Being as it is a presidential election year, the debate about jobs, private sector growth and the role and size of government are taking a good amount of space in the headlines. Job growth, in particular, hast been fairly disappointing during this recovery, specially if we look at the headline numbers.
When looking the numbers with a bit more detail, however, a different picture emerges. It turns out that job growth has been pretty decent on the private sector; in fact, faster than the dismal average during the previous decade. In the public sector, however, the picture looks much different (via):
While the private sector has been creating jobs at a steady clip, the public sector has been shedding workers at an unprecedented pace. Outside the short term boost of census hiring, state and local governments have fired close to 600,000 workers in the last three years. Most of these jobs, incidentally, are on the education sector; we are not talking about bureaucrats, but teachers.
If the Federal government had provider more support to state and local governments (or at least enough to keep employment levels stable), unemployment would be below 8%. If government expansion would have followed the same clip as the one we had during the Clinton years (only natural, following population growth) we would be close to 7%.
The weird thing is, some people insist that what had a massive expansion of the size of government during these past three years. It is hard to see where they see it.
The richest 1% of Americans pay a 21% of all the taxes. That really sounds like a lot of money, until you compare that number to another relevant piece of information: the richest 1% of Americans make 21% of all the income. This study from Citizens for Tax Justice (via) gives a good idea on how the tax system really works:
If we take into account all three levels of taxation in the US, the system as a whole is far from progressive: what we have is, essentially, the world´s most convoluted flat tax in the planet. The Federal tax system, with all its loopholes, it is fairly progressive; the state and local taxes, however, are incredibly regressive almost everywhere in the country. Connecticut, despite having a progressive income tax, follows this pattern, due to the extremely nature our local property tax system. Despite all the chatter about soaking the rich, the facts point out on the opposite direction.
There has been a lot of talk about taxation both in Congress and the State Capitol in the past few months. Some commentators, like former governor Rowland, have been complaining about the terribly unfair tax system in Connecticut and how it is all about giving money to the poor, who don´t pay any taxes, while soaking the rich with an ever-increasing tax burden.
¿Is there any truth to these claims? Well, a recent study by the Corporation for Enterprise Development just took a good look on this claims (via Kevin Drum), creating a handy scorecard on this subject. They compare the taxes paid as percent of income from both the poorest 20% and the top 1% households by state, taking into account both local and state taxes. The results? Not good for those free-riding poor guys, I am afraid:
The bottom 20% families in Connecticut pay 11.2% of their income in state and local taxes. Those opressed souls in the top 1% of the income distribution pay a staggering 5.5% of their income in taxes. Only half of what the poor pay in the state.
So much for the undeserving poor.
The main driver behind these numbers in Connecticut, incidentally, are the local taxes, not state. The property tax system in the state is highly regressive, heavily penalizing the region´s cities. But more about this on a later post.
Not long ago we talked about how Newt Gingrich´s tax plan as a presidential candidate was a wonderful of example of income redistribution. Upwards, for that matter, as the plan was highly regressive, but redistribution nonetheless.
The non-partisan Tax Policy Center has followed up with the release of a distributional analysis of Mitt Romney´s plan, and it looks... well, fairly similar. It is not just regressive, but blatantly so : a big tax cut for the top 1% earners (and a modest tax cut for the top quintile), an almost irrelevant tax relief for those in the middle and fourth quintiles, and a tax increase for the bottom 40% households.
Ezra Klein in the Washington Post points out:
Bush wanted to pay down a surplus with spending cuts and expand Medicare. Romney wants to finance larger tax cuts by slashing domestic spending. It’s a more regressive policy that will be paid for in a more regressive way. In today’s GOP, even the most moderate presidential candidate is far to George W. Bush’s right.
Romney would probably object to accusations of having a tax plan that favors the wealthy, but that´s what his own numbers show.
For those keeping track, this is a ridiculously low overhead. We are talking about vast, tens or hundred billion dollar programs with millions of recipients that spend 5% on administrative costs. Even the most inefficient of these programs, housing vouchers, spends more than 90% of its budget in actual benefits, despite the fact that is managed in cooperation with more than 2,400 state and local agencies. EITC, the biggest federal anti-poverty program, has 1% administrative costs.
All in all, those are amazing figures - even more so when taking into account that most of these administration costs come from eligibility determination, not actually bureaucracy. Means-testing programs can actually end up costing more money that it saves.
The last few rounds of budget cuts at the Federal level have been fairly indiscriminate, affecting the budget of pretty much every agency and department. The main objective behind those cuts has been to try to reduce the budget deficits at the Federal level.
At least, that's the theory. One of the cuts has actually been specially significant, as it contributed to increase the deficit, not reduce it: a $300 million dollar cut to the Internal Revenue Service's budget.
According to an internal report from the agency (via WaPo) the IRS estimates that every dollar spent in tax enforcements returns $4 to $5 in extra revenue. The cuts reduced this line item in the budget by $193 million, meaning that the Federal government will lose from $760 million to a billion dollars in revenue from this mess.
All in all, a remarkably short-sighted deficit reducing measure. At least for anyone that is not trying to commit tax fraud.
Better Choices for Connecticut, a coalition dedicated creating a more sustainable and fair revenue system for the state, lauds two positive steps this week: Comptroller Kevin Lembo’s call for more evaluation and accountability to measure the success of tax credits and other incentive programs, and a new proposed tax structure in New York state that would generate $1.9 million in additional revenue.
New York Gov. Andrew Cuomo and legislative leaders announced on Tuesday that they had reached an agreement to overhaul New York State’s income tax, creating a higher tax bracket for the highest-income residents and reducing the tax rate for millions of middle-class residents. The income ranges will be indexed to inflation. Additionally, a new 13-member state Tax Reform and Fairness Commission will examine long-term changes to the tax structure, including income, sales and corporate.
Better Choices for Connecticut is a community coalition working to help Connecticut make better choices on ways to improve the state’s imbalanced revenue system so that it advances opportunity for shared prosperity for all Connecticut residents; preserves services for children, families and the elderly; creates and sustains good jobs; and reinvests in the middle class and our communities.