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Pennsylvania’s Unremarkable Private-Sector Job Performance

1:28 pm in Uncategorized by ThirdandState

By Stephen Herzenberg, Third and State

Philadelphia Daily News Columnist John Baer is right to suggest that Governor Corbett’s jobs performance since January 2011 is less than “remarkable.”

Baer’s critique comes in response to the Governor’s first re-election campaign ad touting “a remarkable 116,000 new private-sector jobs” since he came into office in January 2011. Not so fast, Baer writes:

When one looks at net jobs here since January 2011, the picture is less than “remarkable.” The current net jobs gain is not 116,000. It’s 75,100.  Among the 10 largest states, of which we’re sixth, we gained the fewest jobs. … data on the four states with less population (Ohio, Georgia, Michigan and North Carolina) show each gained double the number of jobs we did, or more.

Governor Corbett gets to 116,000 by limiting his count to private-sector jobs only, not the tens of thousands of teachers, police officers and other public servants who lost their jobs following years of state and local budget cuts.

Even if you restrict your analysis to the private sector, Pennsylvania’s private-sector job growth has almost stalled since about a year into the Governor’s term. To see that, take a look at the chart below.

The chart shows cumulative private-sector job growth in Pennsylvania since January 2011, the month Baer uses as his point of reference. We rely on data from a survey of employers by the Bureau of Labor Statistics known as the “establishment” survey. There is another employment survey of households done monthly by the U.S. Census Bureau, and over short periods of time, the two can differ — but as Mark Price has explained, both surveys typically tell the same story about the health of the labor market over the long haul.

Looking at data from the establishment survey, Pennsylvania’s private-sector job growth was relatively robust in 2011, yielding a total of 100,000 net new private jobs by March 2012. In the 14 months since then, however, the state has seen private jobs growth of less than 5,000; private job growth is less than 20,000 even if you use a three-month moving average for the same period.

Another way to gauge how “unremarkable” the state’s private job performance has been is to compare it to the national level. We do this by first computing percent job growth for the U.S. since January 2011 and then computing what private job growth in Pennsylvania would have been if the state’s percent job growth had kept pace with the national average. The gap between what Pennsylvania’s job growth would have been if it matched the national rate and actual Pennsylvania job growth is labeled “Pennsylvania’s growing private job gap” in the next chart.

What explains Pennsylvania’s private-sector job growth trends since early 2011 relative to the nation?

One hypothesis for Pennsylvania’s strong showing in 2011 is that the robust job growth that year partly reflected the policies of outgoing Governor Ed Rendell. A related hypothesis is that the policies of Governor Corbett, most prominently the impact of budget cuts and public-sector layoffs, took a year or so to have an impact on the private-sector economy.

Yet another factor could be the natural gas industry. Although the impact of drilling on Pennsylvania jobs has been exaggerated, it did have some impact. Since 2011, however, drilling and natural gas employment have ebbed. The flat-lining of private-sector job growth in Pennsylvania since the first quarter of 2012 makes abundantly clear that the natural gas industry alone never amounted to an adequate jobs strategy for the state.

A final factor is slow population growth in Pennsylvania. From April 1, 2010 to July 1, 2011, population growth in Pennsylvania was 0.5% compared to 1.7% nationally. When the economy is at full employment, the growth of the working-age population has more impact than any other factor on job growth — as a result, job growth in states with slowly-growing populations should not be expected to keep pace with that of the nation. However, when unemployment rates are well above full employment, as at present, then state job growth rates are more likely to cluster close to the national average and less likely to be impacted primarily by relative rates of long-term population growth.

Final Pa. Budget Fails to Make Up Lost Ground

12:03 pm in Uncategorized by ThirdandState

By Sharon Ward, Third and State

The Pennsylvania Budget and Policy Center has released a full detailed analysis of the 2013-14 state budget plan spending $28.376 billion, roughly $645 million (or 2.3%) more than in the 2012-13 fiscal year.

Governor Tom Corbett signed the budget into law late in the evening of June 30, 2013. Overall, the plan is $64 million less than the Governor proposed in February, reflecting nearly $113 million in reduced spending for public school pensions and school employees’ Social Security payments along with a shift of $90 million in General Fund spending off budget to other funds.

2012-13 General Fund Summary
(in $ Millions)
2012-13 2013-14
Gov.
2013-14
Final
Change f/ 2012-13 %
Change
General Fund $27,731 $28,440 $28,376 +$645 2.3%

The plan includes a small increase to basic education funding, $122.5 million overall, with $30.2 million allocated to 21 school districts through a supplemental allocation, on top of the $90 million increase in the Governor’s proposal.

After many years of cuts, most programs received small increases in the Governor’s proposed budget, which remained in the final plan.

Changes to pension benefits for current employees, the cornerstone of the Governor’s original budget proposal, did not occur. The Legislature does not seem inclined to tamper with benefits for current employees. A proposal to move to a 401(k)-style retirement plan for new employees gained traction later in the session but was not adopted. This proposal may return in the fall.

Also abandoned was an $800 million education initiative to be funded through the sale of state liquor stores. While the privatization vs. modernization debate held center stage until the last week of the session, the school funding component was quickly abandoned and was not part of legislative proposals. Privatization is likely to be considered in the fall, as well.

For the first time in two years, there were no major cuts to services for vulnerable Pennsylvanians; however, a bill that would expand Medicaid coverage in 2014, a state option under the federal Affordable Care Act, was left undone. Legislation including the Medicaid expansion won bipartisan support in the Senate, but the House stripped out the expansion provision from the bill. When the bill returned to the Senate, a last ditch effort to restore the Medicaid expansion provision failed in a dramatic Senate committee vote on July 3.

Finally, a transportation funding package that would repair crumbling infrastructure and give a much needed shot in the arm to Pennsylvania’s flagging job growth failed to pass the House, despite overwhelming support in the Senate.

Get all the details from PBPC’s budget analysis.

PA Shouldn’t Miss a Real Opportunity to Close Loopholes

2:42 pm in Uncategorized by ThirdandState

By Michael Wood, Third and State

Pennsylvania Legislature

Pennsylvania Should close loopholes, argues Third & State

In the coming days, the Pennsylvania Legislature will be hammering out a deal to balance the 2013-14 state budget. One piece of the package will be a budget-related tax plan that may include a provision designed to close corporate tax loopholes.

Specifically, lawmakers are discussing the creation of a so-called “addback” rule. Such rules require corporations to add back interest and intangible expenses (such as for copyrights and patents) paid to related companies — often affiliates in Delaware or Nevada where the income is not taxed.

The House has already passed a budget-related tax plan (HB 440) that included the addback rule; however, the plan left much to be desired when it comes to effectively closing the Delaware loophole. Still, it was a first step — which for Pennsylvania is saying something.

The tax bill is now before the Senate, and apparently changes are being made to the addback rule to make it a bit more effective. The latest word is that addback language based on Virginia’s law, but weaker, will be replacing the language in HB 440. While a Virginia-lite version might be an upgrade from HB 440, it could easily be made stronger, as the Pennsylvania Budget and Policy Center explains in a new policy brief.

Legislators have an opportunity — and an obligation — do the right thing for Pennsylvanians and enact a strong addback law.  A weak rule will do little to stop corporations from sheltering profits in other states to avoid Pennsylvania taxes, and the commonwealth will continue to be shortchanged.

The state has been grappling with how to deal with corporate tax loopholes for more than a decade, but little progress has been made — until now. In 2004, Governor Ed Rendell’s business tax reform commission recommended adopting combined reporting, a more comprehensive approach to closing loopholes, in exchange for a number of tax changes long sought by the business community. Since then, it has largely been a one-way street. Businesses got the shift to single sales factor and increases in the net operating loss caps, along with significant cuts in the capital stock and franchise tax rate and increases in tax credit programs, while nothing has been done to close loopholes. The cost of business tax cuts has mounted to close to $3 billion annually. Pennsylvanians cannot afford to continue down this road.

Fewer state dollars have been available to pay for core services like public schools, health care, and infrastructure. This has resulted in property tax increases at the local level and needs to go unserved. As the saying goes, there is no such thing as a free lunch.

A recent poll found that a majority of Pennsylvanians want the state to restore more funding to public school classrooms. Closing loopholes effectively could help raise the money to restore those cuts.

After a decade of debate, the time is now for lawmakers to adopt a strong addback law. We have some tips for doing this at our website.
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Another Day Older and Deeper in Debt

4:20 pm in Uncategorized by ThirdandState

By Mark Price, Third and State

Last week, the Pennsylvania Senate Banking and Insurance Committee in a narrow vote approved Senate Bill 975, opening the door to thousands of predatory payday lenders to come to Pennsylvania and charge fees on short-term loans that equal an annual interest rate of over 300% on a typical two-week payday loan.

In April, the Consumer Financial Protection Bureau (CFPB), the federal agency charged with reining in the abusive financial practices, released a white paper that examines payday lending. Based on data collected from payday lenders in 33 states, the paper provides a very basic picture of the key characteristics of the people using these products. As Figure 1 below illustrates, the CFPB found that the overwhelming majority (84%) of borrowers have incomes of less than $40,000.  

Figure 1. Income of Payday Loan Applicants 

With incomes this low, the typical customer actually falls farther behind in their bills after using a payday loan — a point we argued last year using data from the Bureau of Labor Statistics’ Consumer Expenditures Survey (CES).

Table 1 shows conservative two-week spending patterns for an average household making $25,000, $35,000, or $45,000 per year. These three family budgets are based on surveys of actual family spending patterns (drawn from the CES) and include expenses such as food, housing, utilities, transportation, and basic health care. They do not include additional costs such as child care, clothing, and previous debts, including credit cards or car loans. 

A borrower who takes out a $300 payday loan in one two-week period must repay the $300 in principal plus $38.22 in interest and fees during that same period. Based on the CES, families earning $25,000 or $35,000 would be unable to make up the cost of the payday loan and meet other basic expenses. These examples demonstrate why the majority of borrowers are repeat borrowers, taking out loan after loan as fees force them to fall further and further behind.

Table 1. Family Budgets and Payday Loans

The Consumer Financial Protection Bureau came to the same conclusion after examining data provided to them by the payday lenders:

However, these products may become harmful for consumers when they are used to make up for chronic cash flow shortages. We find that a sizable share of payday loan and deposit advance users conduct transactions on a long-term basis, suggesting that they are unable to fully repay the loan and pay other expenses without taking out a new loan shortly thereafter. Two-thirds of payday borrowers in our sample had 7 or more loans in a year. Most of the transactions conducted by consumers with 7 or more loans were taken within 14 days of a previous loan being paid back — frequently, the same day as a previous loan was repaid.

Supporters of SB 975 will argue that it establishes a limit of eight “consecutive short-term” loans, which is an acknowledgment that rapid, repeat borrowing is at the core of the payday loan product. But this limitation is effectively meaningless because the bill allows a borrower to simply wait three business days to borrow again, so the eight-loan limit would never really apply.

As the CFPB data make clear in states with laws like SB 975, the typical borrower of what is supposed to be a 14-day loan is indebted for more than half the year. In other words, the typical consumer borrows $350 and ends up paying $457 in just interest and fees in places where these types of products are legal.

High interest and fees plus repeat borrowing are the keys to payday lender profitability and why this product is ultimately harmful to consumers driving some into bankruptcy. 

To paraphrase that old song made famous by Tennessee Ernie Ford

You borrow over and over, and what do you get? Another day older and deeper in debt. 

Ed Rendell’s Frack Attack

2:22 pm in Uncategorized by ThirdandState

By Sharon Ward, Third and State

Former Governor Ed Rendell got into some hot water last week with an op-ed in the New York Daily News touting the economic benefits of hydrofracking. ProPublica quickly outed the Governor for his ties to the drilling industry, and Rendell owned up to the fact that he is a consultant to Element Partners, which has investments in the gas industry. The Daily News has added a note to its web site disclosing the financial arrangement.

Rendell’s piece touts the industry’s economic benefits, repeating the claims of an IHS/U.S. Chamber of Commerce analysis that the Pennsylvania Budget and Policy Center critiqued back in December for overstating the employment and tax benefits of shale.

The natural gas industry in Pennsylvania is like a new baby: it’s tiny but gets all the attention. Through a coordinated and well-financed public relations effort (remember My Range Resources?) and a legion of lobbyists, the industry has given an impression of its importance that just doesn’t square with the facts.

In 2012, the natural gas industry provided one-half of one percent of all jobs in Pennsylvania. The IHS report claims the industry contributed $900 million in state and local corporate tax revenue, one-third of all corporate taxes collected by the state in 2012, but the Department of Revenue puts the number at less than one-fifth of that amount (see Table 2).

Don Gilliland of The Patriot-News made a similar point in a column after a Chamber of Commerce event in Harrisburg in July, announcing a multi-million dollar “Shale Works for Us” public relations campaign. Gilliland ripped into the industry for stating — in a promotional effort the sponsors claimed was designed to “get out the facts” — that shale created 140,000 jobs in 2010 alone, while the Pennsylvania Department of Labor and Industry reported just 23,618 shale jobs since 2008. (The Chamber numbers came from the infamous “Penn State” study that Penn State subsequently disowned — see here and here).

So why does this matter? The industry cleverly uses this economic promise to beat back regulation or any other attempt to limit or manage natural gas development. Gilliland cleverly gets the chamber spokeswoman Karen Harbert on record about its strategy, to use its PR effort to “ensure no hindrance or regulatory barriers” to natural gas drillers.

Rendell urges New York Governor Andrew Cuomo to seize the opportunity that gas drilling provides, but Cuomo should use Pennsylvania as a cautionary tale rather than a guide. The economic benefits of gas development in Pennsylvania have been routinely overstated, while its costs have been minimized or ignored. The hype has only served to undermine reasonable environmental and land use restrictions necessary to blunt the short-term impacts and limit long-term harm.

Three New Tax Breaks Will Cost PA Schools and Services

7:31 am in Uncategorized by ThirdandState

By Chris Lilienthal, Third and State

private jet

Pennsylvania lawmakers are considering legislation that will give tax breaks to those who purchase private and corporate aircrafts

After making deep cuts to schools, early childhood education, and health and human services, Pennsylvania lawmakers are now considering new tax breaks that will largely benefit a small number of higher-income earners.

Last week, the Senate Finance Committee approved legislation that would create a new loophole in the state inheritance tax. It allows business owners to bequeath business assets tax-free to their heirs — an advantage unavailable to most hardworking Pennsylvanians who inherit a family home or car.

Over in the House, the Finance Committee voted 18-16 on Wednesday to approve a bill that would exempt sales tax on the purchase of private and corporate aircraft, jet parts, and aircraft maintenance and repair. A car or truck purchase will still be subject to sales tax, but those in the market for a private jet will get a tax break.

Finally, the House Commerce Committee is voting today on legislation that would reward investors in Pennsylvania start-up companies with a new tax credit that they can take even if they owe no state taxes. To qualify for the credit, the investor must have a net worth of $1 million or income above $200,000 a year.

Each bill, estimated to cost millions annually, could come up for votes before the House and Senate in the coming weeks. The Pennsylvania Budget and Policy Center has more on all three bills here.

These bills come on top of Governor Corbett’s proposal to enact a new round of tax cuts beginning in 2015 that will ultimately cost hundreds of millions from the state treasury and put profitable corporations first in line when future budgets are negotiated. It would be the latest in a series of costly special tax breaks over the decade that have undermined Pennsylvania’s ability to invest in schools and other vital services.

Pennsylvania can continue to fund special tax breaks like these or we can invest again in our children and our economic future — but increasingly we can’t do both. Unaccountable tax cuts undermine success in the classroom and growth in our communities, and they shift costs onto school districts, local governments, and property taxpayers.

Pennsylvania needs real tax reform that closes loopholes, ends special tax breaks, and levels the playing field for everyone. Only then can we enact a state budget that returns to tried-and-true investments in education and the services that promote long-term economic growth.

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State Tax Cuts Take a Bite Out of Pennsylvania’s Budget Pie

9:36 am in Uncategorized by ThirdandState

By Chris Lilienthal, Third and State

Advocates delivered half a pie to every Pennsylvania legislator Tuesday. Why half a pie?

To remind them that a decade of large tax cuts for businesses has left schools, health care services, and local communities with a smaller share of the state budget pie.

Tax cuts enacted since 1999 have drained close to $3 billion this year alone from state coffers. The cost of the tax cuts has more than tripled since 2002, with little to show for it. Too often, these tax cuts are put in place with very little accountability or obligation for companies to create jobs. In fact, Pennsylvania ranked 27th in job growth in 1999-2000 but fell to 34th in 2011-12.

Budget cuts fueled by large business tax cuts also pass the buck to school districts and local governments – and onto local taxpayers.

Governor Corbett is now proposing a new round of tax cuts for 2015 and beyond that will cost as much as an additional $1 billion. The proposal includes no plan to close tax loopholes that allow companies to hide profits and avoid paying their share of taxes.

Pennsylvania needs a budget that returns to tried-and-true investments in education and the public infrastructure that promotes long-term economic growth. After a long economic downturn, that is the path to more jobs, stronger communities, and a brighter future for our children.

We can fund corporate tax cuts or we can fund our children’s schools, but increasingly we can’t do both. Giving larger slices of the pie to profitable corporations means less money in the classroom, fewer early childhood programs, and less support for local services.

Pennsylvania needs real tax reform that levels the playing field for businesses that play by the rules, and stops giving away dollars that are essential to helping our children and families succeed. Only then will we be able to invest in a world-class public education and the community assets that build a stronger economy.

Photo by Mr. T in DC released under Creative Commons License

ALEC Policies Sell ‘Snake Oil to the States’

2:11 pm in Uncategorized by ThirdandState

Would billionaires spend millions to influence your  vote if it had no value?

Would billionaires spend millions to influence your vote if it had no value

By Sharon Ward, Third and States

Three national organizations offered a scathing criticism of policies endorsed by the American Legislative Exchange Council, or ALEC, in a conference call with reporters last week. Their findings strike a stake in the heart of ALEC claims that its view of the world — lower taxes, fewer workplace protections, and diminished public investments — is good for the public.

Pennsylvania state lawmakers who look to ALEC for guidance on economic policy should stand up and take notice.

Iowa Policy Project research director Peter Fisher discussed a recent report he co-authored with researchers from Good Jobs First, concluding that the tax, budget, and economic prescriptions put forth by ALEC simply don’t work.

Selling Snake Oil to the States took a look at ALEC’s annual Rich States, Poor States report, which ranks states based on their “economic outlooks” as defined by ALEC. The factors should come as no surprise: states with low taxes and right-to-work laws rank high by ALEC; those with progressive taxes, corporate income taxes, and worker protections rank far behind.

Fisher compared the ALEC rankings with actual state performance on real economic indicators over a four-year period. Do ALEC’s policy prescriptions improve state economies? The answer is no.

Between 2007 and 2011, researchers found no relationship between a high ALEC ranking and employment. They did find a correlation on personal incomes and poverty rates among states ranked high by ALEC, but it was a negative one — the better a state fared on the ALEC scale, the worse it did in real life. As Fisher said during the conference call:

It should be hardly surprising that policies to keep wages low have the effect of lowering the state’s income. … The ALEC policy prescriptions for states will not lead to growth and prosperity but to further inequality and lower incomes.

The Center on Budget and Policy Priorities examined sweeping tax and budget policies that ALEC is currently lobbying for in the states. The policies largely encompass deep tax cuts for wealthy individuals, investors, and corporations that will leave middle- and lower-income families paying more.

Both reports note that the ALEC agenda promotes low wage growth for families, fewer workplace protections, and strategies to starve public investments in education, health care, and other priorities — all of which reputable economists agree are critical to job creation and economic growth.

It is an article of faith among Pennsylvania lawmakers that ALEC policies are good for the economy. These reports provide clear and convincing evidence to the contrary: the arguments that the ALEC agenda are good for real people are nothing but snake oil. The policies are good for the businesses that pour millions into ALEC to promote this agenda.

Governor Tom Corbett has hidden large expensive new tax cuts to profitable corporations in his budget proposal released this month. This and other ALEC agenda items won’t create jobs, but they will lead to greater inequality, slower income growth, and continued starvation of our public schools, transit systems, and other priorities.
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Imagine … A Minimum Wage Your Daughter Could Live On

11:57 am in Uncategorized by ThirdandState

By Stephen Herzenberg, Third and State

The Australian minimum wage this year is $15.96 per hour. I know this mostly because my daughter lives in Melbourne these days (not forever, I hope). When she arrived there 18 months ago, she got a job at a minimum-wage restaurant. She earned enough to cover her rent and other expenses.

What brought the idea of a much higher minimum wage to mind is a blog post from Dean Baker of the Center for Economic Policy Research. Dean estimates that the U.S. minimum wage today would be $16.54 per hour if it had kept pace with U.S. productivity growth since 1947.

For those with knowledge of economic history (both of us), a minimum wage that increases its buying power every year does not seem far fetched, even in the good old United States. The U.S. minimum wage DID increase with productivity growth from 1948 to 1968. This linkage (see Dean’s chart below) resulted from the combined impact of two mechanisms: manufacturing wages kept pace with productivity growth thanks to collective bargaining in mass manufacturing (starting with the famous auto industry “Treaty of Detroit” in 1948); and Congress periodically increased the minimum wage to bring it back up to 50% of the average manufacturing wage.


Click on the chart above for a larger view
In recent decades, the most ambitious aspiration in U.S. political debate has been that the minimum wage keep pace with inflation (even Mitt Romney was for this briefly — after he was against it and before he wasn’t sure any more).

If you think about it for a second, a minimum wage that keeps pace with inflation is a fairly pathetic aspiration. It means that our lowest-wage workers get to have their living standards stay the same forever, even as the economic pie keeps growing with increases in productivity.

Wages — and minimum wages — that keep pace with productivity growth express a different and completely practical aspiration: the idea that workers at all levels should share in the expanding economic pie. Fair reward for hard work. Even sounds like a fundamental American value. Let’s get back to it. If we did, Charlotte might even come home.

Pennsylvania Among ‘Terrible 10′ Most Regressive Tax States

10:50 am in Uncategorized by ThirdandState

By Chris Lilienthal, Third and State

Working families in Pennsylvania pay a far higher share of their income in state and local taxes than the state’s wealthiest earners, according to a new study by the Institute on Taxation and Economic Policy (ITEP).

Pennsylvania’s tax system scored so poorly that it made the list of the “Terrible 10” most regressive tax states in the nation.

The Pennsylvania Budget and Policy Center (PBPC) co-released the report, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, with ITEP. PBPC Director Sharon Ward made the point in a press release that “No one would deliberately design a tax system where low-income working families pay the greatest share of their income in taxes, but that is exactly the type of upside-down tax system we have in Pennsylvania.”

Middle-income families in Pennsylvania pay more than double the share of their income in taxes than the very wealthiest Pennsylvanians, while low-income families pay nearly three times as much as top earners, the report found. Get more details on the report, including a Pennsylvania fact sheet, here.

PA State & Local Taxes: Shares of family income for non-elderly taxpayers
The report should bury once and for all the myth of the makers vs. the takers. Low-income families in Pennsylvania are paying much more of their income in state and local taxes than the top 1%.

Families who qualify for state personal income tax forgiveness still pay large shares of their earnings in sales, local income and property taxes, the report found. At the same time, wealthy taxpayers benefit greatly from tax laws that allow them to write off property and income taxes from their federal taxes. This is, at best, a modest benefit for middle-class families and no benefit to very low-income earners.

Pennsylvania’s flat income tax contributes to its regressive tax ranking. Without a graduated tax rate that rise on more affluent earners, the state’s income tax does little to offset more regressive sales and property taxes.

That’s why Pennsylvania should amend the state Constitution to enact a graduated personal income tax. Even without a constitutional change, the state could set a higher income tax rate on investment income, which goes primarily to wealthy Pennsylvanians, without raising the rate on wage earners.