ThinkProgress Logo

Economy

New Study Finds High-Income Tax Cuts Don’t Stimulate Economic Growth

Congressional Republicans and their party’s presidential nominee have both pushed plans to cut taxes on the wealthiest Americans in hopes that such a move would stimulate the economy and aid the recovery from the Great Recession. A new study, however, indicates that tax cuts for the wealthiest earners fail to generate economic growth at the same pace as tax cuts aimed at low- and middle-income earners.

The study, conducted by Owen M. Zidar, a former staff economist on President Obama’s Council of Economic Advisers and a graduate student at California-Berkeley, examined economic growth in the states with the most high-income earners. Zidar reasoned that “states with a large share of high income taxpayers should grow faster following a tax cut for high income earners” if the tax cuts had the economic effect conservatives claim.

What he found, though, is that the effect of tax cuts for the rich was “insignificant statistically,” as Reuters’ David Cay Johnston reported:

“Almost all of the stimulative effect of tax cuts,” Zidar found, “results from tax cuts for the bottom 90%. A one percent of GDP tax cut for the bottom 90% results in 2.7 percentage points of GDP growth over a two-year period. The corresponding estimate for the top 10% is 0.13 percentage points and is insignificant statistically.”

Zidar’s study provides more empirical backing to what the U.S. has experienced over the last 30 years. Supply-side tax cutting policies have not led to the growth their Republican proponents promised. The Bush tax cuts, for instance, were followed by the weakest decade for economic expansion on record.

Still, Republicans, some of whom admit that the Bush tax cuts didn’t lead to the desired growth, are sticking to their ideology. Republican presidential nominee Mitt Romney proposed a tax cut that is four times larger than the Bush tax cuts; the GOP has fought efforts to allow the high-income tax cuts expire at the end of the year, arguing that doing so would dampen growth; and Republican governors across the country have pushed tax cut packages aimed at the wealthy even as their states struggle with budget shortfalls.

As New iPhone Hits The Market, Apple’s Chinese Manufacturer Accused Of Forced Student Labor

Just as Apple unveils the iPhone 5, its Chinese manufacturer, Foxconn Technology, is once again plagued with labor concerns. This time, the accusation is that it forced student interns to assemble iPhones, according to the New York Times.

Chinese state media reported several schools in the eastern city of Huai’an were closed so that hundreds of students could work on assembly lines to make up for worker shortages. About 32,000 students work in Foxconn factories, and shifts can last up to 12 hours. Though the company says students are free to go at any time, interns that spoke with labor advocacy groups said that was not the case and that their teachers forced them to work there. Students were told they would not graduate unless they worked and that it was “a good way to experience corporate culture.”

Labor advocates say Foxconn is under tremendous pressure to fill huge numbers of orders for devices like the iPhone 5 and that deadlines can only be met by adding workers. And Foxconn has a long history of labor abuses, which ThinkProgress has addressed before. Multiple investigations into its practices over the last few years — some of them commissioned directly by Apple — have found “illegal amounts of overtime, crowded working conditions, under-age workers, improper disposal of hazardous waste and, in some cases, industrial accidents.”

In 2010, an undercover report found:

New employees must sign a voluntary affidavit committing to between 60 and 100 hours of overtime each month — far more than the legal limit of 36 hours.

Workers claimed they stood so long their legs swelled up and they had difficulty walking.

Employees face more serious harm than swelled legs, however. Two explosions within 7 months at Foxconn factories killed four people and injured almost 80 in 2010. Employees also face serious health risks, and 137 were injured when they were forced to clean iPads with toxic chemicals. Perhaps not surprisingly, as many as 17 Foxconn employees committed suicide over the last five years — a trend that got so bad the company chairman sought the help of an exorcist.

Though years of bad press prompted some improvements, including reduced hours and higher pay, Foxconn’s work environment apparently remains “military-like,” and Apple is still relying on it to deliver the iPhone 5 successfully.

Greg Noth

NEWS FLASH

CHART: Public Investment Has Plunged Since The Great Recession | The yields on Treasury bills hit an all-time low over the summer, and have hovered at low rates since, meaning that investors are willing to lend the U.S. money for almost nothing. Considering that unemployment is still unacceptably high, the U.S. should be taking advantage of those low rates to put people back to work while fixing America’s crumbling infrastructure. But as Nobel Prize-winning economist Paul Krugman noted today, public investment has plunged since the Great Recession hit:

Orange County Lawmakers Successfully Push Paid Sick Leave Initiative Off November Ballot

Workers in Orange County, Florida, might not have paid sick leave to look forward to in the coming months, after conservative lawmakers successfully negated a ballot initiative that would have required any business of more than 15 employees to provide paid sick days. The Orange County Commission voted to delay consideration of the measure last night.

The commission ruled that the initiative couldn’t appear on the ballot because an outside lawyer was needed to edit the ballot language. That lawyer’s revisions won’t be due until October 16, meaning that the sick days measure won’t meet the September deadline for initiatives slated for the November ballot.

Sick leave advocates were outraged. When the vote was announced — after six hours of debate — they “stood in unison and turned their backs on commissioners, with some chanting ‘no justice, no peace’ as they walked out.” In a statement, Citizens for a Greater Orange County called the commission’s move “voter suppression in its purest form” and saying they will sue the commission:

Instead of putting the first ever citizen-led petition in Orange County on the November ballot they violated the law requiring them to let voters have their say. In the process, they silenced the voices of more than 50,000 citizens who signed petitions to put Earned Sick Time on the ballot. These commissioners should be ashamed. Because of their failure to follow the law and perform their duties proscribed in the county charter, we will be filing a court suit later today.

The Orange County Commission’s refusal to put Earned Sick Time on the November ballot is voter suppression in its purest form. The advocates who helped gather the necessary signatures played by the rules for citizen-led initiatives under the Orange County Charter.

The comissioners are not the first to claim that the Earned Sick Leave ballot language is unclear. They were perhaps inspired by the the lawsuit filed by big businesses earlier this year to block the measure. In that suit — which was dismissed yesterday — businesses argued that it was unclear whether churches and non-profits would be exempt from the paid sick leave law. (They would not.)

Orange County’s paid sick leave effort would require any employer with more than 15 workers to provide one hour of sick time for every 37 hours worked, maxing out at 56 hours of sick leave a year. A worker could use that leave to take off when sick or to take time to care for a sick family member. Such policies are beneficial to businesses, because employees don’t come in sick to infect other workers.

Climate Progress

Leading Global Companies Say ‘Tangible And Present’ Climate Change Is Already Creating Business Risk

The number of large corporations reporting current risks from climate change has grown substantially over the last two years.

According to a survey of 405 of the biggest global companies conducted by the Carbon Disclosure Project, 37 percent say they are already seeing the impact of climate change on their business — up from 10 percent in 2010.

The Carbon Disclosure Project attributes the increase in companies worried about current climate risks to the rise in extreme weather globally:

Recent extreme weather and natural events have tested companies’ business resilience and increased their level of understanding of the timeframes of the physical risks they associate with climate change. Physical risks are viewed as tangible and present, impacting companies’ operations, supply chains and business planning. The majority of companies (81%) report physical risks and the percentage of companies that view these risks as current has nearly quadrupled from 10% in 2010 to 37% in 2012. Insurance company Allianz reports that in 2011 it processed $2.2 billion in natural catastrophe (including non-weather related) claims, the largest sum for natural catastrophes in its history.

So far this year, America has seen the most extreme period for weather ever recorded. The country is on track to surpass last year, when there were 14 extreme weather events that each caused more than a billion dollars in damage — the most in U.S. history.

In response to these tangible impacts, more large companies are crafting strategies for addressing climate change. According to the survey, 78 percent of responding companies are factoring climate into their business plans, up from 68 percent in 2011.

The reaction from corporations is similar to those seen among individuals: Polls show that as people see the impact of extreme weather first hand, they’re far more likely to say they understand the climate is changing due to human activity.

“Business and economies globally have already been impacted by the increased frequency and severity of extreme weather events, which scientists are increasingly linking to climate change,” wrote Paul Simpson, CEO of the Carbon Disclosure Project. “It is vital that we internalize the costs of future environmental damage into today’s decisions by putting an effective price on carbon.”

The Carbon Disclosure Project is a group of hundreds of financial institutions and corporations worth $78 trillion that have pledged to release data on their greenhouse gas emissions and implement reduction strategies.

This latest survey shows yet again how private companies are taking action to address the problem, while politicians in Washington debate whether the problem even exists. Last year, a group of investors worth $20 trillion in assets called climate action the foundation of “long-term economic growth” that will “present significant opportunities for investors in areas such as cleaner and renewable energy, energy efficiency and decarbonisation.”

Investor support for addressing climate change has doubled in the last three years — growing from 150 investors managing $9 trillion in assets to today’s 285 investors with $20 trillion.

CHART: How Government Programs Keep Millions Of Americans Out Of Poverty

The U.S. Census Bureau’s annual poverty estimates, released today, found that the poverty rate remained stable in 2011 after three consecutive years of rapid increases during and after the Great Recession. But 46.2 million Americans still live in poverty, defined as less than $23,000 in annual income for a family of four.

The data also noted that government benefits played a significant role in keeping millions of Americans — particularly women, children, and the elderly — out of poverty. Social Security alone kept roughly 21.4 million people out poverty, and unemployment benefits helped an additional 2.3 million stave off poverty last year alone.

The Census Bureau estimates it poverty rate based on cash income and assistance, but many government programs, like the Supplemental Nutrition Assistance Program (SNAP) and certain tax credits aimed at combating poverty, aren’t included in its income estimates. Including SNAP, commonly known as food stamps, in the Census data would lift another 3.9 million Americans out of poverty, and including the Earned Income Tax Credit that helps low-income taxpayers would bring 5.7 million people above the poverty line. Other tax credits aimed at low-income working families, like the Child Tax Credit, would keep millions more out of poverty if they were included.

This chart from Melissa Boteach, the director of the Poverty to Prosperity program at the Center for American Progress, breaks down how many Americans avoided poverty thanks to certain government programs:

Many of these programs, however, are facing cuts as Congress attempts to reduce the federal budget deficit and national debt. The House Republican budget included massive cuts to SNAP and other food assistance programs; all told, it could have booted millions of people off of food stamps and 280,000 from the school lunch program. Under tax plans put forth by both House and Senate Republicans, meanwhile, 12 million Americans would have lost part or all of the Child Tax Credit, while six million would have lost part or all of the Earned Income Tax Credit, an effective tax hike on millions of families.

Education

How Illinois’ Flawed Funding System Shortchanges Chicago’s Students

Chicago’s public school teachers remained on strike for a third day today. But as ThinkProgress reported yesterday, even when Chicago schools are in session, students have to deal with a host of should-be-embarrassing problems, including crumbling buildings, lack of art and physical education classes, and an abysmally short school day. (Chicago’s elementary school day is so short that some students are given just 10 minutes for lunch in order to cram in all the necessary instruction.)

These problems stem in large part from Illinois’ education funding system, which is one of, if not the most, inequitable in the nation. Illinois schools rely even more heavily on property taxes than the standard U.S. school district, which, as the Center for Tax and Budget Accountability noted, “ties the quality of the public education a school can give a child to the wealth of the community in which that child lives.”

Huge proportions of Chicago students come from low-income households, so the property tax base from which the schools are funded is not high. The Chicago Reporter outlined some of the practical consequences of this system:

– Due to the primary reliance on local property tax revenue for school funding, there are massive cumulative gaps in per-pupil spending, particularly in poor or minority communities. The 6,413 students who started elementary school in Evanston [a suburb north of Chicago] in 1994 and graduated from high school in 2007 had about $290 million more spent on their education than the same number of Chicago Public Schools students.

Many of the school districts that spent the most per-student received at least 90 percent of their money from local property taxes. Yet, these districts tended to tax themselves at far lower rates than their poorer counterparts.

– The percentage of state contribution to school funding has decreased four of the last five years and is one of the lowest in the nation.

Illinois is also generally terrible at funding education, ranking 40th in per-capital education spending, despite being 15th in per-capita income. And the disproportionate lack of funding for low-income areas, particularly within cities, manifests itself in several ways. Besides the obvious lack of resources for students, wealthier districts can attract better teachers and pay for better safety measures.

As one Chicago school teacher wrote, “How can the discrepancy be so wide in school funding? The answer is simple; Gage Park [where she taught] is a violent, gang-­‐ridden neighborhood where the houses are very cheap. The worth of the properties will never rise due to the extreme violence in the neighborhood. Also, most of the living spaces are rented – there just aren’t that many people that own homes. Therefore, property taxes are low, virtually non-­‐existent.” By some estimates, it would take about $1.9 billion to bring Chicago’s students up to level at which they were meeting state standards.

Poverty Rate Remained Stable, But Income Inequality Grew In 2011

After three consecutive years of increases in American poverty, the number of Americans living on incomes at or below the poverty line remained stable in 2011, according to data from the U.S. Census Bureau released today. The poverty rate remained unchanged at 15 percent, meaning 46.2 million Americans are living at or below the federal poverty line, defined as $23,000 a year for a family of four. The poverty rate remained statistically unchanged across racial groups with the exception of Hispanics, the only group to see a statistically significant decline.

But median household income dropped 1.5 percent and the gap between the wealthiest Americans and those in the middle grew in 2011, according to Census data. As the following chart shows, the share of income grew for the richest Americans but fell for other groups:

The poverty rate had been expected to rise significantly. Shifts in the number of low-income workers moving from part-time jobs to full-time employment may explain the unchanged rate, David S. Johnson, the chief of the Census Bureau’s Social, Economic and Housing Statistics Division, said on a conference call.

According to the Census Bureau, unemployment benefits kept roughly 2.3 million out of poverty in 2011, while Social Security payments kept roughly 21.4 million out of poverty.

It is worth noting, though, that poverty experts say the official poverty numbers are often flawed, since they do not take into account government benefits, differences in cost of living, and other factors that could affect the overall statistics. The government last year developed an alternative measure of poverty to take some of those factors into account. Those numbers will be released in November. Adding in benefits like the Earned Income Tax Credit and the Supplemental Nutrition Assistance Program would remove 5.7 million and 3.9 million from poverty, respectively, according to the Census data.

NEWS FLASH

Report: U.S. Lags Behind Leading Economies In Providing Early Childhood Education | According to the Organization for Economic Cooperation and Development, the U.S. lags behind other leading economies in providing early childhood education, ranking “28th out of 38 countries for the share of 4-year-olds enrolled in pre-primary education programs, at 69 percent.” Nations at the top of the list, including France, the Netherlands, Spain, and Mexico, enroll 95 percent of their 4-year-olds in early education. The U.S. also spends significantly less public money on early education than peer nations.

Econ 101: September 12, 2012

Welcome to ThinkProgress Economy’s morning link roundup. This is what we’re reading. Have you seen any interesting news? Let us know in the comments section. You can also follow ThinkProgress Economy on Twitter.

  • Germany’s top court today rejected a request to block the country from participating in Europe’s financial rescue fund. [Associated Press]
  • The European Union also unveiled a plan for a new banking union. [Reuters]
  • The Federal Reserve board starts a two-day meeting today during which it will decide whether to take additional steps to boost the economy. [The Hill]
  • A former banker-turned-whistleblower who helped the government launch an international tax evasion crackdown has been awarded $104 million by the IRS. [Wall Street Journal]
  • The credit rating agency Moody’s has threatened to downgrade the United States unless Congress reaches a deficit reduction deal. [Financial Times]
  • More than 8 percent of U.S. households are managing their finances without using a bank. [Wall Street Journal]
  • U.S. regulators are set to choose the first non-banks that will be designated threats to the financial system under the 2010 Dodd-Frank law. [Bloomberg]
  • The Obama administration has yet to decide whether it will take action against China for what labor unions call unfair subsidizing of auto parts. [Reuters]

Switch to Mobile
ThinkProgress Signup Overlay Skip and Continue to ThinkProgress Skip and Continue to ThinkProgress

Sign Up