The last year was a befuddling one for the U.S. economy. The stock market reached record highs, and billionaires saw their wealth grow exponentially. At the same time, record numbers of Americans lost their jobs and large sectors of the economy ground to a virtual standstill. The New York Times’ Neil Irwin and Weiyi Cai attempt to explain this discrepancy by looking at a couple of key data points: the fact that overall salaries and wages fell by a lot less (0.6%) than the total number of jobs (6.1%) from March through November.
So how can the number of jobs be down 6 percent but employee compensation be down only 0.5 percent? It has to do with which jobs have been lost. The millions of people no longer working because of the pandemic were disproportionately in lower-paying service jobs. Higher-paying professional jobs were more likely to be unaffected, and a handful of other sectors have been booming, such as warehousing and grocery stores, leading to higher incomes for those workers. The arithmetic is as simple as it is disorienting. If a corporate executive gets a $100,000 bonus for steering a company through a difficult year, while four $25,000-per-year restaurant workers lose their jobs entirely, the net effect on total compensation is zero — even though in human terms a great deal of pain has been incurred.
The CARES Act’s unprecedented infusion of cash into the economy also helped cushion the pandemic’s blow to the economy as a whole by providing expanded unemployment benefits and stimulus checks that allowed consumers to keep spending. But as Axios’ Jennifer A. Kingston reports, those extra unemployment benefits will count as taxable income, which means many low-income Americans can expect much smaller tax refunds this spring than they normally would receive.
The big picture: Even if tax authorities are lenient with their rules because of the pandemic, the fact remains that huge numbers of Americans of all income levels are going to miss out on the tax refunds they typically use to pay bills (including medical ones) or build their nest eggs. “Tax season is usually the largest infusion of cash that low-income families will get in a year,” says Leigh Phillips, president and CEO of SaverLife, a nonprofit that encourages low-income people to build up reserves.
Remembering Vic Stelly
Former state Rep. Vic Stelly of Lake Charles died on the day after Christmas. A football coach and insurance agent, Stelly left what should have been a lasting imprint on Louisiana’s tax structure when he authored the famous tax plan that bore his name. Under the Stelly Plan, which voters approved in 2002, income taxes rose slightly for middle-and upper-income taxpayers, while the state sales tax on groceries, prescription drugs and home utilities was permanently repealed. But what the voters granted, the Legislature quickly took away. Nola.com | The Baton Rouge Advocate’s Mark Ballard looks back at what might have been if Govs. Kathleen Blanco and Bobby Jindal had shown more foresight:
Louisiana’s finances floundered for a decade, probably injured Jindal’s bid for the presidency, haunting budget architects to this day. “If we had not cut the taxes, we would have had a much easier road, and not had to make the same budget cuts as far as higher education,” said LSU economist Jim Richardson, who served for years on the Revenue Estimating Conference, which officially certifies how much revenues state government has available to spend. “We have never caught back up,” Richardson said. “It was self-inflicted,” said Greg Albrecht, the Legislature’s economist who provided the numbers and forecasts Stelly used in hammering out his plan. “Besides all the Jindal tax credit craze we went on, we permanently reduced the personal income tax base, which always had been a very large share of our general fund revenues, 25%-30%.”
A downpayment on economic relief
Outgoing President Donald Trump provided some holiday drama by waffling for days over whether to sign the $900 billion coronavirus relief bills that Congress approved before Christmas. He finally capitulated on Dec. 27, which was good news for millions of struggling Americans. The final bill gives people receiving unemployment insurance an extra $300 per week for 10 weeks, provides a 15% increase in food assistance benefits through SNAP and offers child-care providers, public schools and colleges much-needed financial relief. The New York Times’ Zach Montague breaks down what’s in the bill, while the National Conference of State Legislatures has a more detailed analysis. Incoming President Joe Biden, meanwhile, said the bill represents a “down payment” and that more help is needed:
Mr. Biden said he planned to ask Congress to pass another bill that would include more funding to help firefighters, police officers and nurses. He said that his bill would include a new round of stimulus checks to Americans, but that the amount of money they contained would be a matter of negotiation. His focus, he said, was to have the money necessary to distribute vaccines to 300 million people, to support Americans who have lost jobs because of the coronavirus pandemic and to help businesses stay open.
First, do no harm
The federal CARES Act contained economic relief for millions of Americans through expanded unemployment benefits, grants to businesses and stimulus checks to families. But it also included a slew of new tax breaks for corporations – some of which also will translate to revenue reductions at the state level because their tax laws are tied to the federal government’s. The Center on Budget and Policy Priorities’ Michael Mazerov explains why states should “decouple” their tax codes from the CARES Act to preserve their revenue base.
Some of these tax breaks have questionable merit at the federal level and make even less sense for states, which must balance their budgets each year — an extremely challenging task given their sharp revenue declines since the pandemic hit. States will need to increase tax revenues during the next several years to minimize cuts in education, health care, child care, infrastructure, and other critical services, which would disproportionately harm low-income people and people of color. Their immediate priority must be to preserve existing revenue sources by avoiding unnecessary and unwarranted tax cuts.
LBP is hiring!
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Number of the Day
$1.56 trillion – Increase in American personal savings from March through November, compared to the same period in 2019. Overall personal income rose during the pandemic while spending on goods and services decreased. (Source: Bureau of Economic Analysis via The New York Times)