Friday, October 16, 2015

Friday, October 16, 2015

Amendment 1 misses the mark; Higher minimum wage would reduce poverty, not jobs; Tax bracket math; and Audience members needed for LPB broadcast

 

Amendment 1 misses the mark

Of the four proposed constitutional amendments on the October statewide ballot, none are more consequential than Amendment 1. The goal of the amendment is laudable: to direct more money to Louisiana’s chronic backlog of transportation needs. Unfortunately, it would do so by weakening the state’s rainy-day savings account, which would hurt the state’s ability to react to financial downturn.  As LBP senior policy analyst Steve Spires explains in a new commentary, voters should reject this amendment.

 

The Rainy Day Fund (formally known as the Budget Stabilization Fund) is an emergency fund that the Legislature can tap when the state is facing a temporary revenue shortfall to avoid deep cuts to critical services like higher education, public safety and health care. As the Public Affairs Research Council notes, ratings agencies consider the strength of a state’s rainy day fund when assessing its overall financial health and stability. That means weakening the fund could lead to lower bond ratings, which, ironically, could raise the state’s cost of borrowing money for things like transportation projects.

 

Amendment 1 would lower the cap on the rainy-day fund, leaving less money available to plug holes in the budget. And the cap would no longer be allowed to grow with inflation, so the fund would lose its purchasing power over time. The editorial boards of the Advocate and the Times-Picayune, as well as the Council for a Better Louisiana (CABL), have all come out against the amendment for similar reasons.

 

Higher minimum wage would reduce poverty, not jobs

The four major candidates for governor were asked at a debate on Thursday night whether they would support raising the minimum wage. Only John Bel Edwards said yes, while Scott Angelle, Jay Dardenne and David Vitter said no. All three cited concerns about a higher wage leading to job losses. There is just one problem. As Alan Kreuger writes in the New York Times, experience proves that raising the minimum wage by a modest amount doesn’t actually lead to job loss, even as it helps the lowest-paid workers:

 

More than half of the states, representing 60 percent of the United States population, now have minimum wages that exceed the federal level. The fact that voters in four “red” states — Alaska, Arkansas, Nebraska and South Dakota — voted overwhelmingly last year to raise their states’ minimum wages to as high as $9.75 an hour is a testament to the support the minimum wage enjoys among the population at large…When I started studying the minimum wage 25 years ago, like most economists at that time I expected that the wage floor reduced employment for some groups of workers. But research that I and others have conducted convinced me that if the minimum wage is set at a moderate level it does not necessarily reduce employment. While some employers cut jobs in response to a minimum-wage increase, others find that a higher wage floor enables them to fill their vacancies and reduce turnover, which raises employment, even though it eats into their profits. The net effect of all this, as has been found in most studies of the minimum wage over the last quarter-century, is that when it is set at a moderate level, the minimum wage has little or no effect on employment.

 

In other words: The claim that a modest hike in the minimum wage would kill jobs is not backed up by actual facts. But raising the minimum wage would provide a raise for hundreds of thousands of Louisiana workers who need one – many of whom are working full-time and have children to support. Investing in education may be the key to reducing poverty for the next generation, but if the next governor wants to have an impact during his term, a higher minimum wage has to be a part of the discussion.

 

Tax bracket math
We all know the United States has a progressive income tax system. But do you know how many people fall into each of the seven tax brackets? The Tax Foundation does:

 

…over 42 million American households fall into the 15% bracket, making it the most common tax bracket. Households in this bracket pay 15 cents of each additional dollar of salary they earn in income taxes; however, their overall income tax rate is usually much lower. On average, households in the 15% bracket pay 6.5% of their income in income taxes, due to the standard deduction, personal exemptions, and various tax credits. Next most common is for a household not to fall into any income tax bracket at all. This occurs when a household’s income is less than the value of the deductions and personal exemptions it is able to claim…

 

All in all, the majority of American households (77%) fall into the 15% tax bracket or below. Only 892,420 households fall into the top income tax bracket. These households face a rate of 39.6% on their ordinary income, although they face lower rates on income from long-term capital gains and dividends. Overall, these households face an average effective tax rate of 28.5%, higher than households in any other bracket.

 

When politicians debate taxes, much of the focus is often on the top marginal rate paid by the highest earners on each additional dollar in income. But according to the Tax Foundation, only 0.006 percent of households fall in the top bracket. Keep that in mind next time you hear discussion turn to the need to cut top marginal rates to give taxpayers “relief.”

 

Audience members needed for LPB broadcast
Louisiana Public Broadcasting needs your help. This month’s episode of LPB’s public affairs show,  “Louisiana Public Square” will focus on early childhood education. Titled “Funding the Future: Early Childhood Opportunities,” the show will be taped before a live audience on Tuesday, Oct. 20th at the New Orleans Center for Creative Arts (NOCCA). The public is invited to attend and will have the opportunity to ask questions. Doors open at 6 and the one-hour show starts taping at 7. The event is free. Click here to register. The show airs Oct. 21st at 7 pm on LPB stations around the state.

 

Number of the Day
60 percent – Share of the U.S. population that lives in a state with a minimum wage higher than $7.25 an hour (Source: New York Times)