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What You Earn Does Not Depend on Whether You Attend a For-Profit University or a Traditional, Not-for-Profit Institution

August 24, 2016

Young people respond to incentives like everyone else; and years of evidence showing that most well-paying jobs go to those with post-secondary degrees have been followed by rising numbers of young people attending college. The National Center for Education Statistics (NCES) reports that from 1995 to 2015, the share of Americans ages 25 to 29 with an associate’s degree jumped from 33 percent to nearly 46 percent, and the share with a bachelor’s degree rose from 25 percent to nearly 36 percent.

In recent years, a new debate has emerged over what type of higher education leads to a well-paid career. In particular, a number of commentators have claimed that a degree from a for-profit college or university produces much smaller income benefits than a degree from a traditional, public or private non-profit institution. To test this claim, I analyzed the first systematic data available on the incomes of young graduates based on where they earned their degrees.

Over the last decade, five states — Arkansas, Colorado, Florida, Texas and Virginia — have tracked the first-year incomes of graduates by their major fields of study, using state unemployment insurance records. Those data covered a total of 273 traditional, public and private not-for-profit colleges and universities. A leading for-profit institution, Kaplan University, agreed to provide comparable data on their graduates using the Department of Labor Wage Record Interchange System, and asked me to investigate.

In a new study released this week, I found not only that the graduates of the for-profit institution achieved much larger income gains than comparable young people without a degree. I also found that Kaplan University graduates with an associate’s or bachelor’s degree earned incomes generally comparable to the graduates from the 273 traditional, public and private non-profit institutions in those five states.

The data show, first, a Kaplan University degree produced substantial income benefits. Six years after finishing an associate’s degree, Kaplan graduates earned an average of 82 percent more they did before entering Kaplan, while their counterparts who did not pursue any degree earned barely 4 percent more. Similarly, six years after earning a bachelor’s degree, Kaplan University graduates earned an average of 38 percent more than they did before starting, compared to the 4 percent gains of their counterparts with only a high school diploma.

The first-year earnings of new graduates provide perhaps the clearest evidence of how employers view and value the institutions that their new employees attended. So, I compared the first-year earnings of the graduates of the traditional public and private institutions in the five states, by their major field of study, and the first year earnings of Kaplan University graduates in the same major fields. These data tell us that from an employer’s vantage, Kaplan University bachelor’s and associate’s degree graduates look and perform much like other graduates.

• In the first year following their graduation, young people with a Kaplan University bachelor’s degree, on average, earned more than their counterparts in the same major fields from traditional public and private institutions in three of the five states — Arkansas, Florida, and Virginia — and less than their counterparts from traditional institutions in Colorado and Texas.

• Kaplan University associate’s degree graduates had higher median first-year earnings than their counterparts from traditional institutions in the same major fields in two of the five states — Arkansas and Virginia — and lower median earnings than their counterparts from traditional institutions in Colorado, Florida and Texas.

• The data also show, however, that the average first-year earnings of Kaplan University master’s degree graduates were less than the average of their counterparts from traditional institutions in all five states.

The finding that Kaplan University bachelor’s and associate’s degree graduates do generally as well economically as graduates in the same fields from traditional colleges and universities is particularly striking, because the data provided by four of the five states tended to overstate their graduates’ average or median earnings. The data from Kaplan University and Texas covered all graduates with any earnings; but Arkansas, Colorado, Florida and Virginia provided data only on graduates who earned at least the equivalent of a full-time, year-round, minimum wage. In effect, four of the five states excluded graduates who worked only part-time or part of the year in their first year after graduating. Even so, the Kaplan University graduates, on average, out-performed the graduates of traditional institutions in three of those four states at the bachelor’s degree level, and in two of the four states at the associate’s degree level.

These results are heartening as Americans try to address issues of inequality, because minority and poor students comprise a substantially larger share of the student bodies of Kaplan University and other for-profit institutions, compared to traditional not-for-profit colleges and universities. NCES data show that in 2014, African-American, Hispanic and other minority students comprised 50.2 percent of all full-time students at degree-granting for-profit colleges and universities, compared to 28.3 percent of the full-time students at private not-for-profit institutions and 37.5 percent at public institutions. For-profit colleges and universities clearly provide disproportionate access to higher education for minority students.

This analysis carries certain caveats. It draws on income data for graduates from one major for-profit university and 273 traditional not-for-profit institutions in five states. The economic results of attending a for-profit institution certainly vary substantially across those institutions, as do the results of attending a traditional college or university. However, the data clearly show that the graduates of one leading for-profit institution derive economic value from their education and degrees generally comparable to the value derived by graduates from attending traditional, not-for-profit public and private institutions across five states.



Get Ready for Cyberattacks across Many Critical Networks

July 13, 2016

In a recent interview, I said that America’s adversaries “may not do us the kindness of attacking only a single infrastructure sector” in future cyberattacks. Let me take you through this dark scenario. Until now, electric utilities, telecom companies, financial institutions and other vital sectors of our economy have each focused on strengthening their own cybersecurity. These efforts are important, but not nearly sufficient.

In a recent study for Homeland Security Secretary Jeh Johnson, conducted by the Homeland Security Advisory Council (HSAC), which I co-chaired, my colleagues and I concluded that our adversaries might well use cyberwarfare to attack multiple infrastructure sectors at the same time. This prospect vastly complicates those industries’ separate efforts to restore electricity, telecommunications, financial transactions and other vital services when the United States faces cyberattacks on the systems on which our economy and national security depend.

Moreover, these critical infrastructure systems are extraordinarily interdependent. If a cyber-adversary takes down our power grid, our electric utility companies will rely on telecommunications systems to restore power — but those telecom systems rely on electricity to function. Similarly, the country’s key financial services companies rely on both the electric grid and telecom services to sustain the economy. Our recent HSAC report found that in a simultaneous strike on all three sectors, the government’s current response plans would fall far short.

The HSAC report offered a series of proposals to begin to address this serious shortfall. We urged Secretary Johnson to revamp the National Cyber Incident Response Plan (NCIRP), so the government can respond more effectively to private-sector requests for assistance in fighting our cyber-enemies. We also called for deeper engagement with governors in efforts to coordinate the restoration of services when several critical infrastructure system are attacked. The first principle in planning for such a scenario is to strengthen planning and coordination between private-sector infrastructure companies and all levels of our government.

These are very challenging tasks, but failing to take them on could leave America vulnerable to a potential nightmare scenario.



The Vast Economic Costs of Trump’s Plan to Bar Muslims from the United States

June 21, 2016

Donald Trump’s mindset and style virtually compel him to attack anyone who might be a threat or enemy, and he recruits supporters by going after groups he casts as their enemies or threats. His darkest suspicions and contempt are reserved for Muslims. He presents his solution, barring people from Muslim-majority countries from entering the United States, as a low-cost way to fight terrorism. But Trump’s plan would not only trample religious tolerance and a half-century of foreign policies to improve our relations with the world’s 56 Islamic nations; it also would impose enormous costs on the American economy.

Our analysis shows that immigrants and visitors from Islamic countries contributed $334 billion to America’s GDP in 2014 — all of it at risk under Trump’s approach.

Here’s how we estimate those costs. First, more than seven million current U.S. citizens or residents came here from Muslim-majority countries or are married to, or the children of, those immigrants. Based on America’s current per capita GDP, those households contributed more than $189 billion to the economy in 2015. In addition, Trump’s policy would end tourism from Islamic countries. At a minimum, some 3.2 million tourists from majority-Muslim nations visited the United States in 2015 and contributed an additional $145 billion to our GDP.

Let’s deconstruct those costs. First, Census Bureau data compiled by the Migration Policy Institute tell us that, in 2014, 3,013,309 current U.S. citizens or residents were immigrants from the world’s major Islamic countries, including 2,835,510 adults. The total number is higher, since Census data specify the country of origin for U.S. immigrants from the 21 larger majority-Muslin countries but not 35 smaller Islamic nations, including Libya, Somalia and Tunisia. Here, we’ll stick with the official data of more than 2.8 million current adult U.S. citizens and residents from Islamic nations.

Trump’s attacks on Muslims extend not only to those immigrants, but also everyone connected to them by marriage or blood who also reside here. ]According to the Center for Immigration Studies, the average family or household size of immigrants from the Middle East, sub-Saharan Africa and South Asia is 3.12. Let’s assume that half of those immigrants marry or live with other immigrants from Muslim countries, and the other half marry or live with native-born Americans or immigrants from other countries. On that basis, the 2,835,510 adult immigrants from Islamic countries would include 1,417,755 married to or living with each other, forming 708,878 households, and another 1,417,755 households with spouses or partners who are not immigrants from Muslim countries.

Altogether, they constitute 2,126,633 households headed by Islamic immigrants (708,878 + 1,417,755). Some of those households consist of one person, others of single parents with children, and still others with two adults with or without children. On average, we know that these households have 3.12 members; and on that basis, the 2,126,633 households with immigrants from majority-Muslim countries have 2,381,828 children living in the United States.
All told, therefore, we estimate that the households of current adult U.S. residents or citizens from majority-Muslim countries consist of some 6,635,093 people: 2,835,510 adult immigrants, 1,417,755 spouses or partners who are not from Islamic countries, and 2,381,828 children.

The simplest gauge of their economic impact is per capita GDP, which was $28,555 in 2015. That tells us that current U.S. residents or citizens from Muslim-majority countries and their immediate families or households were responsible for $189,431,905,200 of U.S. GDP in 2015.

Trump’s ban on people from Islamic nations entering the United States also would end tourism from those countries. The Bureau of Economic Analysis (BEA) collects data on foreign tourists entering the United States by their continent of origin and how much they spend here as tourists. The BEA does not break down these numbers by country, so we’ll focus on tourists from the Middle East and Asia, which includes three of the four countries with the world’s largest Muslim-majority populations (Indonesia, Pakistan and Bangladesh).

BEA reports that 1,225,500 tourists came to the United States from the Middle East in 2014. The BEA also tells us that 9,697,312 tourists came from Asia; and across Asia. Muslims account for 32.2 percent of the continent’s population. Once again, we’ll be conservative and assume that just 20 percent of Asian tourists who visited the United States came from Islamic countries, or 1,939,462 tourists from Asian majority-Muslim nations.

These two geographic groups add up to 3,165,962 tourists visiting the United States from Islamic countries, or 9.2 percent of all tourists who came here in 2014. This understates the actual number and percentage, because this accounting does not include tourists from large Islamic countries outside the Middle East and Asia, including Egypt and Nigeria in Africa, and Turkey in Europe. All three of these countries are among the world’s eight largest Islamic nations, and together their Islamic populations exceed those of Indonesia or Pakistan.

The BEA also tells us that tourists visiting the United States consumed $913.1 billion in goods and services here. Taking account of the impact of those purchases on U.S. employment and incomes, BEA concluded that tourists visiting the United States in 2014 were responsible for $1,576 billion of U.S. GDP.

Based on our understated estimate that tourism from majority-Muslim countries accounted for 9.2 percent of all tourists visiting the United States in 2014, and BEA’s accounting of the impact of their spending on U.S. GDP, Trump’s plan would cost the U.S. economy another $146 billion per-year from foregone tourism.

All told, if Trump’s plan had been in place and precluded both the immigration of more than 2.8 million adults from Islamic nations who are current U.S. citizens or residents and normal tourism from those majority-Muslim nations, it would have cost the American economy more than $334 billion in 2014 ($189,431,905,200 + $144,707,232,000 = $334,139,137,200).

Donald Trump would put every American’s money where his own mouth is. The United State currently has 133,957,180 households and a total population of 321,442,019 persons. Excluding households headed by immigrants from Islamic countries, America consists today of 131,830,547 households and 314.806,926 people. So, if Trump’s plan had been in place and stopped immigration and tourism from Islamic nations, it would cost Americans an average of $1,061 per-person and $2,535 for every non-Muslim household.



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

June 2, 2016

 

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 on 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 Sanders’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 entire 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 percent gains in 2014 and another 4  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 years old (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, household incomes have risen significantly since 2013 for Gen 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 have reinforced them. For example, while households headed by men generally fared better than those headed by women in the lean 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, the incomes of Hispanic and African-American households across all three age groups have grown faster than their white counterparts since 2013, under Obama’s policies.

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
Gen 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%

Finally, the results also show that after the tough times from 2009 to 2012, when Gen 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 very strong job growth since 2013 and the new cash subsidies under Obamacare.

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%
Gen 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’s and Sanders’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.

 



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

May 23, 2016

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.”

 



Why We Need the Hackers behind the Panama Papers

April 28, 2016

The outrage heard around the world on the release of the Panama Papers brings to mind Claude Rains’s turn as the Vichy prefect of police in Casablanca, “discovering” gambling going on at Rick’s Café. The fact that many of the world’s richest people and most corrupt politicians squirrel away hundreds of billions of dollars in secret offshore accounts has been common knowledge for years. Less well known is the dogged opposition of Congressional Republicans to reforms that would end much of the secrecy surrounding the untaxed offshore wealth of the very rich and very powerful, reforms that most other countries have embraced.

The ownership and assets of these offshore accounts are hidden by complex networks of trusts and shell companies, often distributed across multiple tax havens from the Cayman Islands and Bermuda to Luxembourg and Singapore.  Lawyers and bankers create and maintain these trusts, shell companies and accounts in ways that have kept them hidden; at least until hackers accessed 11.5 million pages of files on the networks held by the Panamanian law firm Mossack Fonseca, a leading fixer in this shady practice.

The outstanding question is why governments allow these networks to remain secret, when they shield trillions of dollars in investment gains and profits that escape normal taxation and the ill-gotten riches of criminal and terrorist organizations and crooked politicians. The United States has two major laws in this area. For 46 years, the Bank Secrecy Act of 1970 has directed that any U.S. citizen, resident or business with financial interests in offshore accounts must report any income earned on those accounts.

The Foreign Account Tax Compliance Act of 2010 goes further. It directs all American citizens and residents that file U.S. income tax to report all offshore financial assets valued at $50,000 or more, and mandates that all foreign financial institutions report to the U.S. Treasury all of their accounts with substantial U.S. owners that also receive payments from the U.S. Both laws carry big financial penalties for violation; but neither law has any enforcement provisions, so the laws have little effect.

As financial losses from cross-border tax evasion and corruption have mounted, the Organisation for Economic Co-operation and Development (OECD) stepped in to sponsor new international standards for financial transparency and, equally important, new protocols for the automatic exchange by governments of the information they collect. Under these OECD standards and protocols, each government agrees to collect information on all account balances, investment income and other proceeds from financial assets within its jurisdiction; and to automatically share that information with the tax administrators of the nations where the owners of those accounts, investments and assets reside.

The G-20 finance ministers endorsed these standards and protocols in 2014. Since then, 97 countries have signed on, including most tax havens.  Even Panama agreed to the new standards and protocols, although the OECD reports that Panama and 10 other countries have not yet implemented them.

But the whole system is on hold, because the United States has not signed on. The Obama administration endorsed the new transparency system and proposed legislation to require U.S. financial institutions to collect the information on foreign-owned accounts held here and to authorize the automatic exchanges. Citing their longtime “respect for privacy rights,” Congressional Republicans flat-out reject both proposals.

On top of the administration’s proposals, Senator Sheldon Whitehouse has offered new legislation to strengthen the proposed transparency regime. His proposal targets many of the stratagems used by U.S. multinationals to avoid U.S. taxes, including shifting profits to tax haven countries. He also would tighten the OECD’s transparency standards and beef up compliance in several ways.

Whitehouse’s bill states that any foreign trust or shell company with substantial assets in the U.S. and managed here will be deemed a U.S. taxpayer, that U.S. taxpayers who set up entities in tax havens will be considered to control those assets, and that funds transferred from the U.S. to those entities will be deemed taxable income not yet taxed.  Most important, the proposal would bar U.S. banks from dealing with any foreign financial institution that fails to disclose offshore accounts opened by Americans and holding non-U.S. investments. Unsurprisingly, the Senate GOP has blocked the bill.

Such a bar is the big stick required to pierce the global secrecy treasured by the very rich and the very corrupt, and ensure that the automatic exchanges of information happen. In 2017, Hillary Clinton and a Democratic or divided but chastened Congress should pass reforms directing that all U.S. financial institutions comply with the OECD standards and protocols. This step would not only create real transparency; it also should produce several tens of billions of dollars in new annual revenues for the Treasury.

These reforms also must bar U.S. financial institutions from conducting business with any foreign financial institution that fails to disclose the ownership and holdings of accounts, trusts and shell companies owned by U.S. citizens, residents and businesses, within their jurisdiction. That’s a threat that every financial institution in the world will have to take seriously.



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

April 4, 2016

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 Demovrats.  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 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 27- to 36-year-old voters 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 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, as well as 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.

The years 2013 and 2014 also were good for most of Generation X. My analysis here focused on households headed by people who were 35 to 39 in 2009, which means they are 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 4 percent per year.

As with the millennials, Gen X households headed by Hispanics made more income progress in 2013 and 2014 than did 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 .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 percent per year by African American boomers and .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.



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

March 3, 2016

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.



GOP Hopefuls Understand Little about Older Americans and Social Security

February 1, 2016

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.



Will the GOP Break Up?

December 21, 2015

At the risk of spoiling your holidays, it’s time for a serious talk about what’s driving the race for the GOP nomination. It’s not just personality, although Donald Trump and Ted Cruz are certainly more effective messengers than, say, Ben Carson and Carly Fiorina, their ideological doppelgangers. More important, the broad appeal to the party’s base of the extreme attacks by most GOP candidates on immigrants, Muslims, the mainstream rights of women, climate science, and government under both parties raises questions about where the Republican Party is headed.

As is often the case, one reason these messages resonate so powerfully among GOP voters lies in the economy, especially what’s happened to their incomes. New research shows that across groups which account for nearly two-thirds of American households — those headed by people without college degrees — median household incomes fell pretty steadily from 2002 to 2013. (Over the same years, progress by households headed by college graduates slowed but didn’t turn negative.) These data tracked people’s incomes as they aged, capturing their actual economic experience. So, for example, the median income of households headed by people without college degrees who were 35 to 39 years old in 2001 fell about 1 percent per-year from 2002 to 2013, when those same people reached ages 47 to 51.

As documented in my report for the Brookings Institution, these persistent income losses as people aged are unprecedented in modern America. Households headed by people ages 35 to 39 in 1981 and without college degrees saw income gains averaging 2.3 percent per year under Ronald Reagan; and the median incomes of comparable households in the 1990s increased 2.8 percent per-year under Bill Clinton. (An infographic version of the report can be found here.)

White males without college degrees make up a major share of the GOP’s base, and it’s unsurprising that many of them blame their hard times on competition from immigrants and women, abetted by the alleged indifference of the government under both parties. Nor is it unreasonable that people who already feel vulnerable economically also are sensitive to the specter of a new physical threat, including terrorism — so much so that they’re open to ostracizing anyone who shares the faith of the small group of terrorists in Paris and the isolated couple in San Bernardino. Judging by the last GOP debate, most of the candidates (all but Trump and Rand Paul) also expect their base voters to welcome America addressing terrorism by going to war again in the Middle East.

Divisive fights inside the GOP between mainstream conservatives and right-wing populists are not new. In fact, they were features of the 2008 and 2012 nomination races. In the past, the Republican establishment papered over the split by acknowledging the noisy complaints of the right-wing populists. John McCain did so by naming Sarah Palin to his ticket, and Mitt Romney called for anti-immigrant policies so onerous that 11 million undocumented Hispanics would “self-deport.”

This time, the right wing is poised to claim the top of the ticket, intensifying the candidates’ competition for hyper-conservative voters. The race has not only pushed Trump, Cruz and their anti-establishment confederates further to the right; it’s also forced more traditional candidates such as Marco Rubio and even Jeb! Bush to fall in line on most matters. So, come next July in Cleveland, the GOP almost certainly will present itself as a vessel for an anti-immigrant, anti-Muslim, anti-women, anti-science, and anti-government agenda.

These developments present a serious dilemma for the majority of GOP office holders in Congress and the states, who still identify with mainstream conservatism. Across the Midwest, parts of the South, and most mountain and southwestern states, Republican candidates will have to choose between angering their party’s radicalized base and turning off millions of moderately conservative suburban women and millennials, on top of nearly all Hispanics and Asians. Whatever choice these GOP candidates make, many may not survive 2016 — and the day after the elections, the Republican Party will still face its Hobson’s choice.

The hard political truth is that no one can reconcile alienated, right-wing populists and mainstream establishment conservatives. Unless the economic casus belli for these developments disappears — and strong, broad income progress returns — one side or the other may well be forced to look beyond the GOP.

All of this sounds like good news for the Democrats. In fact, 2014 was the first good year for most households’ incomes since 2000. If Hillary and the next Congress can enact policies and programs that sustain broad income progress, the Democrats could become the nation’s default governing party. If not, the Democratic Party may find itself by 2020 in a bind similar to the Republicans — riven by an ideological battle between angry left-wing populists and the party’s establishment.