NDN Blog

What Hillary's Campaign Missed

Last week’s election should be dubbed the revenge of the neglected. The outcome would have been different if Hillary’s strategists had taken to heart James Carville’s famous quip in 1992, “It’s the economy, stupid.” I remember it well, because I pulled together Bill Clinton’s economic program for the 1992 campaign. Of course, today’s economic problems are different from those of a quarter-century ago. But the political manifestation is virtually the same – tens of millions of Americans justifiably dissatisfied with their economic conditions and prospects.

As regular readers of this blog know, I’ve spent several years tracking what’s happened to the incomes of Americans of different ages, races and ethnicities, educational levels and gender, as they grew older. The Brookings Institution published the first results in 2015 covering the period 1980 to 2012. I sent that report to Hillary and Bill Clinton and as many of those who worked for them as I knew. The results refuted the left’s claims that incomes of average Americans have stagnated for two generations – across every category, median household incomes rose at healthy rates, year after year, through the presidencies of both Bill Clinton and Ronald Reagan.

But the results also showed tectonic income changes from 2001 to 2012 as this steady income progress ended. Hillary was particularly struck by the study’s darkest finding: The median income of households headed by people without college degrees -- which covers nearly two-thirds of all U.S. households – fell as their household heads aged from 2001 to 2012. This unprecedented development, of tens of millions of families losing income as they aged from their thirties to their forties, or from their forties to their fifties, held across race, ethnicity and gender, and for all age groups except millennials.

For example, the real median income of households headed by high school graduates ages 35-to-39 in 2001 fell from $54,862 in 2001 to $49,800 in 2012. (All income data here are in 2012 dollars.) So, these Gen Xers earned $5,062 less at ages 46-to-50 in 2012 than they did when they were 35-to-39 years old in 2001. Their counterparts a decade earlier – households headed by high school graduates ages 35-to-39 in 1991 – saw their real median incomes rise from $51,645 in 1991 to $63,614 in 2000, for gains of nearly $12,000 (about 20 percent) as they aged from their later-thirties to their later-forties.

Baby boomer households headed by high school graduates who were 45-to-49 years old in 2001 suffered even larger income losses than the Gen Xers: From 2001 to 2012, their real median income slumped from $63,534 to $51,002, falling $12,532 or some 20 percent as they aged from their later-forties to their later-fifties.

Households headed by college graduates didn’t lose income as they aged over the following 11 years, but only barely so. The median income of those households headed by people ages 35-to-39 in 2001 inched up from $97,470 in 2001 to $100,771 in 2007, and then fell back to $98,845 in 2012, when they were 45-to-49 years old. Compare that to the 1990s, when households headed by college graduates ages 35-to-39 in 1991 saw their median income rise from $81,742 in 1991 to $106,454 in 2000, gains of $24,712 or about 30 percent

I calculated that about half of all working-age households lost substantial ground as they aged through the 11 years from 2001 to 2012, and another quarter of Americans treaded water. This was an economic turn the United States has never seen before. It gave meaning to Donald Trump and Bernie Sanders’ claims that the economy is rigged, and it bred the broad anger that ignited their campaigns.

Hillary’s campaign didn’t ignore these developments. But her strategists, intent on reprising President’s Obama winning coalition, focused instead on the special problems of young, minority, and female voters. The campaign offered the Hispanic community a new path to citizenship for undocumented workers, and promised pay equity for women. It called for larger Earned Income Tax Credit checks for working-poor families, and debt relief for recent college graduates. All of these initiatives have merit. But none of them directly addressed or even acknowledged the structural forces squeezing out income gains for much of the country.

Hillary pressed me to explain the long income slump. I told her the truth: These income problems did not bubble up from the trade deals of the 1990s and the offshoring of manufacturing jobs, which happened mainly in the 1970s and 1980s. The fault lay mainly in forces much harder to demonize, namely technological advances and the way globalization and the Internet affect how companies price their goods and services.

Americans love the entertainment and social networks fostered by information technologies and the Internet. But these technologies also restructured the operations of virtually every office, factory and storefront. As that happened, anyone without the skills and confidence to work effectively in an IT-dense workplace saw his or her “labor value” erode and wages fall. College graduates avoided the worst of the income slump, because virtually everyone who earned a bachelor’s degree in the last 15 years is IT literate.

The other major culprits for the recent income squeeze are the Internet and, yes, globalization. Again, manufacturing job losses are not the heart of it. Rather, the Internet and globalization both intensify pricing competition, and businesses facing those strong competitive pressures often find themselves unable to pass along rising costs in higher prices. So, as energy and employer healthcare costs rose sharply, especially from 2000 to 2008, many U.S. companies were forced to cut other costs. The data show that those cuts started with jobs and wages.

All of these downward forces took hold throughout the 2002-2007 expansion, and the financial crisis and deep recession that followed only amplified them.

The data also show that conditions shifted again in 2013, when energy prices collapsed, Obamacare started to slow employer healthcare premium increases and, with wages and salaries depressed, hiring became an attractive proposition again for companies. The latest data show that incomes have been rising since 2013 across virtually every group. For my friend Hillary, it was too little, too late: A few years of modest income progress have not offset a decade of painful losses.

Now Trump’s success as president will depend on sustaining those income gains for four more years. As I’ve said here before, the economy needs a good dose of stimulus, and Trump’s deficit-defying tax cuts should jump-start growth in late-2017 and 2018. But his tax plans are so excessive economically, they could set the Federal Reserve on a course of multiple interest rate increases that slow growth by 2019. Beyond that, the economic challenge that Hillary also would have faced is that income progress ultimately requires healthy productivity gains, but productivity growth have slowed dramatically for few years now. If Trump and the GOP Congress fail to nudge up productivity, they could face their own populist revolt in 2020.

This post was originally published on Dr. Shapiro's blog. 

Obama’s Expansion Is Finally Paying Off

There’s no debate that the tough economic times of the last decade have helped frame the 2016 elections. In fact, many Americans are so accustomed to seeing the world through their experience of tough times, that it’s hard to recognize when conditions have changed.

Yet, here’s one sign that times are different: American businesses have created almost 9.2 million net new jobs since January 2013, recalling the job creation rates of the 1980s and 1990s. More important, our analysis of the latest Census Bureau data shows that over the three year period from 2013 through 2015, the incomes of most American households grew again, and at rates that matched or exceeded the average for the 1980s and 1990s.

Last month, the Census Bureau reported that the aggregate median income for all U.S. households grew 5.2 percent in 2015, the first such increase since 2007. But as regular readers of this blog know, we apply a statistical approach that digs much deeper into the data. This approach allows us to capture the income experience of typical households of various kinds, by tracking their incomes as they age.

To see if and when economic conditions did truly change, we started by tracking the income path of millennial households, headed by people ages 25 to 29 in 2009, from 2009 to 2015. Over those same years, we also tracked the income path of Generation X households, headed by those ages 35 to 39 in 2009; and the income path of late boomer households headed by those ages 45 to 49 in 2009.

This analysis found, as expected, that times were tough for most Americans from 2009 through 2012. For example, the median income of the Gen X households was flat over those years, and the late boomer households absorbed income losses averaging 1.1 percent per year. The only households with rising incomes from 2009 to 2012 were the millennials, and their gains were a fraction of those achieved by households of comparable ages in the 1980s and 1990s. (Table 1, below)

Our analysis also showed that most people’s income paths shifted starting in 2013. Compared to the preceding three years, the income gains by the Gen X households went from zero to 2.9 percent per year; and the late boomer households, whose median income fell 1.1 percent per year from 2009 to 2012, saw gains of 1.4 percent per year from 2013 through 2015. Finally, the median income of the millennial households jumped from 2.7 percent per year to 4.6 percent per year. Also, it’s worth noting that the largest income gains for all three age cohorts came in 2015.

Table 1. Average Annual Household Income Gains by Age Cohort,
As They Aged from 2009 to 2015

This analysis also shows that most Americans, finally, are better off than when President Obama took office. The median income of millennial households, in 2015 dollars, rose from $50,875 in 2009 to $63,010 in 2015, as they aged from 25 to 29 years-old, to 30 to 35. Similarly, the median income of Generation X household who were 35 to 39 in 2009 grew from $66,287 in 2009 to $72,028 in 2015. Even the late boomers who were 45 to 49 in 2009 managed small gains, edging up from $70,706 in 2009 to $71,300 in 2015.

We can also compare this record with other recent presidents, using my analysis published by the Brookings Institution last year. In that report, I tracked the income progress by comparable age cohorts during the presidencies of Ronald Reagan, George H.W. Bush, Bill Clinton, and George W. Bush — that is, gains in median income by households headed by people ages 25 to 29, 35 to 39, and 45 to 49 in the first year of each of those president’s terms. Since no president should be held responsible for the economy’s performance in his first year in office, we tracked the income gains of each age cohort from year two of each presidency through year one of his successor’s term.

Using this framework, it’s clear that most American households made more income progress under Obama than households of comparable ages under George W. Bush or his father, George H.W. Bush. (See Table 2, below.) Moreover, the income gains of 2013 through 2015, like the job growth of the same years, suggest that the U.S. economy is still capable of producing a robust expansion, at least for a few years. The data show, in Table 2 below, that incomes grew at a faster annual rate over the last three years than they did on average over the eight years of Reagan’s presidency for all three age cohorts, and faster than they did on average over the eight years of Clinton’s presidency for two of the three age cohorts.

Table 2. Average Annual Median Income Gains by Households Headed by People Ages 25 to 29, 35 to 39 and 45 to 49 as They Age through Each Presidency

Of course, it’s not truly a fair comparison politically, since Clinton and Reagan delivered strong income gains over their entire terms, while Obama has done so for only three years. But especially after the meager income progress of the 2002–2007 expansion, the data show that the U.S. economy can still deliver robust income growth for almost everyone.

So, the challenge facing the next president is to sustain this recent income progress, in large part by reversing our recent record of faltering productivity.

This post was originally published on Dr. Shapiro's blog. 

On Economic Growth, Hillary Delivers and Trump Pretends

To prepare for tonight’s debate, I decided to think through Donald Trump’s promise to deliver 4% annual economic growth. First off, if this is Trump’s goal, then his program is as much a fraud as his foundation or university. If anything, his proposals would slow our already modest growth. To be sure, no one has a silver bullet to raise the economy’s underlying growth rate. But that doesn’t mean we’re helpless, and Hillary Clinton’s program will almost certainly raise that growth rate.

Four percent growth is not unprecedented. Under JFK and LBJ, the economy grew an average of 5.2% per year; and Bill Clinton produced 3.8 % average growth over eight years, including five years of 4% growth or more. But they were exceptions: Ronald Reagan and Jimmy Carter each managed 3.4% average annual growth; George H. W. Bush and Barack Obama each achieved 2% annual growth, and George W. Bush eked out just 1.6% annual growth. Moreover, the Federal Reserve forecasts that the U.S. economy will continue to grow an average of 2% annually for the next decade. This forecast and the record under Obama and Bush II all suggest that strong headwinds are hampering America’s economic growth.

By the arithmetic, economic growth measures how much more goods and services the economy has produced in one year, compared to the preceding year. That tells us that two key factors for higher growth are how many more people have jobs producing goods and services, and how productive, on average, everyone is producing those goods and services. By the arithmetic, strong growth rests substantially on increasing the number of people with jobs and the productivity of the entire workforce.

One reason for the disappointing growth of the last 15 years is that the number of net new workers each year slowed sharply. For that, blame the decline in U.S. fertility rates that began 20 years ago, rising rates of retirement by aging baby boomers, the slowdown in immigration sparked by the Great Recession, and steady erosion in the labor participation rate (LPR). All told, the Bureau of Labor Statistics reports that the U.S. workforce is now growing .5% per year, down from 1.25% per year under Bill Clinton.

So, which candidate has proposed anything that would expand the number of Americans working? Both agree on spending more on infrastructure, but that will have modest effects on long-term growth. Beyond that, one striking feature of Trump’s immigration, healthcare and other proposals is their secondary effect of shrinking the number of people working in the U.S. economy.

To begin, Trump’s signature pledge to deport 8 to 11 million immigrants would reduce the workforce directly, for those caught and deported; and indirectly, by forcing millions to take cover outside the mainstream economy. Similarly, his promise to repeal Obamacare would increase the time that millions of Americans have to spend out of work for health reasons.

Nor should anyone believe that his $4.4 trillion to $5.7 trillion in tax cuts will somehow induce more people to work — that particular supply-side hokum is refuted by the rising labor participation rate (LPR) after Bill Clinton raised taxes, and the falling LPR after Bush II cut taxes.

By happy contrast, much of Hillary Clinton’s program would have secondary effects that increase the number of people in the labor force and working. Her path to legalization for immigrants will allow an additional eight million adult immigrants to participate fully and openly across the economy. Her plans to broadly expand access to child care and provide universal pre-K education would enable millions of parents to reenter the workforce or move from part-time to full-time jobs.

Moving along, her pledge to achieve universal healthcare coverage, once fulfilled, will lessen the number of people forced to stay home or even give up their jobs for health reasons. Her commitment to pay equity, once met, will encourage more women to enter the workforce or to increase their hours at work, as should her pledge to expand employment for 53 million American adults with disabilities. Finally, Hillary’s plans for expanding access to higher education will raise the labor participation rate, because that rate tends to rise with education.

The arithmetic of growth also depends on how fast productivity increases – and progress in productivity, which grew 2.8% per year in the later 1990s, has collapsed: From 2011 to 2015, productivity increased just 6% per year; and over the first half of this year, productivity actually fell at a rate of .6% per-year.

Three factors are mainly responsible. First, business investment in equipment and other technologies has slumped. In addition, the gap between the skills many workers have and the skills they need has widened. Finally, it appears that the development and use of new technologies, processes, and ways of organizing and running businesses — in a word, innovation — has slowed.

Here, too, Trump offers nothing. His huge tax cuts would balloon federal deficits, and so raise the cost for business borrowing to invest in new equipment and technologies. Trump also offers nothing to help workers improve their skills, and nothing to stimulate innovation and the broad use of new technologies.

By contrast again, Hillary’s agenda would actively promote progress in productivity. Her plans for tuition-free access to higher education will expand the skills of millions of young people, and her blueprint to reduce budget deficits will ensure that federal borrowing does not raise the cost for business borrowing to invest. Hillary also supports innovation by calling for expanded federal investments in basic R&D and promoting more public-private collaborations to commercialize that R&D. And since innovations often come from young enterprises, her program to expand bank lending for such companies is also well suited to promote innovation.

On economic growth, as on many other issues that will shape America over the next decade, Hillary delivers while Trump blusters.

This post was originally published on Dr. Shapiro's blog. 

The Economic Outlook for the Election and Beyond, and How Who Wins Could Change It

With nine weeks to go, the economic conditions for the election are set — modest growth, low inflation, and continuing job gains. A few Wall Street forecasters rate the odds of a 2016 recession at one-in-three; but unless a major shock wrenches the economy off its present course, bet with Janet Yellen and Ben Bernanke on the economic expansion continuing into next year.

The tougher question is what economic conditions will confront the new president and the rest of us in 2017 and 2018? Since the fourth quarter of 2015, the economy has grown at an annual rate of less than one percent, and business investment has declined at a three percent annual pace.

Consumer spending and home sales could lift growth and investment next year, if the healthy income growth of the last three years continues. But much of those income gains come from the unusually strong job growth of those years; and with unemployment now below five percent, job creation almost certainly will moderate soon.

If jobs gains lessen next year, healthy income gains will depend on a turnaround in the economy’s disappointing productivity record. A modern economy cannot stay strong indefinitely without strong productivity growth to fuel incomes, demand, profits, and investment. Its recent record explains our slow growth: Productivity gains averaged just .6 percent per year from 2011 to 2015, and even those small gains turned negative in the first half of 2016.

This represents a major change: Productivity increased at an average rate of 2.8 percent per year through Bill Clinton’s second term and remained strong at 2.6 percent per year from 2001 to the financial collapse in 2008. Moreover, it recovered quickly in 2009 and 2010, reaching 3.2 percent per year. Unless productivity recovers again in 2017, wages and incomes could stall and the economy could stagnate in the next President’s first or second year in office.

Yet, the economic debate this year has mainly focused on overall growth rather than productivity. Most economists — Ben Bernanke, Paul Krugman, Larry Summers and Kenneth Rogoff, among others — pin the slowdown in GDP growth on higher savings and the associated weaker spending. So, most economists have called for renewed fiscal stimulus here and for much of the world. They’re right; but the outlook for incomes and investment would be more encouraging if the fiscal stimulus focuses on recent meager, or even negative, productivity gains — and their impact on growth.

Americans are in luck — assuming the pollsters are right that Hillary Rodham Clinton will vanquish Donald Trump. While Clinton has not offered an explicit program to boost productivity, her economic and social policy proposals include the three essential elements of such a program. First, improve overall market conditions for all industries; second, promote innovation through the development and broad use of new technologies, materials, and ways of doing business; and third, give workers access to the skills they need to operate effectively in a more innovative economy.

The big play to improve the efficiency of all U.S. industries and businesses is Clinton’s commitment to expand public investments in infrastructure by $275 billion over five years. Unsurprisingly for Hillary, her program covers every conceivable form of infrastructure. There are new investments not only for roads, bridges, public transit, rail freight, airports, seaports, waterways, dams, and wastewater systems.

Her proposals also cover 21st century infrastructure networks, including a smart electric grid, advanced oil and gas pipeline systems, and universal access to 5G broadband and Next Generation wireless. Since virtually every enterprise and employee depends on these systems every day, her proposals should enable most firms and workers to carry out their business more efficiently.

As stimulus, these infrastructure improvements amount to $55 billion per year, or just three-tenths of one percent of GDP. Fortunately, Clinton’s program includes other measures that also should bolster productivity. To promote innovation, she pledges to scale up federal investments in basic research and development through the NSF, the NIH, the Energy Department and DARPA, across areas from high performance computing and green energy, to machine learning and genomics.

Always a pragmatist, Clinton also has plans to promote the commercialization of advances in R&D through grants for private accelerators and reforms to expand access to capital by the young businesses that play a prominent role in innovation.

Finally, Clinton has a serious program to help Americans upgrade their skills. Computer science training would be available for all high school students, and foreign-born students who complete a U.S. masters or Ph.D. degree in a STEM field would automatically receive green cards to stay and work in the United States.

However, the cornerstone is tuition-free access to public colleges and universities for all young people from families earning $125,000 or less, and tuition-free access to community colleges for anyone. To complete her productivity agenda, Clinton should expand her community college program and give all working adults the real ability to improve their skills, through no-cost access to two training courses per year at community colleges.

From the other side, Trump offers virtually nothing. He says that he, too, would increase federal spending on infrastructure. But his tax promises would balloon federal deficits by upwards of $700 billion per year, leaving no room to upgrade infrastructure, much less promote basic R&D or expand access to higher education and worker training.

His massive deficits also would crowd out business investments in new technologies and new enterprises. Trump’s program, in short, would virtually guarantee that the American economy stagnates, or worse.

This post was originally published on Dr. Shapiro's blog.

Sorry, Donald – The Incomes of Minority Households Grow More under Democrats than under Republicans

Donald Trump says that Democrats have failed American minorities, so let’s test his claim by the most basic economic criteria: What happened to the incomes of African Americans and Hispanics under Democratic and Republican administrations over the last 35 years? The data do not lie. The incomes of minority households — and in most cases the incomes of white households, too — grow faster under Democratic administrations than under GOP ones.

Under the last five presidents, African-American and Hispanic households made greater income gains under Bill Clinton than under Ronald Reagan, and more progress under Barack Obama than under George W. Bush despite the financial collapse and deep recession that began under W. Minority incomes also grew much faster under Obama and Clinton — and Reagan — than during George H.W. Bush’s single term.

These conclusions are not based simply on aggregate median income figures for each race and ethnicity. Instead, we use Census Bureau data to plot the real income paths of white and minority households headed by people ages 25 to 29 and ages 35 to 39, as they age through each administration. In this way, we capture the actual income experience of these households. Finally, we start our analysis of each president’s record in year two of his term, because the economic conditions in a president’s first year in office are largely set by the policies of his predecessor. Here are the results.

chart4

We can see, first, that income growth by young African American households, headed by people ages 25 to 29 averaged a remarkable 7.3% per year as they aged under Clinton, compared to 3.8% under Reagan. The incomes of comparable households also grew, on average, 2.9% per year under Obama (2010-2014), compared to growth of 1.8% per year under Bush 2, and income declines averaging 2.5% per year under Bush 1.

Somewhat older African-American households, headed by people ages 35 to 39 at the beginning of each administration, had income gains averaging 4.2% per year under Clinton, compared to 3.3% per year under Reagan. Comparable households saw incomes growth averaging .9% per year under Obama, compared to income declines of .7% per year under Bush 2 and of 2.6% per year under Bush 1.

The same general pattern holds for Hispanics. Young Hispanic households achieved income gains averaging 4.2% per year under Clinton, compared to 1.6% per year under Reagan. Under Obama, the incomes of comparable households grew an average of 1.3% per year under Obama, compared to .7% per year under Bush 1 and zero gains under Bush 2.

Further, the incomes of somewhat older Hispanic households rose at an average rate of 3.1% per year under Clinton, compared to 2.2% per year under Reagan. Comparable households registered income gains averaging 1.5% per year under Obama, compared to 0.3% under Bush 2 and income declines of 1.1% per year under Bush 1.

The pattern of income progress by white households is similar, but not quite the same. Households headed by young whites made more income progress under Clinton, with gains averaging 5.2% per year, than under Reagan when their gains averaged 4% per year. But the income growth of somewhat older white households under Clinton, averaging 2.9% per year, was matched by the gains of comparable households under Reagan.

Young white households also have fared better during Obama’s time in office, with income growth averaging 3.3% per year, than during the administrations of Bush 2 when their gains averaged 2.3% per year or his father, Bush 1 at 2.6% per year. And while the income progress of somewhat older white households under Obama, averaging 0.4% per year, is greater than the 0.1% per year gains by comparable households under Bush 2, Bush 1 outpaced both of them with gains by comparable households averaging 1.5% per year.

The stronger income progress under Democrats by minorities in particular reflects a number of forces and factors, but job creation is paramount. Job growth was much stronger under Clinton and Obama — and Reagan — than under either Bush administration; and minorities benefit most when the jobless rate falls sharply, especially when the economy nears full employment.

Given this record, it is unsurprising that only small percentages of African Americans and Hispanic Americans have favored recent GOP presidential candidates. Trump’s racially and ethnically charged rhetoric will likely drive his support from minorities to record low levels. But the difference in their support for Trump, as compared to Romney or McCain, will likely be pretty modest. In the final analysis, minority Americans usually vote their economic interest, much like most of the rest of the country; and the record of the last 35 years tells them that they will be better off under a Democratic administration than a Republican one.

This post was originally published on Dr. Shapiro's blog. 

Rising Incomes Are a Key to Winning in 2016 — But Not Enough

Even if we accept that the 2016 campaign is a fact-free zone, what precisely are Donald Trump and Bernie Sanders talking about when they rant about incomes cratering for most Americans? It’s true, as I’ve documented, that a majority of Americans saw their incomes stagnate or decline throughout the Bush expansion (2002-2007), and the financial crisis and ensuing recession aggravated those losses. But that dynamic ended more than three years ago. Since 2013, the household incomes of most Americans have risen steadily and substantially.

The only candidate who seems to get this is Hillary Clinton, judging by her pledge to preserve and extend the economic gains achieved under President Obama. But Trump and Sander’s appeal should tell us that politically, those gains are not enough, and that a wining economic platform for this year’s election has to address the whole picture of the last 15 years. Yes, voters want measures to ensure that their recent progress will continue, a challenge Clinton has met better than her Democratic rival or Republican opponent. They also want a credible pledge that they will never have to endure another housing collapse or muddle through an expansion that leaves them on the sidelines.

Nevertheless, there's no doubt that most Americans are doing much better than they did four or eight years ago. Last month, the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2015” found that nearly 70 percent of Americans say they’re “doing okay” or “living comfortably,” versus 18.5 percent who say they’re “worse off.” Behind those positive views, the Bureau of Economic Analysis reports that Americans’ real personal income grew 1.9 percent from February to December 2013, followed by 3.0 percent gains in 2014 and another 4.0 percent gains in 2015.

To be sure, aggregate economic data does not always capture most people’s real experience. To track people’s actual experience, I sorted and collated the Census Bureau data on household incomes from 2009 to 2014. I focused on the incomes of American households headed by people who in 2009 were 25-to-29 years old (millennials), 35-to-39 year sold (Generation X), and 45-to-49 years old (late baby boomers). I tracked their incomes as they aged from 2009 to 2014, and analyzed the results by gender, race or ethnicity, and education.

The results show that most Americans saw their incomes continue to stagnate or decline from 2009 to 2012, with the exception of millennials. For economic and statistical reasons, young households always make greater progress than older households, and millennial households were the only age group whose income rose from 2009 to 2012. Moreover, as I’ve also documented, household incomes have risen significantly since 2013 for Generation X and Baby Boomers as well as millennials.

Average Annual Household Income Gains

                2009 - 2012      2013 - 2014

Millennials    3.2%              4.3%

Generation X  - 0.4%            2.3%

Late Baby Boomers -1.1%  0.5%

The results also show that gender and race matter. While the income dynamics of the last decade didn’t create today’s partisan divisions based on gender and race, they probably reinforce them. For example, while households headed by men generally fared better than those headed by women in the leans years from 2009 to 2012, women turned the tables in 2013 and have made more progress than their male counterparts since the turnaround.

Average Annual Household Income Gains By Gender

                  2009 - 2012    2013 - 2014

                 Men Women Men Women

Millennials 3.5% 2.5% 2.7% 3.0%

Generation X - 0.2% - 0.6% 0.9% 2.8%

Late Boomers - 0.5% -1.1% 0.2% 0.2%

The results based on race and ethnicity also may help explain Hillary Clinton’s strength among minorities, as compared to Trump and Sander’s connections to angry white voters. In particular, under Obama’s policies, including Obamacare cash subsidies, the incomes of Hispanic and African-American households across all three age groups have grown faster than their white counterparts since 2013.

Average Annual Household Income Gains, By Race and Ethnicity

                2009 - 2012                2013 - 2014

               White Black Hispanic White Black Hispanic

Millennials 3.7% 0.0% 1.8%     2.9% 3.0% 3.2%

Generation X 0.1% 1.7% - 1.5% 1.6% 2.0% 5.0%

Late Boomers - 0.9% - 4.9% 1.8% - 0.1% 2.0% 2.8%

The results also show that after the tough times from 2009 to 2012, when Generation X and baby boomer households at every educational level lost ground, every age and educational group but high-school educated baby-boomers have made significant income progress since 2013. These gains even include households headed by high-school dropouts, lifted by the very strong job growth since 2013 and the Obamacare cash subsidies.

Average Annual Household Income Gains, By Education

        2009 - 2012                      2013 - 2014

        No Diploma HS College No Diploma HS College

Millennials -0.6% 1.1% 4.2% 4.4% 3.0% 5.1%

Generation X -2.2% -1.3% -0.1% 6.2% 4.0% 1.5%

Late Boomers -4.8% -1.7% -0.6% 9.5% 0.0% 0.4%

Incomes do not explain everything. The incomes of white millennials have risen rather strongly throughout this entire period. Yet, they’ve responded to Trump and Sander’s cases that political and economic elites have denied them their hard-earned gains. Maybe they’re angry that their parents lost much of their home equity, or maybe they’re turned off rather than reassured by Clinton’s dispassionate demeanor. To win them over, she will have offer a credible path to both maintain everyone’s recent income progress and preclude another housing collapse and joyless expansion.

This post was originally published on Dr. Shapiro's blog.

Everyone Will Lose if the UK Exits the EU — Except Donald Trump and his Soulmate, Vladimir Putin

On June 23rd, Britons will hold a referendum on whether to stay or leave the European Union (EU), and surveys point to close vote. If Britain does exit the EU, or “Brexit,” the fallout could be serious and widespread. In February, G-20 finance ministers warned that Britain’s leaving the EU “could threaten global economic recovery.”

Brexit also would produce serious challenges for the United States, and possibly for Hillary Clinton. The EU represents much of what Donald Trump is campaigning against. So, a Brexit vote will give Trump an opening to lace his smack-downs of Hillary with talk about his so-called positions on trade, immigration and NATO.

If Britons say “No” to Europe, the first fallout will hit as when global investors pull back Europe and Britain, driving down the Euro against the dollar and, by 2017, driving up our trade imbalance with Britain and Europe. Britain has also been a big advocate of the Trans-Atlantic Trade and Investment Partnership (TTIP), and Brexit could well disrupt those talks.

Trump will call these developments proof that wide-ranging trade pacts don’t work and that Hillary doesn’t appreciate how they weaken countries. In fact, wide-ranging trade deals have been key factors in Europe’s recovery in the ‘60s and ‘70s, the developing world’s rapid modernization since the early ‘90s, and America’s leadership in information and Internet technologies. And if Brexit ends up strengthening the U.S. dollar, it will show that global investors still see the United States as the world’s strongest and most stable economy.

If Brexit happens, the U.K. also will have to restore its border controls with EU countries, including new limits on inflows of European workers to Britain. Those moves could also trigger new calls by right-wing European politicians to close EU borders to new immigrants from Turkey and Syria, which in turn could mean more refugees seeking asylum in the United States.

Trump will likely see these developments as proof that Europe is lining up behind his draconian plans to tighten borders and bar Muslims, and turning its back on Hillary. In fact, every major leader in Europe, including Britain, has condemned Trump’s anti-Muslim stance. Moreover, these new developments won’t change the EU’s distinctive policy of very light controls at the contiguous borders of EU countries — and Britain’s new approach would merely apply America’s current border regime to the U.K.’s borders with the EU.

A “No” vote by Britons also will cost the EU its largest military power, weakening the EU’s security and defense initiatives and its plans for European-wide defense cooperation. As a result, concerns will increase about Europe’s capacity to be an effective geostrategic partner to the United States, and about NATO’s future value.

Trump will likely call these developments proof that our 67-year old commitment to NATO, backed up by 67 years of investments, has gone bad, and that Hillary mismanaged U.S.-European relations. In fact, if Brexit pulls Britain out of the EU-wide defense policy and weakens EU security plans, those developments will enhance NATO’s role and importance, especially as a bulwark to Vladimir Putin’s ambitions to weaken European resolve and sow trouble between the United States and its most important allies.

The downside for Trump in using Brexit as evidence of his own canniness is that his criticisms line up pretty closely with Putin’s. They both say that the multilateral trade agreements of the last half-century have undermined the traditional economic arrangements they favor. They both also see Muslims as threats to the values and order they have each sworn to restore.

On NATO and the U.S.-European alliance, Trump’s views also align more closely with Putin than with U.S. strategy under every president since World War II. And why not — after all, Trump and Putin are equally committed to “Make America (or Russia) Great Again.”

This post was originally published on Dr. Shapiro's blog.

Whatever Some Candidates Tell You, the Incomes of Most Americans Have Been Rising

After a decade when most Americans saw their incomes decline, the latest Census Bureau income data contain very good news:  A majority of U.S. households racked up healthy income gains in 2013 and 2014.  The facts may not fit the narratives of Donald Trump, Ted Cruz, or Bernie Sanders.  But they do help explain why President Obama’s job approval and favorability ratings have passed 50 percent.  They also show that Hispanic households made more income progress in 2013 and 2014 than any other group, which may be one reason for their growing support for Democrats.  A third surprise: Households headed by Americans without high school diplomas racked up their first meaningful income gains since the 1990s, thanks to the large job gains in 2013 and 2014 and the Obamacare cash subsidies beginning in those years. 

These findings all come from using the Census data on the median incomes of American households by the age, gender, race and education of their household heads, to track their income progress as they aged from 2009 to 2012.  I focused first on millennial households headed by young women and men who were 20-to-29 years old in 2009, which makes them voters ages 27-to-36 today.  For decades, younger households have been the group with the fastest-rising incomes, and the recent period is no exception.  Despite colorful stories of millions of young people living in their parents’ basements, the data show that the household incomes of these millennials (adjusted for inflation) grew 3.6 percent per-year from 2009 to 2012, and those gains accelerated to 4.5 percent per-year in 2013 and 2014.

The data also show that the incomes of millennial Hispanic households grew 5.4 percent per-year in 2013 and 2014, outpacing the progress of white and African American millennial households of the same ages.  To be sure, not all millennials did nearly so well: The household incomes of those without high-school diplomas, which had declined an average of 1.0 percent per-year from 2009 to 2012, rose 3.1 percent in 2013 and 2014 – while the incomes of households headed by millennials with high school diplomas or college degrees grew 5 percent per year.  Two main factors are at work here, and in the big gains by Hispanic households.  First, businesses created almost 2.5 million net new jobs in 2013 and 3 million more in 2014, and such strong job growth disproportionately helps those at the economy’s margin.  Second, Obamacare’s cash subsidies for lower-income households kicked in the same years, and Census counts government cash subsidies as a form of income.

2013 and 2014 also were good years for most of Generation X.  My analysis here focused on households headed by people ages 35-to-39 in 2009, which makes them 42-to-46 year old voters today.  In those two years, the median income of those Gen X households rose 2.3 percent per-year – a major turnaround from 2009 to 2012, when their incomes had declined 0.4 percent per-year.  As with the millennials, the Gen X households headed by Hispanics made more income progress in 2013 and 2014 than their white or African American counterparts.  And thanks once again to the robust job growth and the Obamacare cash subsidies, Gen X households headed by people without high school diplomas made substantial income progress in 2013 and 2014 – in fact, more progress than Gen X households headed by high school or college graduates.

For many decades, the income gains of most Americans have slowed as they aged.  Nevertheless, the new income data contain moderately good news for households headed by late baby boomers, those who were 45-to-49 years old in 2009 and today are voters ages 52 to 56.  Their median household incomes rose in 2013 and 2014 by an average of 0.5 percent per year; but even that was a big improvement from 2009 to 2012, when their incomes fell 1.1 percent per year.  As with the millennials and Gen Xers, the Hispanic boomer households again fared better than their white and African American counterparts in 2013 and 2014:  The median incomes of these Hispanic households grew 2.8 percent per year in 2013 and 2014, compared to gains of 2.0 percent per-year by African American boomers and 0.1 percent per-year by white boomers.  Also, once again, the data show that the incomes of households headed by boomers without high school diplomas grew faster in 2013 and 2014 than the incomes of boomer households headed by high school or college graduates.

The Census Bureau will release the 2015 incomes data in a few months. We already know that the economy created another 2.65 million new jobs in 2015.  If, as expected, the broad income progress seen in 2013 and 2014 persists in 2015, it will rebut much of the economic message touted by Trump and badly weaken Sander’s critique of Hillary Clinton.  These data may not penetrate those campaigns and the media that surround them, but American voters know when their own incomes have improved – and that will alter the landscape for next November in ways almost certain to favor Democrats and their nominee.

This post was originally published on Dr. Shapiro's blog.

Donald Trump’s Chutzpah: His Tax Plan Doubles Down on Inequality and Gives His Own Company a Huge Tax Windfall

Donald Trump, often a master of snide generalities, has been very precise about not only his plans for undocumented immigrants and Obamacare, but also his approach to taxes. The presumptive GOP nominee has laid out detailed proposals to cut tax rates, expand the standard deduction, and sharply shift the approach to business taxes. I’ve reviewed his proposals, and the conclusions are sobering. For a starter, Trump’s tax cuts are so expansive, they would decimate either the federal budget or the U.S. credit rating. Moreover, the GOP “populist” channels most of the benefits from his tax cuts to the country’s wealthiest individuals and businesses. So, Trump characteristically doubles down on the Democrats’ central meme of income inequality, and ensures that one of the biggest winners would be the Donald himself, through a giant tax windfall for The Trump Organization, LLC and other privately-held enterprises.

Just to begin, Trump’s proposals are wildly reckless as fiscal policy. According to the Tax Policy Foundation, a joint enterprise of the Brookings Institution and the Urban Institute, Trump’s tax plan would gut federal revenues by $9.8 trillion over 10 years. In 2020, his plan would reduce personal income tax revenues by $695 billion or more than 36 percent, and gut corporate income tax revenues by $196 billion or 50 percent. All told, the revenue losses under Trump’s plan in 2020 come to $915 billion, equal to all defense spending projected for that year ($570 billion), plus 44 percent of all Social Security retirement benefits in 2020 ($793 billion) . If Trump wants to finance his tax plans by borrowing instead of cutting spending, he should know that such a large, additional burden on credit markets would push up interest rates and slow growth, and likely trigger a U.S. debt crisis.

Turning to the details, one feature of Trump’s plan that would help some middle-class Americans is his proposal to expand the standard deduction from $6,300 to $25,000 (singles) and from $12,600 to $50,000 (couples). His plan also simplifies and lowers marginal income tax rates to 10 percent, 20 percent, and 25 percent. But these changes provide nothing for the 45 percent of U.S. households with low or moderate incomes, because they are not liable today for any federal income tax.

Apart from the big standard deduction, Trump channels virtually all of his tax benefits to high income people and businesses. Trump’s plan would save an average household that pays income taxes $2,732 in 2017, mainly from the expanded standard deduction. Those in the 95th to 99th percentile, however, would save $27,657 in 2017, 10 times the benefits for an average taxpayer. Further, households in the top 1 percent would save $275,257 in 2017, 100 times the benefits for the average taxpayer. And those at the very top of the income ladder, the richest one-tenth of 1 percent of households including Donald Trump, would save $1,302,887 in 2017, or 480 times the benefits for average taxpayers.

These windfall gains are driven mainly by Trump’s proposals to reduce the top tax rate from 39.6 percent to 25 percent and slash taxes on businesses. So, Trump would cut the corporate income tax rate from 35 percent to 15 percent. Trump’s enthusiasts will note that his business tax reforms include ending the right of U.S. multinationals to defer their U.S. tax on income earned abroad, much as President Obama has proposed. But only Trump would cut the U.S. corporate rate to 15 percent. Some 96 percent of the foreign income of U.S. companies is earned in countries that tax corporate income at rates of 15 percent or more, and those U.S. companies get U.S. tax credits for the taxes they pay abroad. So, under Trump’s 15 percent corporate tax rate, 96 percent of the foreign-source income of U.S. multinationals would be free of any U.S. tax – much more than under current law.

Trump provides equally large tax windfalls for non-corporate businesses such as LLCs and partnerships, which account today for more than half of U.S. business revenues and profits. Here, Trump appears to agree with Obama and Hillary Clinton about closing down the “carried interest” loophole, which taxes most of the income earned by hedge fund and private equity fund partners at the 23.8 percent capital gains rate. But Trump’s version of this reform is meaningless, because he also cuts the top tax rate for income earned in all “pass-through” entities such as hedge funds and private equity funds to 15 percent: So, they would pay even lower taxes under Trump’s plan than under the current, carried interest loophole.

That’s not even the worst of it: This 15 percent rate would apply not only to hedge funds and private equity funds, but to all partnerships and privately-held businesses, including the Koch Brothers’ companies and The Trump Organization, LLC. Instead of paying taxes at the current 39.6 percent top personal rate, or the current 23.8 percent capital gains rate, or even the 25 percent top personal rate under Trump’s plan, the Koch brothers, hedge fund partners and the Donald himself would pay 15 percent. Under Trump’s plan, he and his company would pay a lower tax rate than an average American earning $47,750 today. That’s chutzpah even for Donald Trump.

This post was originally published on Dr. Shapiro's blog.

GOP Hopefuls Understand Little about Older Americans and Social Security

 In last Thursday’s GOP debate, Marco Rubio, Ted Cruz, Jeb Bush and Chris Christie avoided any mention of their common proposal to “reform entitlements” by raising the Social Security retirement age from 67 to 70. Their silence was the right decision: Their proposal demonstrates their lack of understanding about the demographics of older Americans, especially the dramatic disparities in their life expectancy associated with education and race.

Recent research on life expectancy indicates that their proposed change would effectively nullify Social Security for millions of Americans and sharply limit benefits for many millions more. While many people in their 30s and 40s today can look forward to living into their 80s, the average life expectancy for the majority of Americans who hold no college degree hovers closer to 70, or the average life expectancy for all Americans in 1950.
 
A recent study in Health Affairs explored the average life expectancy of Americans who were age 25 in 2008, or 33 years-old today. It reports that the average expected life span of 33-year-old high school educated men is now 73.2 years among whites and 69.3 years among black—n compared to 81.7 years for whites and 78.2 years for blacks for their college-educated counterparts. American women on average live longer than American men, but their differences based on race and education also are dramatic. The average life expectancy of high-school educated women age 33 today is 79 years for whites and 75.4 years for blacks, compared to 84.7 years for 33-year old whites and 81.6 years for blacks of that age with college degrees. The projected life spans of Americans now in their 30s without a high school diploma are lowest of all, ranging from 68.2 years (black men) and 68.6 years (white men) to 74.2 years (black and white women). Surprisingly, the data suggest that Hispanics have the longest life expectancies of any group, even though they also have the lowest average years of education; but those anomalous results may reflect sampling problems.
 
(The Brookings Institution just issued a more detailed version of my analysis, with tables, which you can find here.)
 
Using Census data on the distribution by education of people age 30 to 39 in 2014, we further know that 20,292,000 thirty-somethings or 54.9 percent of all Americans in their 30s fall in educational groups with much lower life expectancies. Some 45.4 percent of whites in their 30s or 10,613,000 Americans have a high school degree or less, and their average life expectancy is 9.4 years less than whites in their 30s with a B.A. or associates degree. Similarly, 64.4 percent of blacks in their 30s or 3,436,000 Americans have a high school degree or less; their life expectancy is 8.6 years less than blacks in their 30s with a B.A. or associates degree. Finally, 75.6 percent of Hispanics in their 30s or 6,243,000 Americans have a high school degree or less, and their life expectancy is 5.0 years less than Hispanics in their 30s with a B.A. or associates degree.
Across all communities – white, black, Hispanic — improvements in secondary education to prepare everyone for higher education, and measures to ensure full economic access to higher education, would add years to the lives of many millions of Americans.
 
These findings have special significance for Social Security, because the number of years Americans can claim its benefits depends on how long they live. Americans in their 30s today will be able to retire with full benefits at age 67; but depending on their education and race, they should expect to collect those benefits, on average, for a period ranging from 1.2 years to 19.3 years. The most pressing cases involve white men, black men, and black women without college degrees. Among Americans age 33 today, white and black men without high school diplomas and black, male high school graduates can expect to live long enough, on average, to claim Social Security for less than three years. Similarly, white and black women without high school diplomas and black, female high school graduates, on average, can expect to collect their monthly benefits for less than eight years. By contrast, white college-educated men and women age 33 today can expect to receive Social Security for between 14.7 and 17.7 years, respectively; and 33-year old black men and women with college degrees, on average, will claim benefits for 11.2 to 14.6 years, respectively.
 
These findings dictate that proposals to raise the Social Security retirement age should be rejected as a matter of basic fairness. As noted earlier, GOP hopefuls Ted Cruz, Marco Rubio, Jeb Bush and Chris Christie all have called for raising the retirement age to 70 years. Among Americans in their 30s today, their proposal would mean that black men without a college degree and white men without a high school diploma, on average, would not live long enough to collect any retirement benefits. White and black women without high school diplomas, and in their 30s today, along with 30-something white men with a high school diploma and black women who graduated high school, on average, would live long enough to receive Social Security for just 3.2 to 5.4 years. All told, the GOP proposals would mean that after working for 35 years or more, 25.2 percent of white Americans now in their 30s and 64.4 percent of blacks of similar age would be able to claim Social Security benefits for about five years or less. And that alone should disqualify any proponent of a higher retirement age from the presidency.
 
This post was originally published on Dr. Shapiro's blog.

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