THE EFFECTS OF THE FEDERAL TAX CUT

The initial effects of the federal tax cuts enacted in December 2017 by the Tax Cuts and Jobs Act (TCJA) are now visible; they are not what their Republican architects promised.

Although it’s too early to know definitively if the tax cuts will have an effect on the overall economy, growth in the first quarter of 2018 was steady but not noteworthy. There is no evidence of the tax-cut-fueled acceleration of economic growth the Republicans promised. [1] The latest projections, as well as experiences elsewhere, strongly suggest that the effects on economic growth will be small at best.

The effects of the tax cut on the deficit are becoming clearer. The latest projections from the non-partisan Congressional Budget Office (CBO) are that the federal government’s revenue will be reduced by $1.3 trillion over the next 10 years. When the costs of paying interest on the growing debt are included, the CBO projects that the cumulative deficit will increase by $1.9 trillion over the period from 2018 to 2028 due to the tax cuts, despite the Republicans’ promise of no increase in the deficit. [2] Furthermore, the growth in the deficit will be exacerbated by the spending bill that was enacted in early 2018, which increases spending by $300 million over the next two years.

The CBO projects the federal government’s deficit will be $804 billion for fiscal year 2018, up 21% from 2017. Furthermore, it projects the deficit will be over $1 trillion a year by 2020, despite President Trump’s campaign promise to eliminate the deficit. From 2021 to 2028, the CBO estimates the deficits will average 4.9% of Gross Domestic Product (GDP), the total of all economic activity in the U.S. This is higher than at any time since World War II, except during the Great Recession of 2008 – 2009 when tax revenue slumped with the collapsing economy and spending was high to bail out Wall St. and to stimulate the economy.

The growing deficit reflects the gap between what the Republicans who control the federal government want to spend and their unwillingness to enact the taxes necessary to pay for it. This is blatant fiscal irresponsibility. Moreover, growing deficits are of serious concern when the economy is doing well and unemployment is low. In this situation, many economists and responsible officials recommend reducing the deficit and even generating a surplus, as President Clinton did, so that the country has the capacity to weather the next economic downturn.

Analysis of the individual tax cuts finds that the wealthiest households will receive the biggest tax cuts, both in terms of dollars and percentage increase in after-tax income. Households with incomes under $25,000 will receive an average tax cut of $40. Meanwhile, those with incomes from $49,000 to $86,000 will receive an average tax cut of about $800, those with incomes of $308,000 to $733,000 will get about $11,200, and those with incomes over $733,000 will get a tax cut of about $33,000. [3]

As an example of the benefits of the corporate tax cuts, the six biggest, multi-national banking corporations (JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, and Bank of America) together paid at least $3.6 billion less in taxes for the first quarter of 2018 than they would have without the 2017 tax cut law. Before the tax cut, these corporations had paid 28% to 31% of their income in taxes; for the first quarter of 2018 they paid between 17.2% and 23.7%. Their tax rate is estimated to be 20% – 22% for the full year, meaning they will receive a tax cut of $19 billion for this year. [4] By the way, the tax cut law also provides benefits, and therefore incentives, to corporations to move jobs and profits overseas to dodge U.S. income taxes. [5]

The Economic Policy Institute projects that roughly 80% of the benefits of the corporate tax cuts will be passed on to shareholders and executives, and not used to pay employees or re-invest in the business. Although some corporations gave small raises or bonuses to their workers – thanks to intense public visibility and pressure – a huge chunk of the tax cut has been used to buy back company stock.

In just the four months since the tax cuts were enacted in December, corporations have announced more than $250 billion in stock buybacks. This rewards stockholders and executives as it pushes up the price of the corporation’s stock. These buyback announcements are an acceleration from an already record-high, $5.1 trillion of buybacks over the previous decade. Virtually all the profits of the country’s 500 largest corporations from 2005 to 2015 went to share buybacks and dividends, and not to workers’ wages or investments that would increase productivity, both of which have stagnated. [6]

Stock buybacks give huge rewards to corporate executives because much of their compensation is paid in shares of stock. For example, the CEO of Wells Fargo bank got a $4.6 million raise for the year due to the increase in the corporation’s stock price from stock buybacks.

Stock buybacks were illegal until 1982, which is roughly (and probably not wholly coincidentally) the same time wages stopped rising for most Americans. Before then, a bigger share of corporate profits was used to increase workers’ wages and re-invest in the business, rather than for less economically productive stock buybacks. [7]

Some corporations have announced bonuses or pay increases for workers. However, so far these announcements have applied to only 4.1% of workers and roughly 80% of them are one-time bonuses not on-going pay increases, even though the corporations’ tax cuts are permanent and on-going. [8] In some cases, the workers have not received (and may never receive) actual increases in pay. For example, some corporations have made the pay increases the subject of negotiations with unions. Corporations have announced spending 42 times as much on stock buybacks as on increases in employees’ pay. [9]

To put all this in some perspective, it is estimated that the Koch brothers, extremely wealthy corporate executives, will see their incomes increase by about $27 million per week or $1.4 billion per year. Not coincidentally, they have pumped hundreds of millions of dollars into Republican election campaigns over the last four years. Meanwhile, the few workers lucky enough to get a pay increase are typically getting, at most, a one-time bonus of a few hundred or maybe a thousand dollars for the year. [10]

I encourage you to contact your U.S. Representative and Senators and to ask them to support the Reward Work Act. This bill would significantly limit stock buybacks, give employees of publicly traded corporations the power to elect one-third of the corporation’s Board of Directors, and force corporations to use their tax cuts to reward their workers, instead of executives and stockholders.

You can find your US Representative’s name and contact information at: http://www.house.gov/representatives/find/. You can find your US Senators’ names and contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1] Horowitz, E., 4/28/18, “So far, tax cuts aren’t noticeably driving growth,” The Boston Globe

[2] Stein, J., 4/9/18, “Deficit to top $1 trillion per year by 2020, CBO says,” The Washington Post

[3] Sammartino, F., Stallworth, P., & Weiner, D., 3/28/18, “The effect of the Tax Cuts and Jobs Act individual income tax provisions across income groups and across the states,” Tax Policy Center (http://www.taxpolicycenter.org/publications/effect-tcja-individual-income-tax-provisions-across-income-groups-and-across-states/full)

[4] Sweet, K., 4/20/18, “Big banks saved $3.6 billion in taxes last quarter under new law,” Associated Press

[5] Thomhave, K., “Even the CBO says the GOP tax reform will incentivize corporate offshoring,” The American Prospect (http://prospect.org/article/even-cbo-says-gop-tax-reform-will-incentivize-corporate-offshoring)

[6] Heath, T., 4/13/18, “America’s biggest companies are announcing buybacks. But whose cash is it, anyway?” The Washington Post

[7] Reich, R., 3/21/18, “The buyback boondoggle is beggaring America,” The American Prospect (http://prospect.org/article/buyback-boondoggle-beggaring-america)

[8] Madrid, M., 4/13/18, “Waiting — and waiting– for corporate tax cuts to deliver those wage hikes,” The American Prospect (http://prospect.org/article/waiting-and-waiting-corporate-tax-cuts-deliver-those-wage-hikes)

[9] Americans for Tax Fairness, retrieved 4/28/18, “Trump tax cut truths,” (https://americansfortaxfairness.org/trumptaxcuttruths/)

[10] Hoxie, J., 4/18/18, “Five tax myths debunked,” Institute for Policy Studies (http://otherwords.org/five-tax-myths-debunked/)

THE UNDERMINING OF THE 2020 CENSUS

The 2020 Census is coming up soon and preparations for it are underway. You’ve probably heard about the controversy over the Trump administration’s effort to add a question on citizenship to the Census. Unfortunately, the politicization and undermining of the Census runs much deeper than just this question.

The Census is supposed to enumerate every person living in the U.S., regardless of whether they are a citizen or not. This is the Constitutional mandate of the Census. It’s used to determine boundaries for Congressional Districts and state legislative districts, as well as votes in the Electoral College (which, of course, elects the President). It’s also used every year to apportion $675 billion in federal funding for health care, schools, housing, and roads. Essentially every major U.S. institution uses Census data, from businesses analyzing markets to countless researchers analyzing demographics and driving policy decisions.

The 2010 Census was the most accurate one in history, but it over-counted white residents by almost 1% (e.g., people with more than one home) and under-counted Blacks by 2%, Hispanics by 1.5%, and Native Americans by 5% – failing to count 1.5 million residents of color. [1] The fairness and accuracy of the Census, as well as trust in it and its process, are essential elements of the core infrastructure of our democracy.

The undermining of an accurate count in the 2020 Census began in 2012 and has accelerated more recently. In 2012, Congress directed the Census Bureau, over the objections of the Obama White House, to spend less on the 2020 Census than it had on the 2010 Census, despite inflation and a population that was expected to grow by 25 million residents (about 8%). After Trump’s election in 2016, the Bureau’s budget was cut by another 10%, although some of that funding was just restored last month.

The Census Bureau’s Director resigned in June 2017 after Congressional budget cuts. The Deputy Director position was already vacant; however, the Trump administration has not yet nominated anyone to fill either of these posts. A rumored nominee was an academic without any Census experience who had supported racial and partisan gerrymandering of Congressional Districts. Meanwhile, the Trump administration has installed a “special adviser” at the Census Bureau who is from a partisan polling firm and who reports directly to the White House. These personnel issues undermine the Bureau’s ability to effectively run the 2020 Census.

Budget cuts have forced the Census Bureau to cancel crucial testing of the Census process. These tests are particularly important because for the first time the Census will be conducted primarily through on-line responses. Rather than mailing Census forms to every household, a postcard will be sent with instructions on how to fill out the on-line form. As in the past, Census workers, called enumerators, will visit households that don’t respond to the initial Census mailing to ensure the counting of those residents. Even though the initial response rate is likely to fall because of low-income or elders’ households that lack the technological capability to respond on-line, the number of enumerators has been cut by about 200,000, from 500,000 to 300,000. (Roughly a third of low-income households and a third of Black and Hispanic households lack Internet access and a computer.) The enumerators are also charged with finding and obtaining Census responses from residents who did not receive the mailing.

Budget cuts also forced the Census Bureau to cancel trial runs specifically designed to help it figure out how to reach hard-to-count populations. It also canceled two of three “dress rehearsals.” It has half as many field offices as it had in 2010. The development of the Bureau’s technology systems is behind schedule and the launch of its website is not scheduled until April 2020. Cybersecurity for the new on-line Census is a major concern as well. A group of 51 economists from across the country and across the political spectrum have written a letter to Congress supporting “robust funding of the 2020 Census sufficient to ensure a fair and accurate count of the U.S. population.” [2]

The budget cuts mean that the outreach and publicity the Census Bureau will do to encourage responding to the Census have been reduced substantially. Currently, the Bureau has only 40 employees working on outreach, compared with 120 at this point 10 years ago. States, cities, and private foundations are already working to fill this void, but they will be hard pressed to match the 2010 effort where the Census Bureau spent $340 million on promotional advertising.

As if these challenges to accurately counting every resident weren’t enough, the Trump administration recently announced its intention to add a question to the Census that would ask whether the respondent is a citizen. The Census Bureau was already concerned that the Trump administration’s anti-immigrant actions and rhetoric were going to make it harder to get an accurate count of immigrant residents, both documented and undocumented ones. A citizenship question will only exacerbate this challenge. Not only will non-citizens be less likely to respond to the Census, but citizens in the 16 million households with some undocumented members may refuse to respond out of fear of exposing their undocumented family members. [3]

The Trump administration says that getting citizenship data in the Census is necessary to enforce the Voting Rights Act and prevent discrimination against minorities. This claim would be laughable if its implications weren’t so serious. There hasn’t been a question on citizenship on the Census for 70 years. [4] Furthermore, the American Community Survey, which is done annually with a statistically accurate sample that consists of 3.5 million residents, does have a question on citizenship that provides the data needed to analyze issues where citizenship information is needed.

The opposition to adding a question on citizenship has been swift and broad. Six former Census Bureau Directors who served under both Republicans and Democrats wrote a letter in opposition. Two dozen states and cities have announced a lawsuit aimed at blocking the inclusion of this question. [5] Normally, adding a question to the Census is a careful process with testing to determine effects on response rate and other factors. In this case, there is no opportunity to test the effect of adding this question given that very limited field testing is being done and that it is already underway.

An under-count of immigrants and people of color would shift economic and political power to rural, white, conservative populations. These effects would last for at least the next 10 years until the 2030 Census. California estimates that each resident who is not counted will cost the state $1,900 in federal funding each year. It receives about $77 billion annually in federal funding and could lose about $2 billion each year for the next 10 years if its low-income and immigrant populations are significantly under-counted. This could also cost the state one or two seats in the House of Representatives and in the Electoral College.

A significant under-count in the 2020 Census would undermine the commitment of our democracy to treat each resident fairly. The Trump administration and the Republicans in Congress, by significantly under-funding the Census, by adding a question on citizenship, through their anti-immigrant actions and rhetoric, and by refusing to use more accurate statistical techniques, seem to be working hard to under-count hard-to-reach populations. Not surprisingly, these low-income, minority, young, and student populations are the same ones they are trying to keep from voting through ID requirements and other steps that make voting more difficult. They appear to be more than happy to undermine the 2020 Census and our democracy to achieve political goals.

The Census has an extraordinary reputation for counting all residents regardless of income, race, ethnicity, or immigrant status. Undermining confidence in the integrity of the Census by politicizing the process will erode trust that is essential to a functioning democracy. [6]

I urge you to contact your members of Congress and urge them to support adequate funding for the Census, to oppose a question on citizenship, and to strongly advocate for as accurate a count of all residents as is possible. You can find your US Representative’s name and contact information at: http://www.house.gov/representatives/find/. You can find your US Senators’ names and contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1] Berman, A., May/June 2018, “Hidden figures: How Donald Trump is rigging the Census,” Mother Jones (https://www.motherjones.com/politics/2018/03/donald-trump-rigging-2020-census-undercounting-minorities-1/#)

[2] Economic Policy Institute, 4/2/18, “An open letter from 51 economists to Congress urging robust funding of the 2020 Census” (https://www.epi.org/publication/an-open-letter-from-51-economists-to-congress-urging-robust-funding-of-the-2020-census/)

[3] Loth, R., 4/9/18, “Turning the apolitical Census into an anti-immigrant tool,” The Boston Globe

[4] Cerbin, C. M., 3/27/18, “Citizenship question to be put back on the 2020 Census for first time in 70 years,” USA Today

[5] Kamp, J., & Adamy, J., 4/13/18, “Citizenship question rankles in trial run of 2020 Census,” Wall Street Journal

[6] Wines, M., 12/9/17, “With 2020 Census looming, worries about fairness and accuracy,” The New York Times

ICE IS ENGAGING IN TERRORISM

Terrorism is defined as the unlawful use or threat of violence or intimidation, especially against civilians, in the pursuit of political aims. The Immigration and Customs Enforcement (ICE) agency is using tactics that fit the definition of terrorism.

ICE agents are making arrests that are designed to create fear among immigrants, including legal immigrants, and to intimidate and traumatize them. For example, ICE agents are arresting immigrants at hearings where they are applying for legal status, at courthouses where immigrants are engaged with our criminal justice system, near schools, and even in hospitals.

ICE’s practice of separating children and parents is designed to instill fear and anxiety in parents. [1] It also traumatizes children, who are likely to have already been traumatized by the experiences that have led their parents to flee their home countries.

For parents seeking asylum, separating children from parents clearly violates US and international laws on the treatment of asylum-seekers. (See my previous post for examples.) For others, suits have been filed to have this practice declared illegal because it fails to provide due process for parents and children, and constitutes cruel and unusual punishment, among other things.

The resultant fear and intimidation are causing immigrant parents to avoid enrolling children in school or preschool programs (such as Head Start) and to avoid public programs that provide access to health care and healthy nutrition, including for pregnant women and infants.

In Massachusetts, ICE’s actions have inhibited immigrants’ participation in our criminal justice system, as victims, witnesses, and defendants. Arrests by ICE at courthouses and ICE’s treatment of immigrants in their custody have intimidated immigrants and prevented them from exercising their constitutional rights. As a result, victims are afraid to appear in court to seek relief or protection, and witnesses are reluctant to testify. [2]

Two lawsuits have been filed asking the Massachusetts Supreme Judicial Court to bar ICE from making arrests in or near courthouses. Such arrests are happening on a weekly basis and have occurred at 24 courthouses around the state.

Furthermore, ICE has refused, even when ordered by a state judge, to bring immigrants in its custody to criminal proceedings where they are a defendant, a clear violation of a defendant’s rights. Because of ICE’s refusal to transport immigrants in its custody to court hearings or to meet court-ordered obligations, these immigrants have been denied access to our justice system, have been put in violation of their terms of probation, and have failed to receive court-ordered drug and mental health treatment.

These actions by ICE fit the definition of terrorism: the unlawful use or threat of violence or intimidation, especially against civilians, in the pursuit of political aims.

ICE’s actions are clearly unlawful,
Its actions and the threat of them clearly intimidate civilians, and
The reason the Trump Administration is engaging in these actions is clearly the pursuit of political aims – to win the political support of a certain segment of the population and to meet campaign promises – because these actions don’t achieve meaningful policy goals in any significant or effective way.

[1] Hing, J., 3/15/18, “For Trump, cruelty is the point,” The Nation (https://www.thenation.com/article/for-trump-cruelty-is-the-point/)

[2] Johnson, A., 3/16/18, “ICE arrests at courts decried,” The Boston Globe