Friday, August 3, 2012

U.S. President Barack Obama and Treasury Secretary Tim Geithner walk toward the rostrum to speak about tax reform at the White House in Washington May 4, 2009. (Reuters/Kevin Lamarque)

August 1, 2012Samuel Brown, William G. Gale and Adam Looney
Sam Brown, William Gale and Adam Looney examine the tradeoffs in revenue-neutral income tax reform. They conclude that any revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed would provide large tax cuts to high-income households and increase the tax burdens on middle- and/or lower-income taxpayers.

Obama says more to be done on jobs, as Romney decries 'suffering'

There are still too many Americans looking for work, President Barack Obama said Friday in reaction to July's jobs numbers, renewing his demand that Congress extend expiring tax cuts for most U.S. households.
Presumptive Republican nominee Mitt Romney, speaking at the same time in the swing state of Nevada, highlighted a report showing the economy added 163,000 jobs in July as an indictment of the president's economic policies.
"These numbers are not just statistics," Romney said. "These are real people, really suffering, having hard times."
The monthly report by the Bureau of Labor Statistics has assumed a heightened level of political significance for an election in which the economy and jobs is the top issue. While job creation in July matched private forecasters' estimates, the unemployment rate ticked upward to 8.3 percent.

Pablo Martinez Monsivais / AP
President Barack Obama talks about taxes, Friday, Aug. 3, 2012, in the Old Executive Office building of the White House complex.
Obama hailed the positive jobs figures in the report and argued his administration had presided over the creation of 4.5 million jobs since January of 2009.
"But let's acknowledge: we've still got too many folks out there who are looking for work," he said at the White House. "We've got more work to do on their behalf."
The president used the occasion to push again for lawmakers to renew the so-called "Bush tax cuts" for households with incomes under $250,000 per year, and individual income under $200,000. The Democratic-held Senate passed a bill to that effect last week, but House Republicans defeated it in a vote on Wednesday.
Without referencing Romney specifically, Obama pointed to a report issued by the nonpartisan Tax Policy Center, which argued a plan like the presumptive GOP nominee's would effectively raise taxes on the middle class since a number of deductions favored by middle class households could be eliminated. (The Romney campaign called this report a "joke.")
"The people standing behind me should not have to pay more so the wealthiest can pay less," Obama said in reference to a group standing behind him during his remarks. "That's not top-down economics, that's upside-down economics."
The dueling presidential candidates' rhetoric served as a case study, though, of the alternative interpretations of July's new employment figures.
Romney, in a statement earlier in the morning and in his Las Vegas-area remarks, called the jobs report "another hammer blow" for the middle class.

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Speaking at the Executive Office Building in Washington D.C., President Obama talks about the July jobs numbers, and urges the House to pass pending tax cut legislation.

The former Bain Capital executive stressed his private sector experience as a chief qualifier, and went so far as to promise the creation of 12 million jobs during his first term should he be elected.
The setting in Nevada, which has been among the hardest-hit states in the recession and where the housing market has struggled to recover, was no accident for Romney. Nevada is set to be one of the handful of states that could determine the Electoral College winner in November.
Romney's speech also allowed him to relitigate Obama's "you didn't build that" gaffe from last month, in which the president seemed to suggest that business owners owed some of their success to the government.
"The president has said we’re taking him out of context, but then you go look at the rest of his speech -- it’s on YouTube -- the context is worse than the quote," Romney said, earning him some of the loudest applause from the crowd.

A Record Decline in Government Jobs: Implications for the Economy and America's Workforce

A teacher helps students in class. (Creatas)
The labor market continued its modest rate of expansion in July, according to today’s employment report. Employers added 163,000 jobs last month, the largest increase since February. The unemployment rate remained essentially unchanged at 8.3 percent.
A notable aspect of the July employment report is the decline in public-sector employment. In fact, public-sector employment (i.e. federal, state, and local government jobs) declined in 10 of the past 12 months, in sharp contrast to 29 consecutive months of private-sector job growth. Indeed, falling public employment has been among the largest contributors to unemployment in the United States since the end of the Great Recession.
In this month’s employment analysis, The Hamilton Project examines public-sector employment trends over the last three decades and finds that government employment contracted, both in absolute numbers and as a share of the population, during the Great Recession and throughout the current recovery. Additionally, we report on the results of a new analysis that finds that the cuts in public school teachers are projected to reduce the future earnings of today’s students by more than five times as much as the current budget savings.
We also continue to explore the nation’s “jobs gap,” or the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels.
Declining Government Employment
Total government (i.e., the sum of state, local, and federal) employment has decreased by over 580,000 jobs since the end of the recession, the largest decrease in any sector since the recovery began in July 2009. State and local governments, faced with tough choices imposed by the confluence of balanced-budget requirements, falling tax revenues, and greater demand for public services, have been forced to lay off teachers, police officers, and other workers.
In order to look at specific occupations, it is necessary to turn to the Current Population Survey; the below table uses the data to assess the occupations where some of the key reductions in the public-sector workforce occurred. In raw numbers, the largest cuts were to teachers, but of these occupations, the largest percentage decline was among emergency res ponders
And just realize there are no stats for 2012. 
Employment (2009)
Employment (2011)
Change in Employment
Percent Change in Employment
Fire fighters
Emergency responders
Air-traffic controllers
A look at the last four decades indicates that we are in unchartered territory with regard to government employment. From 1980 to 2012, 9.6 percent of adults were employed by the public sector, with a slightly higher fraction (9.7 percent) employed by the government in the years 2001-2007.
The below chart reveals that once the American Recovery and Reinvestment Act (ARRA) began to phase down – and state and local governments struggled to balance their budgets – government employment dropped precipitously and now stands at 9.0 percent.  As the graph illustrates, this is the lowest level of public-sector employment in over 30 years.   
Ratio of Government Employment to Population
The Short-Run Consequences of Government Layoffs
In the short term, reducing government employment, particularly during recessions, adds workers directly to the unemployment rolls. In addition, fewer workers translates into fewer paychecks, which dampens consumption and further spreads through the economy, magnifying the effects of the recession.
To examine the direct consequences of lower government employment, consider the case in which employment had hewed to its historical level. Between 2001 and 2007, the average ratio of government employment to population was 9.7 percent. Had that share remained steady, government employment would have been more than 23.6 million in June 2012 as compared to its actual level of 21.9 million. That is, employment would be 1.7 million jobs higher today if the share had remained constant, and the unemployment rate would be 7.1 percent instead of the current rate of 8.2 percent (see graph below).
Government Employment
The Long-Run Impact of the Reduction in Public Employment
Of course, it is always critical for governments to assess whether taxpayers’ money is being well-spent. It also goes without saying that many public sector employees provide health care, maintain state and local infrastructure, provide protective services, and help educate the next generation of workers.
One area where there is a sound body of literature to draw upon is the returns to education – specifically, the impact of class-size on student achievement and lifetime earnings. Drawing on this evidence, we quantify the impact of reductions in the number of public school teachers on our country’s future. 
In 2011 there were over 220,000 fewer teachers in America’s classrooms than in 2009, a reduction accounting for nearly forty percent of the decrease in public-sector jobs during this period. This decline in the number of teachers increased the student-teacher ratio by 5.9 percent.
To determine the consequences of these reductions, we assumed that class-size increases were applied equally across all grades in K-12 schools. We then drew from recent research that links future earnings with class size to assess the wage impacts for today’s children, when they become working-age adults.1 All of this is explained in more detail here, but the bottom line is that this research suggests that the Great Recession will live on for decades through the lower future wages for our children.
Of course, an important test for the efficiency of government spending is whether the benefits exceed the costs. The savings from these cuts, in terms of teacher salaries and benefits, are $11.8 billion per year nationwide. While a significant figure, it is substantially smaller than the estimated present value in foregone earnings of $49.3 billion dollars for the children, whose education is affected by larger class sizes. To put a fine point on these findings, this translates into a per-student, per-year loss of nearly $1,000 in future earnings.  In summary, the foregone benefits are more than four times larger than the current budget savings! 
The July Jobs Gap
As of July, our nation faces a “jobs gap” of 11.3 million jobs. The chart below shows how the jobs gap has evolved since the start of the Great Recession in December 2007, and how long it will take to close under different assumptions of job growth. The solid line shows the net number of jobs lost since the Great Recession began. The broken lines track how long it will take to close the jobs gap under alternative assumptions about the rate of job creation going forward.
The Evolution of the Jobs Gap To Date and in the Future Under Different Rates of Job Creation
If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until June 2020 – or eight years – to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate of the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by September 2016 – not for another four years.
The private sector continues to be an engine for growth as the United States recovers from the Great Recession.  However, tight budgets force a number of difficult decisions on policymakers (especially state and local ones), who are forced to lay off workers in order to meet their bottom lines. The result is that public-sector employment has been in sharp decline.  This has worsened the current economic situation and the nation’s unemployment rate. These cuts – at least in the case of public school teachers – have also compromised our children’s future in ways that fail the even the strictest cost-benefit test.  As state and local governments continue to face challenging budgets, a real risk is that they will be forced to make decisions that are both penny and pound foolish.

[1] Chetty, Raj, John N. Friedman, Nathaniel Hilger, Emmanuel Saez, Diane Whitmore Schanzenbach, and Danny Yagan. 2011. “How Does Your Kindergarten Classroom Affect Your Earnings? Evidence from Project STAR.” Quarterly Journal of Economics 126(4): 1593-1660.

Chronicling Mitt's Mendacity, Vol. XXVIII By Steve Benen
Getty Images
Fri Aug 3, 2012 2:50 PM EDT 

After Mitt Romney returned from his truly horrid overseas trip this week, one of his campaign aides tried to put a positive spin on the candidate's inexplicable gaffes. The problem, the staffer said, is that Romney "has a tendency to speak his mind and to say what he believes."

The idea is, the Republican presidential hopeful is bound to get in trouble once in a while because he's just such an honest, candid guy. To borrow an '08 frame, Romney's a "straight talker."

The Washington Post's Ruth Marcus could hardly believe the argument, calling it "about as knee-slapping a spin effort as I've ever seen." She added, " Mitt Romney has many strengths and many flaws. Being an unvarnished truth-teller does not fall in either category."

To consider this problem in more detail, consider the 28th installment of my weekly series, chronicling Mitt's mendacity.

1. Romney told reporters this afternoon, "The president has also raised taxes on the middle class, so said the Supreme Court."

He's referring to an individual mandate that would apply to 1% of the population. And if President Obama's health care policy "raised taxes on the middle class," then Mitt Romney raised taxes on the middle class.

2. In a statement responding to the July jobs report, Romney argued, "President Obama doesn't have a plan" to create jobs.

Romney doesn't have to like the American Jobs Act, but he shouldn't get away with brazenly lying about its existence.

3. At a campaign event in Golden, Colorado, yesterday, Romney said "we have fewer jobs that have been created" under Obama.

He didn't specific -- "fewer" than what? - but by Romney's own stated standard, nearly 4.5 million private-sector jobs have been created under Obama.

4. In the same speech, Romney said in reference to the president, "He said he'd hold unemployment below 8 percent."

As Romney surely knows by now, that's simply not true.

5. Romney went on to complain, "[W]e've seen record numbers of foreclosures."

Putting aside how dishonest it is for Romney to blame the housing crash on the president, let's also not forget that Romney intends to deliberately avoid any efforts to curtail foreclosures.

6. Romney also argued, "We are at a 30 year low in the number of business start-ups that have occurred. A 30 year low."

He's still telling this whopper?

7. Reflecting on his one term as governor, Romney said, "I added jobs. We've added more jobs than the president has in the entire country."

Romney had one of the worst jobs records of any governor in the country, and so long as we're playing by Romney's rules, his job-creation totals don't come close to Obama's.

8. Complaining about Democrats, Romney said, "[O]ur friends across the aisle and the president, they have a different view. They think, well we should just raise taxes, that's the primary way they think we should cut the deficit."

Actually, in 2011, when Democrats offered Republicans a massive debt-reduction deal, the "primary way" they closed the budget gap was through spending cuts.

9. He also argued, "When you raise taxes, you lower growth."

That may be Romney's opinion, but there's overwhelming evidence to the contrary. Both Reagan and Clinton raised taxes, and economic growth soared soon after. (This is not to say there's a causal relationship, only that categorical statements like these about what happens when taxes go up aren't true.)

10. On health care, Romney said, "We also have to make sure that people with pre-existing conditions don't have to be denied care."

At a minimum, that's wildly misleading. Under Romney's approach, millions of people with pre-existing conditions would be denied coverage -- and occasionally his campaign even admits it.

11. Condemning the Affordable Care Act, Romney said, "Obamacare, we simply can't afford trillions of dollars in more federal spending. It gets more and more expensive as time goes on."

That's the exact opposite of reality. "Obamacare" cuts the deficit, and the saving increase as time goes on.

12. On the same point, Romney argued, "We simply can't afford to have federal bureaucrats telling us what kind of health care we can have."

There is nothing in the Affordable Care Act that empowers bureaucrats to tell Americans what kind of health care they can have.

13. Romney soon added, "And we sure as heck can't have Obamacare cut Medicare by over $500 billion."

Romney says this a lot. He's not telling the truth.

14. Pointing to his five-part agenda, Romney said, "We got our economists. We go through and say, OK how many jobs will be creating -- created just by doing those things? And I got more coming down the road, but just those things alone create 12 million new American jobs."

If we do nothing, we're on track to create 12 million new American jobs over the next four years anyway.

15. In an interview with Fox's Sean Hannity, Romney claimed, "That's one of the first principles of my plan, which is, high-income people will continue to pay the same share of taxes they pay today."

That's not true. The wealthy would receive a massive, disproportionate tax break under the Romney plan.

16. In the same interview, Romney said, "[I]f anyone's going to get a break, a tax break, it's going to be middle Americans. They're the people who deserve it."

The middle class may deserve it, but independent analysis shows that the middle class would see their federal tax burden go up, not down, under Romney's plan.

17. Romney unveiled a "report card" in Colorado this week that claims job creation has gone down during Obama's first term.

That's plainly false.

18. The same "report card" claims unemployment has gone up under Obama.

It's actually down from 10% in 2009, and is slightly lower than it was when Obama took office.

19. The "report card" says the budget deficit has gone up since Obama took office.

The deficit has gone down since Obama took office. It was $1.3 trillion on Inauguration Day 2009, and it's projected to be $1.1 trillion this year.

20. The "report card" also claims Massachusetts' budget deficit went down during Romney's only term in office.

Actually, it went up.

21. In a minute-long biographical ad unveiled this week, Romney claims he knows what it's like "to wonder whether you're going to be able to make ends meet."

That's plainly false.

22. In the same ad, Romney says he had the "best jobs record of any Massachusetts governor in the last decade," citing the Bureau of Labor Statistics.

That's wildly misleading. He's comparing two records: his jobs record vs. his successor's, and Deval Patrick was governor when the economy crashed in 2008.

23. In the ad, he went on to boast that, after he oversaw the 2002 Olympics, he put $100 million "into an endowment there for the future of Olympic sport."

It wasn't $100 million and he's only really talking about part of the federal taxpayer bailout he didn't manage to spend.

24. Romney released a new ad this week, featuring an Obama quote: "We tried our plan -- and it worked."

The quote is wrenched from context in a rather ridiculous way.

25. In an interview with Fox News after his controversial remarks in Jerusalem, Romney said he "did not speak about the Palestinian culture or the decisions made in their economy."

That's a lie.

26. On a related note, during the Jerusalem remarks, Romney said GDP per capita in Israel "is about $21,000 dollars, and compare that with the GDP per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita."

None of those figures are true.

27. Also in Israel, Romney claimed Jared Diamond's Guns, Germs and Steel "basically says the physical characteristics of the land account for the differences in the success of the people that live there. There is iron ore on the land and so forth."

None of this has any foundation in reality.

28. Romney told CBS this week that President Reagan, during his tenure, sent troops into harm's way "only in one circumstance, which was in Grenada.... We were in a peacekeeping setting in Lebanon."

Romney's version of history is sharply at odds with the actual version of history.

US economy's job engine revved up in July

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While the July jobs report shows improvement in jobs creation, the unemployment rate edged higher. NBC's Brian Mooar reports.
U.S. employers created 163,000 jobs in July -- the most in five months -- but the jobless rate edged higher, leaving the impression intact that the economy is just muddling along.
The number of jobs created, closely watched as one of the best signals of the economy's health, far exceeded the 100,000 jobs that economists had expected. But the economy still is far from creating enough jobs to do much for the 12.8 million Americans who are out of work. And the unemployment rate edged up to 8.3 percent from 8.2 percent in June, the Labor Department said.

"Even with the better-than-expected payroll number, it's not sufficiently big enough to change the big-picture view. The economy is growing, but not at a satisfactory rate to bring down unemployment," said Stephen Stanley, chief economist at Pierpont Securities.

Employment for May and June was revised to show 6,000 fewer jobs created than previously reported. The data is adjusted for seasonal factors, making it somewhat unpredictable in June and July, when teachers are off for summer break.

The closely watched employment report comes two days after the Federal Reserve sent a stronger signal that a new round of major support could be on the way if the faltering recovery does not pick up. But economists said they didn't think July's data would be enough to induce the Fed to launch a third round of bond purchases, known as quantitative easing, until it sees more evidence the economy is deteriorating further.

"This report does not make a case for doing a third round of quantitative easing," said  Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management Group.

 Fed takes a watch and wait stance on slowing economy

That's despite the approach of the presidential and congressional elections in November, which could leave the central bank open to criticism from Republicans who have made the weak economy a centerpiece of their campaigning.

The Fed has held short-term interest rates close to zero for nearly four years and pumped about $2.3 trillion into the economy by purchasing securities.

The Fed took no action at its meeting of policymakers this week but could act at its next scheduled meeting in September, after central bankers will also have had a chance to see August's payrolls report.
The labor market slowed sharply after strong gains in the winter, spelling trouble for President Barack Obama.

"We've still got too many folks out there who are looking for work, we've got more work to do on their behalf," Obama told an event at the White House.

Earlier, Alan Krueger, chairman of the White House Council of Economic Advisers, said that while the increase in the jobless rate was unwelcome, to be precise the rate "rose from 8.217 percent in June to 8.254 in July."

Romney called the report a "hammer blow" to middle class families.

A recent Ipsos/Thomson Reuters poll showed 36 percent of registered voters believe Republican presidential candidate Mitt Romney has a better plan for the economy, compared with 31 percent who had faith in Obama's policies.

The unemployment rate has been stuck above 8 percent for more than three years, the longest run since the Great Depression.

Fears of deep government spending cuts and higher taxes that are due to begin in early 2013 and fears that Europe's debt crisis could get worse have dissuaded employers from hiring, economists say.
Economists say the biggest factor weighing on sentiment is fear that politicians in Washington will be unable to avoid the so-called fiscal cliff at the turn of the year.

"We are not seeing large-scale layoffs, so job destruction is pretty limited," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.

"The problem all along has been a lack of hiring, and we expect that the uncertainty about the elections, the fiscal cliff and Europe may restrain the pace of hiring as well as capital spending," Brown said before the release of the report.

Data last week showed the economy grew at an annual pace of 1.5 percent in the second quarter, far short of the 2.5 percent rate needed to keep the unemployment rate stable.

The private sector again accounting for all the job gains, adding 172,000 new positions.

Government payrolls dropped by 9,000, as local governments laid off teachers.

Construction employment dipped 1,000, despite increases in home building. Manufacturing payrolls increased 25,000, largely because of fewer layoffs in the auto sector as manufacturers kept production lines running during the month.

Within the vast services sector, employment gains were widespread. Temporary help services increased 14,100. Businesses are hiring temporary workers due to the uncertain outlook.

Hiring in the utility sector was restrained by a strike at a power firm in New York last month.Average hourly earnings increased 2 cents last month, suggesting consumer spending will struggle regain steam after it slowed sharply in the second quarter.The average workweek was unchanged at 34.5 hours.

Reuters and The Associated Press contributed to this report.

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The monthly jobs report for July shows US employers added 163,000 jobs, while the unemployment rate ticked up to 8.3% from 8.2% in June. A CNBC panel discusses the data.

What do you think it will take to improve the job market?

Romney: Robin Hood -- in reverse

“Mitt Romney’s tax plan would provide large tax cuts to wealthy Americans and hike taxes on middle- and low-income households, according to an analysis by The Brookings Institution,” the Boston Globe writes of the study conducted by the Tax Policy Center a joint project of Brookings and the Urban Institute. “The report published Wednesday estimated households with incomes over $1 million would receive average tax cuts of $87,117 under Romney’s plan, while those earning $200,000 or less would pay higher taxes. … The Romney campaign dismissed the report as a ‘liberal’ study.”
USA Today: “Obama cites study co-written by ex-Obama, ex-Bush aides.”More: “The analysis was conducted by three Brookings economists, including William G. Gale, an economic adviser to President George H. W. Bush, and Adam Looney, who served in Obama’s Council of Economic Advisers.”
The Washington Post: “The study was conducted by researchers at the nonpartisan Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute, who seem to bend over backward to be fair to the Republican presidential candidate. To cover the cost of his plan — which would reduce tax rates by 20 percent, repeal the estate tax and eliminate taxes on investment income for middle-class taxpayers — the researchers assume that Romney would go after breaks for the richest taxpayers first.”
It’s a group the Romney campaign has cited. Talking Points Memo: “[T]he Obama campaign notes that Romney aides took a very different view of the group when they put out a similar analysis of Rick Perry’s tax plan during the Republican primaries. Here’s how a Romney press release in November described their work: Objective, Third-Party Analysis Showed Governor Perry’s Plan Would Raise Taxes On Millions Of American Families – But He Doesn’t Seem Interested In The Discussion.
Here’s a headline: New York Daily News: “Chick-fil-A draws support from neo-Nazis and a prominent black conservative group, and Mike Huckabee’s got the company’s back, too.”
“Mitt Romney’s horse likely won’t bring home the gold in Olympic dressage — and may not be a winner on the campaign trail either,” the New York Daily News writes. “Rafalca, a 15-year-old mare valued at as much $500,000, will compete in London Thursday with Ann Romney, the candidate’s wife, cheering from the stands. But political pros say the the image — despite flourish of feel-good Olympic patriotism — is likely a loser for Romney. Dressage, known as ‘horse ballet,’ is considered a sport of the elite — a label Romney is trying to shed.”
Marketplace from American Public Media radio yesterday broke down the costs of dressage:
- Horse: $60,000 to $100,000
- Formal coat called a shadbelly: $879
- Top hat: $400
- Britches: $379
- Gloves: $62
- Silk tie: $100
- Custom boots: starting at $1,000
- Saddle: Over $12,000