Our guest blogger is David Sanchez, a Special Assistant with the Center for American Progress Action Fund’s Economic and Housing Policy Teams.

New Jersey is facing a twin crisis of foreclosures and lack of affordable housing, but Gov. Chris Christie (R) recently vetoed two bills that would have brightened the outlook for New Jersey residents struggling to afford homes.

The first bill would have empowered New Jersey’s Housing Mortgage and Finance Agency to purchase foreclosed homes and transform them into affordable housing. In doing so, New Jersey would combat the crime and blight brought about by vacant homes, while also increasing housing opportunities for low- and moderate-income families.

The bill had support not only from housing advocates, but from a broad swatch of businesses. What’s more, it would have been implemented without requiring state appropriations.

The second bill would have improved New Jersey’s program to help unemployed or underemployed homeowners make their mortgage payments. This program, funded by a $300 million grant from the federal government’s Hardest Hit Fund program, has badly underperformed for years: according to the most recent statistics, the program has denied assistance to more than double the number of applicants it has helped, and it has spent less than one twentieth of the funds available (although changes have recently been announced that may improve the program). The bill would have mandated that the program respond to applicants and issue aid more quickly.

Christie’s decision to veto these bills is puzzling, to say the least, given the challenges facing New Jersey’s housing market and families. While the housing market is improving in most of the country, it’s getting worse in New Jersey. New Jersey’s percentage of homeowners who are not current on their mortgages increased the most of any state in 2012, and delinquencies remain especially elevated in areas affected by Hurricane Sandy.

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The Senate today — on a vote of 64-34 — successfully passed a bill to raise the nation’s debt ceiling for three months. The bill has already passed the House, so it now goes to President Obama for his signature. Four Republican amendments were rejected prior to final approval.

With the debt ceiling out of the way for the moment, the next big budget task for Congress is funding the federal government beyond March 27th, when the current round of funding expires, and dealing with the $1.2 trillion in spending cuts that will occur in early March due to the so-called “sequester.”

There’s no shortage of corporate tax giveaways at both the federal and state levels. Lawmakers of all stripes love to use the tax code to subsidize companies, either directly or indirectly.

But in some instances, federal tax breaks for corporations undermine state budgets. As the Center for Budget and Policy Priorities detailed today, one particular tax break will cost states $600 million next year:

The federal government created this tax break, known as the “domestic production deduction,” in 2004. Since most states base their own tax codes on the federal tax code, the tax break was carried over into many states without specific legislative scrutiny or a vote. Now it is costing not only the federal government but also 25 states a large amount of money. By 2014, it will cost these states over $600 million per year.

The deduction — enacted as Section 199 of the federal Internal Revenue Code — allows companies to claim a tax deduction based on profits from “qualified production activities,” a sweeping category that goes well beyond manufacturing to include such diverse activities as food production, filmmaking, and utilities — a substantial share of states’ corporate income tax base.

These deductions are largely worthless, and many states have tossed them overboard. But 25 states still leave it intact:

As CBPP noted, “Firms can claim the domestic production deduction for profits from all qualifying domestic activities — meaning activities that occur anywhere within the United States. As a result, a multi-state firm can claim the deduction in a conforming state for production activities in any state, not just the state where the firm is filing.” They also benefit large firms at the expense of small.

State efforts to encourage corporate growth and job creation through the tax code usually encourage a race to the bottom, as corporations play states off each other in order to secure the most preferential treatment, and then feel no hesitation about up and leaving later. Of course, paying corporations to create jobs is only one of the bone-headed ways states try to generate economic activity.

Virginia Gov. Bob McDonnell (R) has been stumping for his new transportation plan, which would eliminate the state’s gas tax and instead fund transportation via an expanded sales tax. The plan would shift the cost of transportation funding away from those who use the system and onto Virginia’s poorest residents. But so far, it has encountered little resistance:

Virginia Gov. Bob McDonnell’s controversial transportation bill passed the House of Delegates Finance Committee on Wednesday, moving past its first hurdle in the state’s 2013 General Assembly session.

In a 14-8 vote along party lines, the committee passed McDonnell’s package, which calls for eliminating the state’s 17.5 cents per gallon gas tax and raising the state sales tax from 5 percent to 5.8 percent.

McDonnell’s plan would wallop the poor, while letting the richest Virginian’s (not to mention any out of state drivers passing through) off largely scot-free, as this chart shows:

“Eliminating the gas tax paid by highway users and raising taxes on all other Virginians to pave our roads makes no sense,” said State Sen. Chap Petersen (D). “Indeed, eliminating our traditional road funding because cars are more efficient makes about as much sense as canceling your child’s college fund because tuition keeps rising.”

Wages last year plummeted to an all-time low as a percentage of the economy, even as corporate profits rocketed to new highs. This means that corporations have been able to squeeze more and more productivity out of workers, without rewarding them for their efforts.

According to a new report from the Economic Policy Institute, this phenomenon has been a long time coming. In fact, workers have seen precious little gain from increased hours and productivity since 1979:

Workers have been offering more to the economy and the labor market, and what they have received in return — particularly in the form of real hourly wages — has been very disappointing. This trend is particularly evident when considering that the majority of workers — especially those in the bottom 60 percent of the wage distribution — increased their work hours substantially between 1979 and 2007, the last year before the current recession. However, during this period (excluding a brief interlude of strong economic growth between 1995 and 2000), real (i.e., inflation-adjusted) hourly wages of the bottom 60 percent grew modestly — ranging from an actual decline for the bottom fifth to annual growth of about 0.25 percent for the middle fifth. This growth is far less than the increase in economy-wide productivity over that time.

As EPI noted, “In contrast, those at the top fared much better: The stock market grew strongly, CEO compensation grew twice as fast as the stock market, [and] wealth grew for the top 1.0 percent.” In the still-fragile economic recovery, the bottom 90 percent of workers have seen their wages fall, while “the top 1.0 percent of wage earners are likely to quickly recoup all of the ground lost in the downturn.”

An NBC News investigation released yesterday revealed that credit reporting agency Equifax has assembled a private database containing the employment and salary records of more than one-third of U.S. adults, and is perfectly fine selling that data off to the highest bidder:

Some of the information in the little-known database, created through an Equifax-owned company called The Work Number, is sold to debt collectors, financial service companies and other entities… [...]

Its database is so detailed that it contains week-by-week paystub information dating back years for many individuals, as well as other kinds of human resources-related information, such as health care provider, whether someone has dental insurance and if they’ve ever filed an unemployment claim. In 2009, Equifax said the data covered 30 percent of the U.S. working population, and it now says The Work Number is adding 12 million records annually.

The information is collected with the cooperation of employers, who pay The Work Number to provide verification services for former employees, surrendering data at the same time. Fortune 500 companies and government agencies representing 85 percent of the federal civilian population contract with The Work Number. And since Equifax is a credit reporting agency, rather than just a data-mining outfit, it’s all perfectly legal for them to provide this information to debt collection agencies.

Sen. Jay Rockefeller (D-WV), Chairman of the Senate Committee on Commerce, Science and Transportation, opened a congressional investigation into the data-mining practices of several corporations including Equifax in October of last year, sending letters to each company asking for extensive details about all data collection operations since the start of 2009. But the investigation focuses on background check services rather than it’s financial reporting services.

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Mitt Romney’s infamous “47 percent” remarks, in which he told attendees at a private fundraiser that he could “never convince” people who receive government benefits “that they should take personal responsibility and care for their lives,” became one of the most damaging moments of his campaign. Now, another Republican candidate is adopting similar language.

Virginia Attorney General Ken Cuccinelli, the Republican Party’s presumptive nominee in the state’s 2013 gubernatiorial race, will release a new book in February to burnish his conservative credentials. In excerpts reviewed by the Washington Post, Cuccinelli takes a similar tack to Romney, criticizing both politicians who “dispense subsidized government benefits” like Medicare and Social Security and Americans who “vote for those politicians…rather than the fiscally responsible” candidates:

“One of their favorite ways to increase their power is by creating programs that dispense subsidized government benefits, such as Medicare, Social Security, and outright welfare (Medicaid, food stamps, subsidized housing, and the like). These programs make people dependent on government. And once people are dependent, they feel they can’t afford to have the programs taken away, no matter how inefficient, poorly run, or costly to the rest of society.” [...]

“Citizens will vote for those politicians who promise more benefits each year, rather than the fiscally responsible politicians who try to point out that such programs are unsustainable and will eventually bankrupt the states or the nation.

“Creating government dependency is the typical method of operation for big-government statists.“

Cuccinelli’s attacks on a “culture of dependency” are common among top Republican politicians, but they ignore facts about the programs he criticized. Social safety net programs keep millions of people out of poverty each year — without safety net programs that provide food and housing assistance, unemployment insurance, Social Security, Medicaid, and any number of other services, more than a quarter of Americans would have lived in poverty last year, doubling the already historically-high rate.

Cuccinelli spares no one when it comes to his attacks on safety net, though. In a little-noticed speech at a religious conference last year, he blasted the Catholic Church for creating “a culture of dependency on government, not God.”

Our guest blogger is Julia Gordon, the director of Housing Finance and Policy at the Center for American Progress Action Fund.

Recent headlines suggest that Fannie Mae and Freddie Mac have launched a brand-new “bailout” program for underwater homeowners. But no such thing has happened.

What may have triggered the speculation is that on March 1, these companies will finish implementing improvements to their short sale and mortgage release policies. A short sale is when a lender gives a homeowner permission to sell their home for less than the amount of the mortgage owed. A mortgage release (sometimes called a “deed-in-lieu-of-foreclosure”) permits a homeowner an opportunity to hand in the keys in return for avoiding the expense and indignity of a foreclosure.

In both cases, the homeowner ends up leaving the house and taking a credit score hit — hardly a bailout.

It is understandable why some might be confused, because Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco, who is currently the conservator for the beleaguered mortgage giants, has characterized short sales as forgiven principal when discussing the issue of principal reduction.

But they are not the same at all. Principal reduction right-sizes the mortgage as part of an effort to help homeowners keep their homes, a result that stabilizes families, neighborhoods, and the housing market. In a short sale, the only homeowner that gets the benefit of the forgiveness is the new homeowner, who gets to buy the home at a mortgage pegged to the real market value. While short sales and mortgage releases are important for the loss mitigation toolbox, they simply do not serve the same function as principal reduction.

In short, although the new policies have usefully clarified and simplified the process for getting a short sale or a mortgage release, they do not represent a fundamentally new approach to helping underwater homeowners and the housing market. Those waiting for FHFA to permit principal reduction — a crucial policy change that could significantly strengthen and lock-in the housing recovery — will just have to keep waiting.

Republicans have a fairly typical strategy for proposing tax cuts for the wealthy without making them look like tax cuts for the wealthy. George W. Bush’s tax cuts largely benefited the rich, but he proposed corresponding tax cuts for the middle class too, even if they were quite a bit smaller. Mitt Romney and Indiana Gov. Mike Pence (R) called their tax cuts “across the board,” so that even if the middle class gets a smaller cut and the poor actually pay more, it at least sounds like everyone is getting the same benefit.

Other Republicans pitch total elimination of their states’ income taxes, hiding the fact that the corresponding sales tax increases will largely hit the poor and middle class.

Then there’s Montana State Sen. Art Wittich (R). Wittich introduced legislation this week that only cuts Montana’s top tax rate, and unlike his fellow Republicans, there is no corresponding middle class “tax cut” that hides his true intent:

Senate Bill 170, by Sen. Art Wittich, R-Bozeman, would reduce the tax levied on the highest income tax bracket from 6.9 percent to 5.9 percent.

According to the fiscal note on the bill, the measure would reduce state tax revenues by an estimated $125 million in the next biennium and $170 million in the 2016-2017 biennium.

Wittich originally proposed offsetting the cost by raising the corporate income tax by one percentage point, but when he was criticized for violating a tenet of Republican tax orthodoxy, he said he was willing to scrap that provision and let economic growth make up for the revenue losses. Of course, that’s the same argument Bush made, and it didn’t work out so well.

Meanwhile, Montana’s tax code is already skewed toward the wealthy. The bottom 20 percent of Montanans pay 6.4 percent of their income in total taxes, while the wealthiest one percent pay only 4.7 percent. Montana also allows a deduction for federal taxes and gives a huge break for investment income, all of which disproportionately benefits the wealthy.

Wittich’s bill would make the tax code more regressive, while also leaving the state with a sizable loss in revenue. But while Wittich may not get a passing grade in economic policy, at least he earned an ‘A’ for honesty.

U.S. automaker Chrysler, which just three years ago received a rescue from the federal government, made $1.7 billion last year, and anticipates making more than $2 billion this year due to strengthening American demand for autos, according to information released today by the company. And workers will be receiving some of the spoils:

All eligible Chrysler Group LLC’s salaried and hourly workers will receive either a performance bonus or a profit-sharing check, according to CEO and chairman Sergio Marchionne. [...]

In the email, Marchionne did not release how much the employees would receive. But based on Chrysler’s current contract with the United Auto Workers, eligible union members should receive profit sharing checks of about $2,250.

Conservatives of all stripes scoffed at the auto bailout, claiming that it would be the death knell of the auto industry (or even American capitalism). But three years later, with America’s auto companies thriving and investing in new American operations, the governments actions have been largely vindicated. This chart shows how the rescue of the auto industry turned sweeping job losses into job gains:

Ford also released its earnings report this week, making $1.6 billion in the fourth quarter and $5.7 billion for the year.

A new report from the Corporation for Enterprise Development shows that many Americans are just one financial hit away from poverty, as the nation slowly drags itself out of the Great Recession. According to the report, nearly half of Americans lack enough savings to keep themselves out of poverty for more than three months in the event of a financial shock such as a lost job or medical emergency:

Almost half (43.9%) of U.S. households are living on the edge of financial collapse with almost no savings to fall back on in the event of a job loss, health crisis or other income-depleting emergency, according to a report released today by the Corporation for Enterprise Development (CFED).

The 2013 Assets & Opportunity Scorecard defines these families as “liquid asset poor,” which means they lack adequate savings to cover basic expenses at the federal poverty level for just three months if they suffer a loss of stable income. Included in this group are a majority of Americans who live below the official income poverty line of $23,050 for a family of four, as well as many who would consider themselves middle class. One quarter (25.7%) of households earning $55,465-$90,000 a year have less than three months of savings.

An even more dire picture of American finances has been painted by several other recent surveys. For instance, the Consumer Federation of America and the Consumer Planner Board of Standards found last year that nearly 40 percent of American households live paycheck to paycheck.

Our guest blogger is Adam Hersh, an economist at the Center for American Progress Action Fund.

The U.S. economy went negative in the last quarter of 2012, shrinking by 0.1 percent. That’s not good, and a big reason for the drop is Congressional conflicts over fiscal policy.

Uncertainty over fiscal policy and debt ceiling brinkmanship, according to forecasting firm Macroeconomic Advisors, are knocking 0.5 percentage points off the growth rate. What’s worse, though, is the actual contraction in fiscal policy already underway and the contractionary decisions about to be made in the next few months.

Public spending overall by all levels of government shrank by 15 percent in the fourth quarter, primarily due to defense drawdowns. Fiscal contractions put into effect by the American Taxpayer Relief Act and other tax policy resets at the beginning of January can be expected to cut as much as 1.3 percentage points from U.S. economic growth in 2013. If politicians allow the cuts in the so-called “sequester” to go ahead, growth will take another 0.6 percent hit.

Fiscal contraction is pushing our economy further and further away from the level of activity we need to reach full employment — that is, bringing the unemployment rate down to about 5 percent, shown by the red dashed line the graph below. The Congressional Budget Office estimates this level of “potential output” at full employment to be $14.5 billion, while fiscal contraction ground the U.S. economy down to $13.6 billion in 2012. In other words, until the blue line of actual GDP gets up to the red line, we will not fix our employment shortfall. The United States needs $900 billion more in economic activity to do this:

The good news is that there is no economic reason to impose fiscal contraction at this time. As economists at the American Enterprise Institute wrote, “An abrupt spending sequester…could cause a US recession, coming as it does on top of tax increases worth about 1.5 per cent of GDP enacted in January…[D]eficits have been, and will continue to be for some time, eminently sustainable.”

The poorest Americans are subject to a tax rate at the state and local level that is twice as high as the tax rate paid by the wealthiest earners thanks to “fundamentally unfair” state tax laws, according to a new report from the Institute on Taxation and Economic Policy (ITEP). Middle-class taxpayers also pay higher effective rates than the wealthy.

When state, local, property, and sales taxes are taken into account, the poorest 20 percent of Americans pay an average effective tax rate of 11.1 percent, the report found. The middle 20 percent pays a 9.4 percent rate, while the rate for the top 1 percent is just 5.6 percent. The lack of progressive income taxes and an over-reliance on consumption taxes are the primary culprit, the report says.

In the 10 most regressive states, the poorest 20 percent pay a rate as much as six times as high as the rate for the richest 1 percent. Four of those states — Washington, Texas, Florida, and South Dakota — have no income tax; one, Tennessee, has a limited income tax that only applies to dividends and interest. In these five states, half to two-thirds of revenue comes from sales and excise taxes, well above the national average of one-third.

Still, Republicans across the country are pushing tax plans that would replace income taxes — typically the only form of progressive taxation at the state level — with sales taxes. Republicans in Nebraska, Kansas, North Carolina, and Louisiana have advanced such plans, even though their state tax systems are already regressive.

In Louisiana, worst of the four, the poorest 20 percent pay 9.2 percent of their income in sales taxes, while the wealthiest 1 percent pay just 1.3 percent. Even in North Carolina, the best of the four, the poor pay six times as much of their income in sales taxes as the richest one percent. Shifting to a tax code that relies solely on sales taxes would make these states even worse.

New data released today shows that the U.S. economy unexpectedly shrank in the fourth quarter of 2012. The 0.1 percent contraction is almost entirely attributable to cuts in government spending:

Real federal government consumption expenditures and gross investment decreased 15.0 percent in the fourth quarter, in contrast to an increase of 9.5 percent in the third. National defense decreased 22.2 percent, in contrast to an increase of 12.9 percent. Nondefense increased 1.4 percent, compared with an increase of 3.0 percent. Real state and local government consumption expenditures and gross investment decreased 0.7 percent, in contrast to an increase of 0.3 percent.

The report isn’t as bad as it could have been. Personal expenditures, non-residential investment, and business investment were all up, which is encouraging.

But the economy could be in for another blow in March, when scheduled spending cuts under the so-called “sequester” are set to take effect. And lawmakers seem to have no interest in voiding those cuts. House Budget Committee Chairman Paul Ryan (R-WI) said over the weekend, “I think the sequester is going to happen because that $1.2 trillion in spending cuts, we can’t lose those spending cuts.”

According to Macroeconomic Advisers, the sequester will knock 0.7 percent off of GDP growth this year. The Bipartisan Policy Center estimates that the sequester will kill one million jobs. As Center for American Progress economist Adam Hersh said, “we know what will happen if policymakers don’t work to scrap the sequester and eliminate the useless debt limit policy: We will have slower economic growth and job creation this year and in the future.”

Of course, scrapping the sequester — which includes equal cuts from defense spending and non-defense discretionary spending — does not mean the government simply has to plow that money back into the Pentagon. Domestic spending is headed toward historic lows. The country has a huge infrastructure gap that needs to be filled. And the American Jobs Act, which Republicans filibustered, would have significantly boosted growth according to several independent analyses.

According to the latest data from the Bureau of Economic Analysis, the U.S. economy contracted slightly in the fourth quarter of last year, shrinking by 0.1 percent. Analysts has expected growth of 1 percent.

This was a large tumble from third quarter’s growth of 3.1 percent and the first contraction since 2009. According to the Associated Press, “government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth.” Government spending and investment decreased 15.0 percent in the fourth quarter. Meanwhile, personal expenditures increased by 2.2 percent and nonresidential fixed investment increased 8.4 percent.

American corporations avoid millions of dollars in taxes each year by reporting that large shares of their income are earned in five popular tax havens, even though small segments of their workforce and investment take place in those countries, according to data from the Congressional Research Service.

The report analyzed five countries — Switzerland, Ireland, the Netherlands, Bermuda, and Luxembourg — that serve as popular tax havens, compared with five countries — Canada, Germany, the United Kingdom, Australia and Mexico — where American companies typically do large shares of their business. What it found, as Citizens for Tax Justice highlighted, is that even though large shares of their workforces and investment concentrated in the “traditional economies,” large shares of their profits were reported in the five tax havens:

In 2008, American multinational companies reported earning 43 percent of their $940 billion in overseas profits in the five little tax-haven countries, even though only four percent of their foreign workforce and seven percent of their foreign investments were in these countries.

In contrast, the five “traditional economies,” where American companies had 40 percent of their foreign workers and 34 percent of their foreign investments, accounted for only 14 percent of American multinationals’ reported overseas’ profits.

American companies have become experts at routing profits overseas, with companies like Apple and Microsoft avoiding billions of dollars in taxes each year. The problem has gotten particularly bad in the last decade, as this chart from the report shows:

At the same time, many business leaders are advocating for a particular corporate tax reform, known as the territorial tax system, that would make it even easier to route profits overseas and avoid American taxes.