic. But the technical delays of the last few years (when compared to the most optimistic timelines) have become a rallying cry for the tech-skeptic as well.

It seems like they may finally be getting here. A few weeks ago, Waymo announced that their long-running pilot program in Arizona is going to be open to the public without any safety driver in the front seat. Days later, Elon Musk and Tesla rolled out a new self-driving beta program.

This is a remarkable engineering feat, especially on Waymo’s end. It shows the company can successfully lead product development in an industry that relies on more stringent safety-critical engineering instead of the release-and-iterate model that its parent company grew up with. Waymo is evidence that Silicon Valley can “move at a moderate pace and not break things” when it needs to.

Granted, it’s unclear how long until and at what pace deployment of AVs to the rest of the country and the world will happen. If the Waymo model looks to be successful, it will be a steady, resource-intensive process of region-by-region expansion as the cars learn to handle new operational design domains and are rigorously validated in each city before the keys are turned over to the AI. In other words, expansion could look more like a cell phone coverage map than a software update that is instantaneously available everywhere.

But still, this is a significant, tangible mile marker that the industry has passed. AVs are operating in the wild now. We get to talk about *when* we reach the driverless future, not *if*.

In addition to the almost ho-hum daily progress in solar, wind, and battery technology where prices have fallen 90, 70, and 87 percent over the last ten years, we’ve also started to hear very promising reports about the development of more fundamental breakthroughs. The NYT reports that a compact nuclear fusion reactor is “Very Likely to Work” after a major theoretical advancement. There was also a fantastic David Robert’s deep dive into geothermal energy and the promise of advanced geothermal (whereby water pumped into the ground through a closed loop reaches a high enough temperature that it becomes “supercritical” and can carry 10x more energy per unit mass), in particular. Either technology, if perfected, would provide abundant, zero-carbon, baseload energy that is available anywhere around the world.

Cowen mentions briefly the huge market growth we’ve seen in lab-grown meat and plant-based alternatives. A few weeks ago it was announced that Impossible Foods, one of the largest actors in the industry is doubling their R&D team as they seek to take on plant-based milk, steak, and fish as well as improve the supply chains for plant proteins. In tandem, McDonald’s just announced that in 2021 they are going to be testing out a new McPlant menu.

Digital innovation continues apace

Not to be left out, in the digital world we’ve been seeing impressive progress as well. AI techniques like deepfakes which have been heralded as the death knell for democracy are now being deployed by NVIDIA to increase video fidelity while cutting bandwidth transmission for video calls by a factor of 10. In general, techniques to reduce bandwidth use are greatly underrated, and it’s going to be exciting to see the ways in which smarter compression can perhaps bring similar efficiency gains across the board.

And now factor in the steady rollout of 5G network technologies which promise to increase the raw bandwidth available to all mobile devices. With the combination of smarter compression and vastly increased bandwidth we could be looking at a baseline 50x increase in network capacity over the next decade. It’s hard to predict ahead of time what new applications will be enabled by all this new capacity, but in retrospect it could look like another example of parallel innovation that both enables and is driven by the growth of VR/AR, driverless vehicles, and telehealth.*

*For those who are skeptical that increased capacity will generate new applications because a few cities have tried gigabit broadband without much effect, I would argue that both hardware and app developers are optimizing for the baseline user experience and we won’t see a ton of investment in new applications until we’ve changed the baseline capacity that developers can expect a sizeable user base to have.

Equally as impressive, Apple’s new M1 chip that was launched on November 10th seems to have taken the world by storm. As John Gruber summarizes: “To acknowledge how good they are — and I am here to tell you they are astonishingly good — you must acknowledge that certain longstanding assumptions about how computers should be designed, about what makes a better computer better, about what good computers need, are wrong.” Just as interesting is how they did it. By miniaturizing the whole system architecture and integrating it onto a single chip (no discrete RAM, graphics card, etc.) Apple has managed to pump out massive efficiency gains both in processing power and in battery life. (There’s perhaps a metaphor here for the value of integration for large tech firms as well…)

Finally, the virtual reality space has seen its most impressive entrant in years with the arrival of the Quest 2 from Facebook on October 13th. There is no VR headset that matches it on a performance/cost basis, and the relative simplicity and elegance of the system makes it an ideal entry point. The deliberately low entry barrier of $299 is meant to entice a large enough user base that it kickstarts the virtuous cycle of having a significant enough market for dedicated VR developers to make significant investments in new applications, which then drives new user growth. Facebook believes we finally have a minimum viable product for VR that means this kind of two-sided market is possible, and it is betting billions of dollars to make it happen. Early signs seem to show that it is working as intended with pre-orders reportedly 5x larger than the original Quest, popular applications like Beat Saber seeing record growth, and all this with the upcoming holiday rush and a massive advertising blitz to come.

Notably, all of these announcements/developments I’ve outlined have occurred in just the last few months. This is by no means a comprehensive look at the exciting progress being made in many other fields. But the sheer scope and pace of tangible changes to our physical and digital words is something to be excited about.

A few caveats

Some of these innovations will boost productivity in the traditional ways that show up in economic growth statistics. We should strive for and celebrate those achievements. But some of these innovations won’t necessarily, instead they make human civilization more durable and sustainable in a variety of ways. In response, we should start to think of increased sustainability as a type of productivity.

A vaccine to the COVID pandemic is the most obvious example. While economic statistics won’t show a boost in productivity compared to the pre-COVID economy because of the vaccine, the ability to return to trend is itself incredibly valuable. In fact, measured labor productivity from the vaccine will likely fall as lower-wage service sector workers return to the labor force.

But true productivity will perhaps be at record highs as this new vaccine technology essentially unlocks millions of employees that wouldn’t otherwise be able to work.

Similarly, clean energy that hypothetically has the exact same energy density and cost as fossil fuels but doesn’t entail the same social cost of carbon mostly shows itself in the avoided counterfactual of a worse world with even more severe climate change disasters. Moving away from animal-based proteins simultaneously reduces carbon emissions while also lessening the large, unpriced animal welfare harm that industrial factory farms are causing.

If you think about the broad timescale of human society, progress can be attained in the growth *rate* and the growth *length*. How good is our civilization, and how long does it last? Many of these innovations we developed between the 1930s and 1970s aided the rate, and many today are increasing the length. Both are vitally important, but they will be measured differently.

Another caveat here is to what extent these innovations are one-time payoffs for investments we’ve been making for decades, or whether some of these can be general-purpose technologies that inspire further technological growth.

If VR is mostly a gaming console, if driverless cars never fully work without humans in the driver’s seat, if meatless burgers are just a fad, if we fail to address climate change because abundant clean energy never materializes, and if 50x bandwidth only lets us stream Netflix in 8K, then the Great Stagnation will have had a much deeper hold than we think.

But perhaps VR/AR can become the next consumer electronic platform with a whole suite of specialized productivity-enhancing features, similar to the previous waves of computers and mobile phones. It seems plausible that many future vaccines will be made more quickly using this same mRNA technique that (we hope) works for COVID. Maybe specialized AI manages to find 20 to 40% improvements to basically every informationally complex task we do. Finally we could see driverless cars/trains/trucks fulfill their promise and reshape American cities in a more healthy and human-centric way. With advanced geothermal or nuclear energy we would not only have clean energy, but abundant energy too cheap to meter, with all the economic applications downstream benefiting from that.

If some combination of those things happen, we will look back at the roaring 20’s as the decade which broke through the Great Stagnation.

 

New Jobs with a Future: Six Ideas for Harnessing Technology to Create Good Work for Americans

Posted on by The Progressive Policy Institute

The Covid Recession has accentuated labor market inequality, with some professions and occupations doing as well or better than before the pandemic hit. Employment in business and financial jobs, for example, is up 7 percent in the third quarter of 2020 compared to a year ago. Transportation and material moving jobs are up as well, aided by gains in ecommerce. Meanwhile personal care and service jobs are down 42 percent, and food preparation and service jobs are down 25 percent.

Repairing the employment damage done by the pandemic will require a fiscal stimulus package from the federal government. The money will be needed to restart the consumer spending engine, which in turn will revive demand for workers. But it won’t be enough to simply boost federal spending and hope that job growth lifts everyone. We also have to make sure that we are creating new jobs with a future—jobs that are lifted by the winds of technological change rather than dashed by them. Many Americans felt dissatisfied with their job prospects, even during the low unemployment rates of the pre-pandemic days. Real wages were hardly rising, and the old career ladders of the past seemed to have disappeared for many types of jobs.

In this paper we outline six ideas for harnessing technology to create good jobs with a future—not just for college graduates, but for everyone. These are all proposals that could garner support from both Democrats and Republicans. The terrible tragedy of the pandemic is also an opportunity to reset the labor market, and envision a world where individual workers can build on their growing experience, knowledge, and skills make them more productive and earn them higher pay.

IDEA #1: FOSTERING 5G-RELATED JOBS

Policy: Accelerate the creation of 5G-related jobs by implementing policies prioritizing allocation of new spectrum and deployment of small cells.

Objective: Generate 300,000 new5G-related jobs annually for both high- skill and mid-skill workers, while boosting productivity growth in physical industries.

A recent paper from the Progressive Policy Institute and the National Spectrum Consortium demonstrated that every major advance in mobile communications has brought a new wave of job creation. For example, the smartphone revolution, later super-charged by 4G cellular technology, helped create over 2 million App Economy jobs in the United States alone.

That paper projects that the nationwide application of 5G—what we called the “Third Wave”—will create an average of 300,000 jobs per year over the next 15 years, or 4.6 million jobs in total. These will include such jobs as telehealth installers, construction drone operators, agriculture sensor technicians, autonomous vehicle maintenance, and military tactical communications specialist.

We anticipate that the 5G revolution may be animportant force propelling the U.S. labor market out of the Covid recession. Remember that the recovery from the 2008-2009 recession was spurred in part by the introduction of the iPhone in July 2007, which in turn led to the App Store in 2008 and an explosion of App developers in the United States and around the world. The adoption of 4G LTE by mobile providers such as AT&T and Verizon helped accelerate the communications-driven rebound.

The same thing can happen this time, as a wide range of industries apply 5G technologies to become more productive and reach new markets. Our research focused on eight key use cases: agriculture, construction, utilities, manufacturing, transportation and warehousing, education, healthcare, and government. In all of these, 5G can be leveraged to create new jobs to replace the ones that were destroyed by the pandemic.

To encourage this 5G-related job growth, we should support allocation of new spectrum for 5G while speeding deployment of small cells. First, the Federal Communications Commission (FCC) haslaid out a good road map for increasing availability and usefulness of high-band, mid-band, low-band, and unlicensed spectrum. Telecom policy should balance raising money via spectrum auctions while not making spectrum too expensive.

Second, high-bandwidth applications of 5G require the deployment of many “small cells” to get the full benefit of the new technology. Each “small cell” is basically a box containing antennae and electronics, attached to a buildingor a utility pole, and connected to a largernetwork via fiber or some other means.

These small cells are subject to state and local approval procedures that can slow down deployment and make it much harder to extend the reach of 5G. The FCC has promulgated rules that emphasize the importance of 5G infrastructure, including establishing deadlines or “shot clocks” for state and local approval. These rules, which were mostly upheld by an August 2020 court decision, should be retained and expanded.

For more on 5G-related jobs, read Michael Mandel and Elliott Long, “The Third Wave: How 5G Will Drive Job Growth Over the Next Fifteen Years,” Progressive Policy Institute and National Spectrum Consortium, September 2020.

IDEA #2: REBUILDING THE PRODUCTION ECONOMY

Policy: President-elect Biden has laid out a plan to boost manufacturing. But whether or not that plan gets support in Congress, the federal government should adopt policies to support the adoption of digital manufacturing technology by small and medium domestic manufacturers.
Objective: To boost the competitiveness and flexibility of domestic manufacturing and create new factory jobs across the United States.

For years, economists advised us not to worry about the decline in manufacturing jobs. What mattered, it was said, was rising manufacturing output and productivity. Yet it turns out that the loss of jobs was an indication of a deeper malaise in domestic manufacturing. The business cycle that started with the 2007 peak and ended with the 2019 pre-pandemic peak was perhaps the worst business cycle for manufacturing in recent history. Over this stretch, manufacturing productivity gains were dismal. 12 out of 19 major manufacturing industries had lower output in 2019 compared to 2007. The non-oil goods trade deficit grew by 60% to record levels, showing the gap between what we produce and what we need. To avoid a repeat of this disaster, and to create new manufacturing jobs for the 21st century, we have to adopt a portfolio of strategies for rebuilding America’s production economy. Joe Biden has a plan for boosting U.S. manufacturing. Key elements that we support include his proposals for bringing back critical supply chains to America, boosting worker training, increasing R&D investment, building up the Manufacturing Extension Partnership, and providing capital for small and medium manufacturers. But we would go further. First, we would advocate setting up a National Resilience Council which would be tasked with identifying those industries and capabilities that are strategic, in the sense of improving the ability of the economy to deal with shocks like pandemics, wars, and climate changes. These areas are likely to be underinvested by private sector companies, who quite naturally don’t have an incentive to tackle these sorts of large-scale risks. For example, no single company has an incentive to invest in improving N95 mask technology so that it is easier to scale up production, but the U.S. government does. Or to harken back to an important historic example, the Defense Department’s original motivation for funding the research that led to packet switching and the Internet was to create a decentralized network that would be more survivable in case of nuclear attack. The National Resilience Council should sponsor a Manufacturing Regulatory Improvement Commission, along the lines that PPI has suggested in the past. We have no desire to roll back essential environmental and occupational health regulations. But we do want to consider
whether rules governing manufacturing have become so restrictive as to unnecessarily force out jobs.

Second, we need to put more emphasis on digital manufacturing, where the United States seems to be falling behind. The government can shore up the nation’s supplier base by providing $200 million in low-cost loans and grants to help small and medium manufacturers test and adopt new production technologies, including digital advances such as robotics and additive manufacturing. Even in a low-interest rate environment, capital is relatively scarce for companies that are too small to tap the bond market. A somewhat similar initiative to provide loan guarantees for investment in innovative manufacturing technologies, authorized under the America COMPETES Act and supervised by the Commerce Department, never got off the ground because of excessively restrictive terms. Under our proposal, the loans and grants to small and medium companies would be tied to improving the resilience of the domestic manufacturing base. Third, the federal government should take the lead to create a common “language” so that product designers, manufacturers, and suppliers can more easily work together online, just like DARPA helped create the basic structure of the Internet in the late 1960s. In the same way that a young person can write an app, put it online, and find users around the world, it should be possible to create a design for a new product and easily find potential local manufacturers. Note that this effort is linked to the first idea in this package, the support for 5G-related jobs. The key here is connectivity. Twenty-five years ago the rise of the Internet connected computers and made all sorts of new businesses possible, creating millions of jobs. Now it’s time to make even the smallest factory in Ohio or Michigan part of a larger manufacturing network that can compete on a level playing field with larger foreign competitors. Some manufacturing networks or “platforms,” with names like Xometry and Fictiv, are already starting to sprout. Such platforms can make it easier for buyers to find domestic suppliers who have the necessary capabilities, and then to shift producers quickly when shocks hit or when it becomes necessary to lower carbon emissions. Such platforms can also give manufacturing startups access to immediate markets, make it easier for entrepreneurs to create well-paying factory jobs. But this transformation of manufacturing is not happening fast enough to help American workers. A resilient manufacturing recovery requires the fostering of flexible, local, distributed manufacturing—relatively small efficient factories that are spread around the country, using new technology, knitted together by manufacturing platforms that digitally route orders to the nearest or best supplier. The government has an important role to play leading the way to the Internet of Goods.

For more on rebuilding digital manufacturing jobs, read Michael Mandel, Spur Digital Manufacturing in America, Progressive Policy Institute, August 2020 and Michael Mandel, “The Rise of the Internet of Goods,” Progressive Policy Institute and MAPI Foundation, August 2018.

 

IDEA #3: REDUCE INEQUALITY BY BUILDING ECOMMERCE-MANUFACTURING HUBS

Policy: Help Americans who lose their jobs in brick-and-mortar retail find better-paying work in ecommerce and distributed manufacturing.
Objective: Transition away from dead-end jobs in retail while reducing unnecessary shipping.

During the pre-pandemic economic boom, ecommerce was a potent source of well-paying jobs for low-income workers. From February 2018 to February 2020, the ecommerce sector—comprised of electronic shopping, warehousing (fulfillment) and couriers and messengers (delivery)— added 212,000 full-time-equivalent (FTE) positions for production and non-supervisory workers. By comparison, brick-and-mortar retail lost 8,000 FTE positions for production and non-supervisory workers (which
for brevity we’ll call “production-level” workers). The same trends held up during the pandemic as well, when expanded hiring by the ecommerce sector has helped compensate for the contraction of brick-and-mortar retail. From August 2019 to August 2020, the total number of hours worked by production-level workers in ecommerce and brick-and-mortar retail fell by only 0.4 percent. Brick-and-mortar retail hours were 2.2 percent lower in August 2020 compared to a year earlier, but hours worked in
ecommerce industries were 8.3 percent higher. What’s more, average pay is considerably higher in the ecommerce sector compared to brick- and-mortar retail. In February 2020, hourly pay for production-level workers in the ecommerce sector averaged 12 percent higher than in brick-and mortar retail. Weekly pay averaged 40 percent higher in ecommerce, because most brick-and-mortar retail employees don’t work full weeks.

Indeed, key ecommerce fulfillment occupations such as “laborers and material movers” and “hand packers and packagers” get substantially higher pay in the warehousing (fulfillment) industry than they do either in retail or manufacturing. As Table 3 shows, laborers and material movers—which make up about half the workforce of the warehousing industry—get paid $16.19 an hour, not including annual bonuses, in warehousing. That’s 23% than comparable workers in retail and 11% more than comparable workers in the private sector overall. And warehousing even pays laborers and material movers roughly the same as comparable workers in manufacturing, long held up as the gold standard for pay for blue-collar workers. But more is needed. As part of the effort to rebuild the production economy (idea #2), federal policy should support distributed manufacturing establishments co-locating with ecommerce fulfillment centers in order to create new hubs for goods production and distribution. This will create more competition for workers in these areas, and boost wages. The goal is to create a new manufacturing ecosystem, built around distribution centers. Equally important, co-locating manufacturing with ecommerce fulfilllment will reduce shipping costs, which is pro-competitiveness, pro-
consumer, and pro-environment. The cost of distribution makes up roughly half the retail price of many consumer items, according to Bureau of Economic Analysis figures. Locating manufacturing near distribution facilities will lower shipping costs, reduce turnaround time, and put fewer trucks on the road.

To read more about ecommerce jobs and wages, see Michael Mandel, “How Ecommerce Creates Jobs and Reduces Income Inequality,” Progressive Policy Institute, September 2017.

 

IDEA #4: SUPPORTING INDEPENDENT WORKERS

Policy: Change tax rules and use improved technology to get independent or “gig” workers better access to benefits.
Objective: Improve outcomes for independent workers and put them on a level playing field with employees in terms of retirement, health, and other benefits.

Coming out of the Covid Recession, businesses are going to be cautious about hiring permanent workers. Instead, they will prefer to take on independent workers at the beginning because of the flexibility. In order to accelerate the recovery, we want to make it easier for companies and platforms to give opportunities to independent workers. But we also want to rebuild the tax and labor laws to give independent workers equal access to benefits, which are so important for retirement, health, and other aspects of economic life. In a 2020 paper, we pointed out that the tax code is biased against benefits for independent workers. Most independent workers have to pay FICA taxes on the money they contribute to their tax-deferred Individual Retirement Accounts (IRA), Simplified Employee Pensions (SEP) or solo 401k accounts. By comparison, the contribution of employers to employee retirement accounts is exempt from both employer and employee FICA taxes. The same is true for contributions to healthcare and other benefits as well. This additional tax burden on independent workers can be worth thousands of dollars. In addition, it is very difficult by law for companies to provide benefits to independent workers without being forced to reclassify them as employees. These two regulatory issues alone explain why independent workers have trouble getting the benefits that they need. We propose putting independent workers on a level playing field with employees in terms of benefits. That means changing the tax rules so that independent workers, like employers, no longer have to pay FICA taxes on qualifying contributions to retirement and healthcare benefits. (Note that the loss of tax revenue is the same, in principle, as would be incurred by forcing companies to hire independent contractors as employees). The other key is to require a baseline level of benefits and protections for independent workers, including a cafeteria-style plan. Because of technological improvements, it is feasible for these benefit plans to be administered by third party providers, so that they would be portable. We also suggest a uniform national standard for determining who is an independent worker. For example, one possibility is that companies would have minimal control over hours of work, and no non-compete agreements. Here’s how it would work. Companies would pay a certain share of the worker’s earnings into a dedicated account for pre-tax benefits. There would be no required match from the beneficiary. The independent contractor would accrue benefits in proportion to the amount of money
he or she earned on the platform. A separate and important question is whether the new regulatory regime would be opt-in or mandatory. We lean towards opt-in given the wide variety of independent contractor arrangements that exist (e.g., doctors, realtors, etc.). If companies do not opt in, they would remain subject to existing legal tests for determining worker classification. If a company opts-in to this alternative classification — which we call “gig workers with benefits” — then once a worker reached a certain number of hours contracting with them, that worker would be entitled to a required set of tax-advantaged benefits — for example, portable benefits including paid leave, retirement savings accounts and contributions towards an individual’s health insurance premiums. All workers also should be covered by occupational accident insurance for on-the-job injuries. On the other hand, companies that opt-in to this new regulatory framework would be required to give workers the freedom to choose their hours as well as work for other companies in the same industry. In effect, this would give employers minimal control over hours or non-compete agreements. Companies would be required to choose, on a year by year basis, whether they apply this new category of worker to their independent contractors. Companies are incentivized to opt-in because the benefits independent workers receive under this model are tax-advantaged. On the margin, independent workers will choose to work with companies that offer these benefits because they are worth more than pure cash compensation (which is subject to payroll and income taxes). This choice would allow companies to offer benefits to independent contractors without worrying that they would be reclassified as employees at either the state or federal level, while preserving the flexibility and independence that are synonymous with independent contractor status. And independent contractors would be on equal footing with the tax-advantaged employees.

To read more about improving benefits for independent workers, see Michael Mandel and Alec Stapp, “Regulatory Improvement for Independent Workers: A New Vision,” Progressive Policy Institute, July 2020.

 

IDEA #5: SUBSIDIZING WORK AND CAREERS FOR THE DISADVANTAGED

Proposal: Use tax policy to get disadvantaged workers into jobs faster.
Objective: Get unemployed workers back into the labor market as soon as possible where they can start getting training for the future.

Even when the pandemic starts to ebb and the economy begins to rebound in earnest, employers will still be reluctant to risk hiring. One big issue is how to encourage them to take a chance on adding new workers, especially ones in disadvantaged categories that have been hit especially hard by the Covid Recession. Rather than start a new program, however, we can turn to an existing one that can be fine-tuned a bit for the current crisis. The Work Opportunity Tax Credit (WOTC)–originally passed in 1996 and reauthorized several times on a temporary basis since then–gives a tax credit to employers who want to hire workers out of 10 disadvantaged groups, including qualified veterans, qualified recipients of SNAP (supplemental nutrition assistance program), qualified long-term unemployment recipients, and qualified residents of empowerment zones, among others. In fiscal year 2019, about 2 million workers were certified eligible for the WOTC by state employment agencies. Under current law, the typical maximum tax credit is $2,400 for most of the qualified groups. The tax credit is due to expire at the end of 2020. In 2019, legislation to make WOTC permanent was introduced in both the House and Senate with bipartisan support, including Senator Sherrod Brown (D-OH). The key question: Is extending the WOTC a good way to accelerate post-Covid hiring, and do any changes need to be made? In a 2019 report, the nonpartisan Tax Foundation reviewed the available research, and summarized the pros and cons of the WOTC: The WOTC appears to have had at least a modest, but noticeable, positive impact on the short-term employment outcomes of disadvantaged groups. Moreover, the WOTC has accomplished this at a cost in line with other job tax credits and significantly lower than that of direct job programs. However, there is currently no evidence that the WOTC positively affects long-term employment outcomes for these groups. The WOTC also seems to suffer from large inframarginal effects, subsidizing firms for hiring workers that they would have already hired. Another plus for the WOTC: Because it is targeted to the disadvantaged and unemployed, it gives more bang for the buck than a payroll tax cut, which covers many workers who are already employed. On the minus side, the WOTC in its current form has proven to be difficult to administer by overworked state agencies. In addition to the 2 million certified claims in FY 2019, there were another 2 million claims that were listed as still pending.

One way to simplify the WOTC is to temporarily broaden it to all workers who are currently receiving jobless benefits, in addition to the long-term unemployed who were already covered. This has the advantage of being far easier for state agencies to administrate, since presumably they know who they are sending money to and who they aren’t. That means small businesses will be more likely to take advantage of the tax credit than they are now. At the margin, this broader credit is likely to be a potent supercharger for hiring workers who lost their jobs because of the Covid Recession. Employers will greatly accelerate their hiring plans in order to take advantage of the credit. In addition, by raising demand for workers, the benefits will spill over into higher wages. Obviously the cost of such a program will rise in proportion to its success. The more people are pulled off the jobless benefit rolls into jobs, the more expensive the tax credit will be. But because the tax credit is per person, the people who are most likely to be helped are the ones on the margin who will have their entry into the labor force greatly accelerated. How does WOTC compared to other approaches to accelerating job creation, such as payroll tax cuts, wage subsidies, and broad macro spending? The payroll tax cut is easier and faster to implement, because it doesn’t require certification. On the other hand, it strikes directly at the funding of Social Security and Medicare, which makes it more worrisome for progressives. Broad macro spending—say, on infrastructure—has the advantage of adding long-term capital improvements to the economy, and for that reason is an important part of any recovery plan from the Covid recession. However, an infrastructure program is much more expensive per job created than WOTC is.

IDEA #6: BUILDING CAREER LADDERS FOR LOW-INCOME WORKERS

Policy: Federal funding of post-Covid apprenticeship and training programs should encourage the use of digital credential systems.
Objective: Widespread use of interoperable digital credential systems, independent of formal degrees, can create sustainable career ladders that rewards the skills and experience of low-income workers.

Credentials like education or formal certificates are important, especially in a time of economic volatility. Observable credentials that are not tied to a single employer can help the earnings of workers rise as they get more experience, whether they stay at the same business or are forced to switch employers. Observable credentials also mean that worker incomes don’t fall all the way to entry-level pay when they lose their jobs. It goes without saying that high-income workers have access to credentials through the formal educational system. But more is needed for the rest of the population. As PPI has noted in a 2020 report, greatly expanding the number of formal apprenticeship programs and boosting funding for career education is essential for improving outcomes for low-skilled and medium skilled workers. U.S. lawmakers should create strong incentives for intermediaries (private or public) to organize apprenticeship training and placement and market them to employers. There are thousands of private firms and non-profits that are well positioned to supply purpose-trained talent to their clients. Many are already providing services to dozens or hundreds of clients in sectors facing talent shortages, notably technology or healthcare. The intermediaries incur the training expense and get paid only when they succeed in placing their apprentices in full-time jobs. In so doing, they can create frictionless pathways to good first jobs. Washington spend hundreds of billions each year on supporting college education. As a simple matter of equity, Washington should invest a roughly equal amount to expand access to high-quality career education and training for young workers who need post-secondary credentials. But it’s important to note that apprenticeship and career education programs don’t cover many Americans who have been traumatized by the Covid Recession. Workers in retail, restaurants, hotels, and other hospitality industries have no formal credential structure to provide a floor when things get tough. Their former employer knows their value, but that employer may not be re-opening its doors even after the Covid Recession is over. This lack of observable credentials for low-income workers is a long-term problem. Low-income workers tend to have very short tenures at individual employers. According to pre-pandemic data from the Bureau of Labor Statistics, the five lowest paid occupations have a median tenure with the same employer of only 3.1 years. Lower paid occupations have much more churn, and fewer opportunities to get formal credentials that demonstrate tangible skills and capabilities that can be carried over from job to job, especially since employers are in fluctuation as well. At the same time, employers are also hurt by the lack of credentials for low-income workers. Small businesses, especially, want to hire workers with good “soft skills”—punctuality, hard work, ability to take initiative, get along with others. It would be easier to hire and pay such workers if there was a way of tracking their competencies and skills across employers. At the same time, workers will be more willing to invest in developing such competencies if future employers could see them. This is an especially important issue coming out of the Covid Recession. If accumulated skills and experience doesn’t get tracked for the millions of people with a high school education or less who lost their jobs, then they will have a hard time regaining their place in the workforce. They go back to the bottom of the queue. Without career ladders, the less skilled are exposed in the case of major turmoil in the economy. Powered by advances in technology, there have been great efforts in recent years to develop such flexible credentialing systems. For example, the U.S Chamber of Commerce Foundation helped set up an innovation network with more than 400 organizations, with the goal of enabling job seekers “to display the breadth of their experience in a single, comprehensive learning record.” Companies like Badgr and Credly are building online systems for tracking worker achievements. Such “micro-credentialling” systems show what economists call positive externalities: They are more valuable for worker and employers the more widely they are used. For example, Millbrae, CA-Based Merit International has developed a system that it calls the “only interoperable ecosystem for all digital credentials, memberships, and opportunities from trusted organizations.” Merit currently works with over 1,000 public and private sector organizations, including state government agencies, to standardize and centralize digital records for professional licenses and qualifications. In particular, Merit’s platform hosts digital credentials known as “merits.” Merits can be defined by the issuing organization, but can correspond to anything from workforce skills to recognition of soft skills such as punctuality and initiative. Because these soft skills now
can be verified by future employers, they raise future wages and the speed of being rehired. These merits then become the building blocks of a career path that leads to higher wages and better jobs, even in the middle of labor market turmoil. A platform like Merit’s can also increase the value of both formal training programs and on the job training by creating a record of accomplishments that can be accessed by future employers. Moreover, these employers can see which types of training have a bigger payoff in terms of workplace productivity. It should be clear that the economics of micro-credentialing depends on relatively cheap data processing, and a system that protects both privacy and security. The other issue, of course, is getting a critical mass of employers and governments to adopt an interoperable standard. That’s where the Covid Recession comes in. As the U.S. emerges from the pandemic, federal and state governments are likely to be funding large-scale training and reemployment efforts across the country. This is a unique opportunity to accelerate the adoption of micro-credentialing at relatively low cost by tying it to training funds. Institutions and companies that provide training should also be required to connect with a micro-credentialing system, preferably a broad-based one. The goal would be to jumpstart a system of tracking competencies and skills that helps everyone, not just the workers at the top and the largest companies. New technologies enable us to create jobs with a future, and micro-credentials are part of that.

To read more about apprenticeships, see Will Marshall, “Get Everyone Back To Work – And Make Work Pay,” Progressive Policy Institute, August, 2020.

The Political Economy of the Beer Excise Tax

Posted on by The Progressive Policy Institute

The presidential election is over, but for progressives, the process of winning back the working class has just begun.

In this note we’re going to focus on beer. Why beer? First, brewery employment is one of the great success stories in manufacturing in recent years. The number of jobs in the brewery industry increased a stunning 230% from 2007 to the pre-pandemic peak of 2019, making breweries the fastest growing manufacturing industry. With many communities—including the “Blue Wall” states—still traumatized by the long-term collapse in manufacturing jobs, the symbolic and actual importance of the health of the brewery industry, especially craft brewers, cannot be underestimated.

Second, beer exemplifies the complicatedpolitical calculation that progressives must make about tax policy. The Tax Cut and Jobs Act of 2017 (TCJA) gashed a huge hole in federal revenues that eventually needs to be plugged. Yet some provisions of the TCJA, such as the excise tax cuts for brewers, have been successful in generating job growth, and deserve to be made permanent.

Third, progressives need to face the regressive and almost punitive nature of excise taxes ingeneral. It’s difficult to build political supportwhen ordinary people feel like they are being nickeled and dimed by taxes and fees that they cannot get away from, whether it’s on beer, telephone service or some other essential product.

BREWERIES AND MANUFACTURING

Let’s start with manufacturing. The demise of many manufacturing jobs left painful scars in many state economies, wounds that were never fully healed under the Trump administration. As of 2019, before the pandemic hit, manufacturing employment in 40 out of 50 states was still below their 2007 level. In particular, the Blue Wall states—Minnesota, Michigan, Wisconsin, and Pennsylvania—were still down 114,000 manufacturing jobs in 2019 compared to 2007.

Against this dismal backdrop, the brewery industry has been a remarkably positive story. As noted, nationally brewer employment has shown the fastest growth of any manufacturing industry between the business cycle peaks of 2007 and 2019. In the Blue Wall states, brewery jobs quadrupled over this stretch, going from 3,000 in 2007 to more than 12,000 in 2019 (Figure 1).

The importance of brewery jobs stands out when we look at the most recent years. From 2015 to 2019, brewery industry jobs rose by an astonishing 79 percent. As Table 1 shows, that makes brewing the second-fastest growing manufacturing industry by jobs over that stretch, second only to storage battery manufacturing (think Tesla and Elon Musk’s huge Gigafactory in Sparks, Nevada, which employs thousands of workers making lithium-ion batteries).

It’s worth noting that the brewery industry is in good company. Other top manufacturing industries in terms of job growth include military armored vehicles, semiconductor machinery and space vehicle propulsion units (another industry related to Musk).

Table 1. Top Manufacturing Industries by Growth, 2015-2019

Data: Bureau of Labor Statistics

TAXES AND JOBS

Brewery employment was boosted, in part, by the “Craft Beverage Modernization and Tax Reform” provisions of the TCJA. These provisions, due to expire on December 31, 2020, reduce federal excise taxes on both large and small domestic breweries. The excise tax rate is reduced on the first six million barrels brewed by any brewer.Small brewers, with less than two million barrels, get a deeper reduction on their first60,000 barrels.

Economic research suggests that these excise tax cuts are mostly passed onto the final consumer. Indeed, the price of beer rose
at only a 1.7 percent rate between 2016 and 2019, slower than the 2.1 percent rate of overallconsumer inflation during the same period. Inother words, beer has been getting relatively cheaper compared to other goods and services.

Should the excise tax reduction be extended? On the one hand, the federal government entered the post-election period with a $3.1 trillion federalbudget deficit for FY 2020, and the public holdingfederal debt equal to 100 percent of GDP. Under normal circumstances that would be seen as an opportunity to raise revenues by allowing the provisions to expire, immediately sending excise taxes on small brewers soaring.

Yet, with the pandemic on the upswing across the country and unemployment still high, the notion of raising taxes on an extremely successful job-creating industry seems misguided, at best. That’s the equivalent of removing a tire from your fastest, most reliable car in the biggest race of the year.

One political hurdle is that the excise tax reduction was originally enacted as part of the TCJA, which has a bad association among many progressives for its top-heavy individual rate cuts and large reductions in corporate income tax rates. Nevertheless, the TCJA contained some important progressive provisions, such as improvements in the U.S. international tax code that make it harder for multinationals to shift income to low-tax countries (the so-called BEAT, or “base erosion and anti-abuse tax”) and set a kind of minimum tax on multinationals (the so-called GILTI or tax on “global intangible low- taxed income”). Within this context, the lower excise tax on beer translates directly into lower prices for consumers and more manufacturing jobs for workers, a general plus. Indeed, the Craft Beverage Modernization and Tax Reform Act had strong bipartisan support when it was first introduced in 2017 and extending the current provisions has strong bipartisan support today.

Figure 1. Soaring Brewery Jobs in the “Blue Wall” States, 2007=1

*Michigan, Minnesota, Wisconsin, Pennsylvania, Data: Bureau of Labor Statistics

THE CASE AGAINST EXCISE TAXES

The next question: Should the excise tax reduction on beer not only be extended, but made permanent? To answer that question requires a discussion of the role of excise taxes in fiscal policy. It’s a general principle ofeconomics that broad-based taxes are moreefficient and less distortionary than a narrowexcise tax on a single good. So, a broad sales tax or value-added tax is better for the economy and economic growth than a narrow excise tax which raises the same amount of money. Similarly, a broad carbon tax is better, in a theoretical sense, than a narrow tax on gasoline.

Nevertheless, excise taxes persist. Generally, excise taxes have been justified on two grounds.First, they serve the purpose of use fees, as in the case of the gas tax, which is used to pay for highway maintenance. But in an era of electric vehicles and oversize trucks, there no longer is a direct link between gas taxes paid and damage to the roads.

Excise taxes have been also justified on social grounds, both negative and positive. The tobacco excise tax, of course, is intended to discourage smoking. Telephone companies pay a contribution to the federal government—effectively an excise tax—to support universal service initiatives. And of course, the excise tax on alcohol has been tied to the social costs of alcohol abuse.

However, there are downsides to the use of excise taxes for any of these purposes. First, excise taxes tend to be regressive. A 2019 analysis by the Tax Policy Center showed that low-income households pay 1.1 percent of their income in federal excise taxes, compared to 0.5 percent for high income households (Table 2).

Table 2. Distribution of Federal Excise Taxes, 2019

*includes alcohol excise tax. Data: Tax Policy Center https://www.taxpolicycenter.org/briefing-book/who-bears-burden-federal-excise-taxes

 

In terms of alcohol, a 2015 study from the Congressional Research Service noted that excise taxes are generally regressive, alcohol included. Lower income households tend to spend a higher share of their pre- tax income on alcoholic beverages, but this distribution is not as uneven as spending on non-alcoholic beverages or food. In particular, economic studies have shown that beer is much less responsive to price changes than either wine or distilled spirits. This means that excise taxes on beer are much more likely to be transmitted to consumers, which puts more of a burden on low-income consumers. That makes the beer tax regressive.

And then there’s one more issue that’s especially important politically at this moment. A narrowly focused excise tax is perceived by many Americans as direct government interference in their choices. From the progressive perspective, that power should be used judiciously and notwith profligate abandon. That suggests as ageneral principle, we should move away from excise taxes towards broader-based taxes.

That principle obviously has wide applications. But getting back to beer, which is where we started: It’s time to get rid of the temptation to “tax sin” and let the excise tax reductions on beer be permanent. The U.S. needs more tax revenue, but it has to come from broader based taxes.

How Deficits Could Cripple The Biden Agenda – And How He Can Overcome Them

Posted on by The Progressive Policy Institute

Former Vice President Joe Biden has won the presidency and a clear mandate to govern following the highest-turnout election since before universal suffrage. But voters were less kind to his allies in the Democratic Party, apparently reducing their majority in the U.S. House of Representatives to single digits and electing a U.S. Senate that will be evenly divided or narrowly under Republican control (pending two run-off elections in Georgia). As a result, Congressional Republicans – who spent the last four years indulging the Trump administration with trillions of dollars in unfunded tax cuts and spending increases – will surely use the unprecedented budget deficits President-elect Biden inherits as pretext to stymie his ambitious economic agenda. Biden will need to leverage his unique ability to work across the aisle and demonstrate that his objectives can be accomplished in a fiscally responsible way in order to overcome this conservative opposition.

Thanks to the pandemic recession caused by the coronavirus, almost one out of every two dollars spent by the federal government in Fiscal Year 2020 was financed with borrowed money instead of tax revenue. This $3.3 trillion deficit was equivalent to 16 percent of gross domestic product – the largest deficit since World War 2. Although the deficit for FY2021 is projected to be smaller, it is still projected to be roughly $2 trillion. As a result of the borrowing needed to finance these deficits, the national debt is on track to exceed the all-time high it reached at the end of WW2 (106 percent of GDP) before the end of Biden’s first term.

Senate Republicans have already begun using our nation’s alarming fiscal position as a pretext to undermine further fiscal stimulus and other measures to support the American people through the coronavirus pandemic. While Treasury Secretary Steve Mnuchin and House Speaker Nancy Pelosi were negotiating a $1.8 trillion relief bill to extend provisions of the CARES Act that expired in August, Senate GOP leaders said that the price tag is a non-starter with their caucus. Now that Republicans have probably preserved their Senate majority, it is unlikely that President Trump or President-elect Biden can get a stimulus bill much more than $1 trillion.

Read the rest here.

Millions Will Lose Jobless Benefits After Christmas Day

Posted on by The Progressive Policy Institute

House Speaker Nancy Pelosi warned the Trump administration yesterday that if they do not reach another coronavirus relief deal, at least five million people (and potentially more) will lose their unemployment benefits, largely because two new unemployment expansions are scheduled to expire on December 26. Yet any deal they strike to extend that aid would need approval from Senate Republicans who spent the last month prioritizing partisan court packing rather than passing a relief package that they say would be a “death knell” for their majority and undermine their argument for obstructing spending under a potential Biden administration. The Senate GOP must stop playing politics with the unemployment benefits keeping millions out of poverty and extend them until job seekers can once again earn a good wage. If they don’t, the next Senate and president will have to do so after benefits have already lapsed.

The $270 billion expansion of Unemployment Insurance that Congress enacted through the CARES Act successfully mitigated what began as the worst unemployment crisis since the Great Depression. It aimed to replace roughly 100 percent of the average worker’s lost wages by boosting all benefits by $600/week. Republicans already let this temporary benefit hike expire in July over misplaced fears that such a large benefit would dissuade some people, particularly those who received more in benefits than they lost in wages, from going back to work. But the CARES Act also expanded benefits through two other programs that expire at the end of this year. Pandemic Unemployment Assistance (PUA) gives benefits to people such as gig workers and freelancers who do not qualify for traditional unemployment benefits, while Pandemic Emergency Unemployment Compensation (PEUC) extends normal unemployment benefits by 13 weeks.

PUA and PEUC are essential tools in the fight against this protracted pandemic recession. Over 60 percent of the 23 million people who claimed unemployment in the week ending October 10 received benefits through one of these new programs (these numbers may include some duplicate or ineligible claims), and the share is likely to grow as more unemployed workers move from normal benefits onto PEUC. Federal relief efforts such as the unemployment expansions were so effective at replacing lost incomes that poverty actually fell at the beginning of the crisis, rather than rising.

Back in May, House Democrats proposed extending these programs through January 2021 and have since proposed a new extension for people who exhaust all available benefits. But Senate Republicans refused to even begin negotiations over a new relief deal until well into the summer and oppose spending anywhere near enough money on the nation’s recovery. Senate Majority Whip John Thune doubted this Senate could find the necessary votes to pass anything at all, meaning relief may not come until after December 26 – if even then.

If Senate Republicans let these programs expire, people on PUA will lose their benefits entirely. Most PEUC claimants will move onto another program called Extended Benefits, which offers just 13-20 weeks of additional benefits and is only available in states with high unemployment rates. But nine states do not have high enough unemployment rates to offer Extended Benefits, meaning their beneficiaries will also lose their benefits even if it is not possible (or not safe) for them to earn a paycheck.

Without benefits, millions of people would face dire financial straits. Low-income households that likely had little in savings have been more than twice as likely as high-income households to have someone lose their job during the pandemic, and jobs could become even harder to find as the winter brings a new surge of coronavirus cases that could further slow the economy down. Without savings or income, job seekers will struggle to pay for essentials such as groceries and rent, and the economic pain will spread to the businesses where job seekers would have spent their money.

Senate Republicans can decide today to extend these vital unemployment benefits. Doing so before December 26 would keep benefits from lapsing and help job seekers pay their bills on time. It will also keep states from disassembling the systems that administer those benefits, which would take time to rebuild should Congress extend benefits retroactively because of state unemployment systems’ archaic information technology. But if beneficiaries lose their vital financial support while President Trump and the Senate GOP are in charge, they will be without support for a while even if the next administration takes the necessary action of retroactively extending benefits.

Moving forward, policymakers should avoid recreating the Christmas benefit cliff through the adoption of “automatic stabilizers” – mechanisms that automatically increase the generosity of unemployment benefits for as long as economic data shows the labor market in crisis and gradually return benefits to normal as the labor market recovers. Tying unemployment benefits to real economic conditions, as many Democratic members of Congress have already proposed, would guarantee that laid-off workers keep getting benefits until there are jobs for them to find, regardless of the politics in Congress. Adopting such automatic stabilizers as a permanent feature of the Unemployment Insurance system would make our country more resilient in both the current and future recessions.

There are less than two months for the Senate GOP to put politics aside and join Democrats in preventing vulnerable people from going over the benefit cliff. No matter what the president says, this crisis will not “disappear like a miracle,” and his constituents will continue to need support as we navigate this national crisis. But if this Senate will not act, the next one should move quickly to restore benefits for jobless Americans and modernize the Unemployment Insurance system so future beneficiaries can pay their bills regardless of Congressional politics.

Semiconductor Bill a Step in the Right Direction for Innovation and Economic Growth

Posted on by The Progressive Policy Institute

The U.S. and China continue to battle it out over semiconductor manufacturing as part of the larger tech war between the two countries. While the Semiconductor Industry Association (SIA) estimates U.S. firms account for 45 to 50 percent of annual semiconductor sales worldwide, their share of global semiconductor manufacturing capacity has declined from 37 percent in 1990 to 12 percent in 2020. Asian countries meanwhile account for nearly 75 percent of global semiconductor manufacturing capacity today. Importantly, China is projected to lead the world in manufacturing capacity by 2030, more than doubling its capacity from 2010 and 2030.

Going forward, only 6 percent of new capacity is expected to be located in the U.S., under current market conditions. That’s not acceptable. As we’ve seen this year, during tough times like pandemics and wars, countries with factories producing crucial goods prioritize their own needs ahead of foreign customers. Moreover, it takes time and money to build up alternative sources of supply. That’s why N95 masks, a “middle-tech” product, are still in short supply. In the event of a global crisis that cut off semiconductor supplies from Asia, it could take years to make up the difference at home.

It should be noted that semiconductors, more than data, are the oil of the 21st Century. By allowing semiconductor production to drift overseas, the U.S. is putting itself in the uncomfortable position of allowing foreign countries to control an essential input to the economy and defense sector.

Investments in semiconductors have huge externalities for the rest of the economy. PPI has often talked about the need to apply tech and advanced communication capabilities like 5G to the physical industries, in order to boost productivity and create new cognitive-physical jobs. But these gains won’t be possible without a steady and reliable source of semiconductors. 

In terms of defense, relying on a potential rival as a major source of key semiconductors would present an important national security issue. It’s essential for the U.S. to retain a substantial semiconductor production base that can be expanded as needed in a crisis. 

The rise of Asian capacity can partly be attributed to cheap capital and government incentivization of the industry, including land, housing, telecommunications, utilities, logistics, regulatory relief, expedited permitting, and special economic zones and science parks. In other words, the workings of the market have been distorted by government policy. 

In order to match these foreign advantages, a bipartisan group of legislators have sponsored the Creating Helpful Incentives to Produce Semiconductors for America Act, known as the CHIPS for America Act. Introduced in the Senate by Sens. Warner (D-VA), Sinema (D-AZ), Cornyn (R-TX), Risch (R-ID), and Rubio (R-FL) and in the House by Reps. Matsui (D-CA) and McCaul (R-TX), the proposal would provide a 40 percent refundable investment tax credit for semiconductor equipment and facilities, as well as billions more for research, development, and production incentives over the next decade.

The SIA estimates a $20 to $50 billion federal program of additional grants and tax incentives for new manufacturing facilities built over the next 10 years would be enough to reverse the declining trend of U.S. semiconductor manufacturing over the last three decades. The CHIPS for America Act would be a down payment on this amount, helping the U.S. re-secure its foothold in semiconductor manufacturing and unlocking the next wave of economic growth.

 

How Trump Lost to the Coronavirus

Posted on by The Progressive Policy Institute

Behind in the polls and flailing, President Trump finally has met an opponent he can’t bully, belittle or bury in an avalanche of lies. Joe Biden? No, the coronavirus.

The pandemic is surging again, just as the 2020 presidential election enters the final stretch. A frustrated Trump this week groused that the public is “tired” of hearing about the pandemic. Maybe so, but according to Five Thirty Eight’s daily tracker of public opinion, two-thirds of Americans are very or somewhat concerned about COVID-19. Even more – 86 percent – are worried about the pandemic’s impact on the economy.

Apart from hardcore Republicans, Americans don’t share Trump’s view that he has done a “phenomenal job” in managing the pandemic. More than 57 percent of U.S. voters disapprove of his response to COVID-19, while just under 40 percent approve. Only 35 percent of independents think he’s done a good job.

Read the full piece.

Making America’s Trumps Pay Their Fair Share

Posted on by The Progressive Policy Institute

The explosive revelations that self-proclaimed billionaire Donald Trump paid just $750 in federal income taxes – a tiny fraction of what he paid the Chinese government through his secret bank account – in recent years have focused overdue public attention on U.S. tax laws that seem designed to protect wealthy Americans. With our national debt approaching the highest level in history, it is incumbent on federal policymakers to make sure that Trump and other wealthy Americans are paying their fair share of what it takes to run our country.

Read the full piece here.

WEBINAR: Bringing Diversity to Economic Thought – The Mosaic Project

Posted on by The Progressive Policy Institute

The Progressive Policy Institute is proud to launch The Mosaic Economic Project to create a network of diverse women who are experts in economics and technology – fields where their perspectives are grossly underrepresented. The mission of Mosaic is to train, connect, host and advocate for the participation of women, particularly minority women, in meaningful policy conversations. Listen in to this conversation with women leaders including:

Keynote:
Tammy Wincup, President, Protocol

Speakers:
Jewel Burks Solomon – Head of Google for Startups, US
Dr. Rhonda Vonshay Sharpe – Former President, National Economic Association and Women’s Institute for Science, Equity and Race (WISER) – – Dr. Beth Ann Bovino – Chief US Economist, S&P Global

Moderator:
Crystal Swann, Mosaic Project Senior Leadership

PPI Statement on Digital Markets Report from House Subcommittee on Antitrust

Posted on by The Progressive Policy Institute

Washington, DC – The House Subcommittee on Antitrust released its long-awaited report today on competition in digital markets. The recommendations include a call to break up tech companies so they can no longer own platforms and offer products and services on them at the same time, something that almost all other retail leaders do and do well.  

“The radical proposals set forth in the report would hinder America’s most innovative and globally competitive companies, simply because they are big, and ultimately would harm consumers,” noted Alec Stapp, Director of Technology at the Progressive Policy Institute. “The real problem with antitrust enforcement is that our agencies are underfunded and haven’t addressed the real competition issues in the healthcare and other consumer-facing industries”

“The report just skips over the statistical evidence that these companies lead the sector which has performed better than the rest of the economy in terms of prices, productivity, wages, investment and job growth,” said Dr. Michael Mandel, Chief Economic Strategist at the Progressive Policy Institute. “If you have a car that’s running smoothly, why disassemble it for parts?”

Experts Alec Stapp, Director of Technology Policy and Dr. Michael Mandel, Chief Economic Strategist at the Progressive Policy Institute are available for commentary. For more information or to speak with Alec or Michael, please contact Ryan@RokkSolutions.com. 

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