An American Tale: Redistributing Wealth Upward

Here's Alana Semuels of the LA Times on the state of work today:

The envelope factory where Lisa Weber works is hot and noisy. A fan she brought from home helps her keep cool as she maneuvers around whirring equipment to make her quota: 750 envelopes an hour, up from 500 a few years ago. There's no resting: Between the video cameras and the constant threat of layoffs, Weber knows she must always be on her toes.

....In 2010, National Envelope was acquired by the private equity firm Gores Group of Los Angeles, which drew on the standard playbook for such takeovers: Close inefficient plants, cut staffing and demand more from remaining employees. The company has fewer than 2,500 employees now, half the number it had in 2001.

....“Generally, the business had been run the same way since its inception,” said Tim Meyer, a Gores Group executive. “It became clear that as the market began to soften, what was in place was not a sustainable business model....Sometimes you have to make dramatic changes to save the jobs that you can,” he said.

Maybe so. After all, National Envelope had filed for bankruptcy before it was acquired. If Gores Group ends up making only a modest profit from its acquisition, then maybe we'll just shrug our collective shoulders and write off National Envelope as yet another victim of globalization.

But on the more likely chance that Gores Group is in this in order to make not a modest profit, but a killing, it basically represents yet another example of the redistribution of wealth upward in the United States: Cut staff, slash benefits, work everyone harder, and generate huge returns for the rich investors who fund Gores Group.

And here's part 2 of this series of stories about the state of work today:

Employers are using technology to read emails and monitor keystrokes, measure which employees spend the most time on social networking websites and track their movements inside and outside the office. They can see who works fastest and who talks the most on the phone. They can monitor how much time people spend talking to co-workers — and how much time they spend in the bathroom.

....For companies, the reward is financial. Unified Grocers, which supplies food to grocery chains including Vons and Gelson's, trimmed its payroll 25% from 2002 to 2012 — but managed to increase sales 36%, according to regulatory filings.

....Companies learned a lesson during the recession, [Rod Van Bebber, senior vice president of operations] said: If there are fewer people and the same amount of work, employees will find a way to get it done. If everyone does a little more, that can mean "one less employee you have to hire," Van Bebber said. "That's one less health and welfare package."

Unfortunately, van Bebber is right: a lot of companies did learn this lesson during the recession. "We're just like human machines," forklift driver Phil Richards said about the change in working conditions over the past few years.

Welcome back to the 19th century, my friends. For more, check out "All Work and No Pay: The Great Speedup," from our July 2011 issue.

The LA Times reports today that the superintendent of Yellowstone Park, in a last ditch effort to deal with budget cuts caused by the sequester, decided to delay snowplowing for two weeks, a savings of about $400,000. Local businesses, afraid that this would hurt the tourist trade, decided to band together and pay for the snowplows themselves. But they aren't happy about it:

It's not that residents don't want to reduce the deficit. Washington needs "to grow the economy, not the government," said Jay Linderman, who owns an Italian restaurant on Cody's main drag and grudgingly gave $200 to pay for plowing. What rankles locals is the indiscriminate nature of the sequester, which cut programs across the board without weighing individual merits.

But therein lies the perennial rub: Cuts that are welcomed in the abstract are not always appreciated when they hit home. And everything the government does, however small, touches somebody. "You pay your taxes to get certain services," said Bruce Eldredge, executive director of the Buffalo Bill Historical Center, a world-class museum in the center of town, which delivered a $10,000 check to the chamber. "We would, I think, probably argue as a community that we pay our federal taxes to make sure the park is open at a specific time."

This is, obviously, the problem of government in a nutshell: everyone wants spending to be cut, but no one wants spending to be cut on them. They want it to be cut on other people.

In particular—and please excuse the wild guess here—I imagine that most people who have a serious jones for cutting federal spending are really only interested in cutting spending on poor people. Cutting other services just isn't what they signed up for. It's the Obamaphones and the food stamps that are wasteful, not the Yellowstone snowplows and small town air traffic controllers. This is why I've always been a little surprised that when the sequester was originally negotiated, Republicans agreed to exempt (or treat specially) a whole bunch of mandatory means-tested programs, including unemployment benefits, student loans, community health centers, EITC and other refundable tax credits, CHIP, disability, school lunches, TANF (traditional "welfare"), Pell grants, Medicaid, and SNAP (food stamps). Those are the programs that their base really wants to see cut, but for some reason Republicans agreed to mostly leave them untouched.

Anyway, reading this Yellowstone story reminded me that I've never seen a good account of how Obama managed to bamboozle Republicans into agreeing to this. Does anybody know of one?

The richer you are, the more the home mortgage deduction helps you. Partly this is because you can only take the mortgage interest deduction if you forego the $12,000 standard deduction (for a married couple filing jointly), and that's a much bigger deal for working class families than wealthier familes. It's also because as your income goes up, you're likely to have both a bigger mortgage and a higher tax rate. For example:

  • A family of modest income might pay $8,000 in mortgage interest. Unless they have a bunch of other itemized deductions—and they probably don't—they're better off just taking the standard deduction. The mortgage interest deduction provides them with zero benefit.
  • An average family might pay $12,000 in interest on their mortgage, with other deductions increasing that to $18,000 or so. Compared to the standard deduction, their net benefit is $6,000 at a 20 percent tax rate, or $1,200.
  • A wealthier family might pay $40,000 in interest. Since other deductions most likely offset the standard deduction, their benefit is $40,000 on a 30 percent tax rate, or $12,000.

The chart on the right, courtesy of CBPP, shows the results. Two-thirds of American families have incomes under $75,000, and their total benefit from the mortgage interest deduction is $8 billion. The one-third of families above that receive a benefit of $60 billion.

In other words, families with incomes over $75,000 receive 88 percent of the benefits from the home mortgage deduction. What's worse, the mortgage interest deduction, as currently structured, doesn't even appear to increase homeownership rates, its supposed reason for existence in the first place.

So what to do? Various reform commissions have recommended replacing the mortgage interest deduction with a tax credit instead. Instead of taking a deduction from your gross income, you'd simply subtract a flat percentage of your interest payments from your tax bill (up to a certain cap). You'd get it regardless of whether you took the standard deduction, and everyone would get the same percentage.

Depending on how this was set up, it would not only provide more help for average families, but it would also increase tax revenue and help reduce the deficit down the road. For example, the Tax Policy Center estimates that a 15 percent non-refundable credit would raise $197 billion over ten years if it were phased in gradually over the first five years.

CBPP also likes the idea of simply giving the tax credit to the lender, instead of the borrower, who would then pass it through to the homeowner in the form of a lower interest rate. That would indeed be easier on everyone. And although CBPP doesn't say this, I suspect part of its appeal is that a credit to the lender might be politically easier to phase out completely in the future.

If you want to learn more, the CBPP report has much more detail.

UPDATE: A reader emails to add another tidbit to think about:

One key factor you don't mention is that it's largely a regional thing — the vast majority of the deductions go to homeowners in New York City, Los Angeles and the Bay Area. In those three places, the deduction is actually a pretty big deal because houses are so expensive....That's part of the reason it's such a political challenge — our political elite largely lives in expensive cities where a lot of people actually do get the deduction.

Con Men Love Tax Havens

The Washington Post wins April's Least Surprising Headline of the Month award with this entry today:

On a serious note, it's actually an interesting piece. The Post worked with the International Consortium of Investigative Journalists, which somehow obtained 2.5 million records created by a couple of offshore companies. "Among the 4,000 U.S. individuals listed in the records, at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct." It's worth a read to get an idea of what kinds of scams and frauds get hidden by these tax havens.

Hey, guess what?

With the first quarter of 2013 in the books, crime in Los Angeles has so far continued its decade-long decline, according to statistics released Friday.

OK, first off: can we please stop talking about LA's "decade-long" crime drop? I know I've mentioned this often enough that I sound like a crank on the subject, but it's important. If crime started declining in 2003, it might well be due to improved policing techniques introduced by Bill Bratton in 2002. But if it started declining in 1991—which it did—then the cause has to be something else, unless Bratton invented not just CompStat, but time travel as well. Moving on:

Mayor Antonio Villaraigosa and Police Chief Charlie Beck announced the early but notable improvement at a press conference that served as a swan song for the mayor, who will leave office this summer after being termed out....Beck highlighted the significant declines in gang-related killings and other crimes — a result, he said, of close cooperation between his department and the city's aggressive anti-gang programs that.

...."There is no other big city in America that can make these claims. I invite any of you to go to Chicago, go to New York, go to Houston ... and see if you can find a replication of this effort. You cannot," Beck said.

Look: the crime decline in Los Angeles has been impressive. More cops on the street have probably been effective. Beck's gang initiatives have probably been effective—maybe even more effective than in other places. But no other city can make these claims? It's exactly the opposite: nearly every big city can make these claims. The violent crime rate in Phoenix is down 52 percent from its peak. Washington DC is down 58 percent. Chicago is down 66 percent. Dallas is down 70 percent. New York is down 75 percent.

In California, San Jose is down 58 percent. San Francisco is down 61 percent. San Diego is down 67 percent.

We should all applaud anti-crime initiatives that seem to be effective. But we should also rigorously question whether they're effective. And we shouldn't mindlessly repeat claims that just flatly aren't true, no matter who or where they come from. The public deserves to hear the full story about crime in America, not just the part that's convenient for politicians singing their swan songs or police chiefs who want funding for more cops.

Last week I blogged about a Planet Money story on the steady increase in Social Security disability payments over the past couple of decades. The story was more nuanced than I think its critics gave it credit for, but there's no question that the big takeaway for most people was the notion that lots of workers with only minor disabilities are being allowed into the program simply because the economy is bad and they probably can't find work after they've been laid off.

Friday night this was a topic of discussion on the Chris Hayes show. One of the guests was Michael Astrue, a former commissioner of the Social Security Administration, and it's fair to say that Astrue was pretty exasperated about the whole affair. One of the points he made was this: Nothing has skyrocketed. Nothing has suddenly spiraled out of control. The program today is spending exactly as much as it was forecast to spend back in 1994, the last time Congress revised the disability law.

That struck me as a pretty strong argument. If we really are exactly in line today with the predictions made 20 years ago, then obviously nothing is out of control. So I checked. I pulled up the 1995 trustees report and the 2012 trustees report and compared the 1995 forecast with the 2012 reality. Here's what it looks like:

Astrue is pretty much correct—though not entirely. In 2012, there were about 10 percent more people receiving disability than was forecast in 1995. Total outlays were about 18 percent higher than forecast.

That's not nothing, but it's not a lot, either. There are two things going on. First, ever since 2000 the number of beneficiaries has been growing slightly faster than the original 1995 forecast. Second, there was a small extra spike starting in 2009, probably due to the Great Recession. This partly vindicates the Planet Money story, which suggested that (a) standards had loosened a bit over time, and (b) people who otherwise might have gutted it out and returned to work in better times decided to go on disability instead when jobs became scarce.

However, it doesn't vindicate it very much. These factors have been responsible for only a small extra blip in the number of people approved for disability payments. The blip in outlays is a bit bigger, but that's mostly a mirage: the recession reduced taxable income below forecast, which artificially inflates the outlay figure because it's calculated as a percentage of income. By far the majority of the growth in the disability program has been due to simple demographics (as the boomer generation ages, more of them go on disability), and it was baked into the forecast two decades ago. We shouldn't act shocked now that the forecast is coming true.

Friday Cat Blogging - 5 April 2013

Today we have an aerial view of Domino. She's lounging on the very first quilt Marian made, a 1985 crib quilt based on a pattern called Snowball, by Marsha McCloskey.

It also demonstrates one of the great things about quiltblogging: it's really easy. Basically, you just put a quilt somewhere, twiddle your fingers for a minute or two, and suddenly a cat appears. It's like magic. I put this one on the floor just below our second-story hallway, so all I had to do was go upstairs, point the camera downward, and then make stupid noises to get Domino to look up at the camera. Eventually it worked.

Via Susie Cagle of Grist, here's the latest from the CDC on blood lead levels in young children. We've known for a long time that lead is dangerous in much smaller concentrations than previously thought, and last year the CDC finally adopted a "reference level" of 5 ug/dl for the study of lead in kids. In its latest study, CDC reports that a total of 2.6 percent of children age 1-5 have blood lead levels above 5 ug/dl. That's bad (though better than it used to be), but it's also not evenly distributed. If you're black, or poor, or live in old housing, the odds that your kids have elevated lead levels is much higher. The chart below tells the story.

As the CDC says, "Childhood exposure to lead can have lifelong consequences." This includes cognitive damage that reduces IQ and contributes to poor performance in school. It also produces cognitive damage that increases the propensity to commit violent crime. But you knew that already, right?

Is the U.S. Economy Powered by Dark Matter?

Karl Smith is bullish on America:

“The Great Takedown” [...] is the not yet realized bombshell that the US in general and the US Federal Government in particular made out like gangbusters in the Great Recession. I am still trying to tie this all together but a full accounting of US Treasury “profits” from the Global Financial Crisis look to number in the trillions.

This is based on a theory that if you value assets correctly, based on their financial return, the apparent multi-trillion dollar increase in the U.S. current account deficit over the past few decades hasn't actually happened. It's been offset by exports of "Dark Matter" that aren't included in official accounts:

The US is a net provider of knowledge, liquidity and insurance. As the world became more global financially, the increasing asset value of these services underlies the spectacular increase in dark matter over the last two decades.

As a result, foreign-owned U.S. assets are worth less than official accounts suggest and U.S.-owned foreign assets are worth more. Karl is excited because Paul Krugman kinda sorta endorsed this theory today, but it's worth noting that Krugman leaves open the question of whether there's really been a mis-valuation of assets, or whether this is basically a dangerous leverage play that relies on using cheap U.S. debt to buy risky foreign assets, assuming that those risky assets will pay high returns forever.

Beats me. This is way above my pay grade. But interesting!

Chained CPI and the 2014 Midterms

Now that President Obama is poised to officially endorse the adoption of chained CPI in his next budget—a change that would cut the future growth of Social Security benefits—Ed Kilgore ponders the political implications:

Could Republican congressional candidates in 2014 actually run against "Obama's Social Security Cuts," after decades of lusting for "entitlement reform" and several consecutive years of demanding that Obama give Social Security benefits a haircut or worse?

Ha ha ha! That's a knee slapper. To his credit, Ed comes up with the obvious answer: Of course they could.