The Point

The US Tax System Cannot Finance Medicare for All

January 9, 2020

Medicare for All remains the most contentious and consequential issue for 2020 Democrats. It’s easy to see why.  A large majority of Democrats—and a slimmer majority of Independents—have said they approve of it. But even larger majorities of Democrats and Independents also want to keep their private coverage or enroll in a public program. Then there’s the cost: A recent poll of 3,000 Democrats in Michigan found that only 18 percent of single-payer supporters would be willing to pay as much as 10 percent more taxes for Medicare for All.

Elizabeth Warren says she can cover all or most of the costs with new types of taxes of individual wealth and corporations, but no one knows how those taxes will work until they’re tried. Bernie Sanders hasn’t shared any specific plans to pay for his proposal. Instead, he’s promised that the super wealthy will bear most of the burden and the benefits for middle-class Americans will outweigh some modest, if unavoidable, tax increases.

We can test Senator Sanders’s proposition by determining how much revenues Congress could raise by dramatically raising current taxes on wealthy people, corporations, and middle-class families.  The results show that tax hikes on corporations and rich Americans would cover less than one-quarter of MFA’s expected costs.  Moreover, even large tax increases on everyone (i.e. 50 percent hikes in income and payroll taxes) simply won’t be enough to fund what Sanders has promised.

  According to the Urban Institute, the Sanders plan would cost $40 trillion over 10 years (2022-2031). A more conservative estimate by the Mercatus Center at George Mason University  sets the 10-year cost at $32 trillion. The challenge, then, is how to cover costs averaging $3.2 trillion to $4.0 trillion per-year. But here’s the hitch: It doesn’t matter whether we define the wealthy as the top 0.1 percent, the top 1 percent, or even the top 5 percent of Americans. Hiking their income taxes by 50 percent would cover, at most, a small fraction of MFA’s costs.

Those calculations start with the most recent Internal Revenue Service data (2016),   adjusted for increases in income since then.  On this basis, the top 0.1 percent of taxpayers will pay $310 billion in income taxes in 2020. Increasing their income tax burden 50 percent would raise an additional $155 billion, which is less than four or five percent of MFA’s average annual cost. (For an account of how these and other estimates were derived, see this underlying study.)

If you expand the definition of the wealthy to include the top 1 percent, a 50 percent hike in their income taxes would raise $312 billion in 2020.  Ease up more to cover the top 5 percent of taxpayers—everyone earning $250,000 or more a year—and the 50 percent tax increase would raise $489 billion in 2020.  Those revenues cover 12 or 15 percent of MFA’s annual cost.

Sanders also calls for new taxes on corporations. The Congressional Budget Office (CBO) estimates that corporations will pay $245 billion in federal income taxes in 2020, so if Congress doubled the revenues fromcorporate taxes, it would raise at most another $245 billion. Add that to the new funds from a 50 percent tax hike for the top five percent of Americans, and this approach could bring in, at most, $734 billion in 2020—sufficient to cover at most 23 percent of MFA’s average annual cost.

The difficulty lies in the sheer scale of the challenge.   Under current law, Medicare will cover 62.1 million people in 2020.  MFA would add the 196.3 million Americans now privately insured and another 31.4 million people without public or private group coverage. Sanders has to find a way to pay for adding 228 million people to the Medicare rolls.

Dramatic increases in everyone’s taxes aren’t enough.  Based on CBO revenue projections, adjusted for the 2022 to 2031 timeframe used by the Urban Institute and the Mercatus Center, the Treasury will collect an average of $1,668 billion per-year in payroll taxes, $2,597 billion per-year in personal income taxes, and $395 billion per-year in corporate taxes over that period.  

So, if Congress raised everybody’s income and payroll taxes by 50 percent and doubled the federal corporate tax, it would raise $2,378 billion per-year over the next decade. That would only cover about 60 percent or 74 percent of MFA’s costs.

The Daunting Challenge of Financing Medicare for All

Average Annual Costs


Urban Institute

Mercatus Center


$4,000 billion

$3,200 billion

Tax Hikes: Average Annual Revenues and Share of MFA Costs that Each Could Cover

Raise Income Tax 50% on Top 0.1%

3.9%:  $155 billion

4.8%:  $155 billion

Raise Income Tax 50% on Top 1.0%

7.8%:  $312 billion

9.8%:  $312 billion

Raise Income Tax 50% on Top 5.0%

12.2%:  $489 billion

15.3%:  $489 billion

Raise Corporate Income Tax 100%

6.1%:  $245 billion

7.7%:  $245 billion

Raise Income Tax 50% on Everyone

32.5%:  $1,299 billion

40.6%:  $1,299 billion

Raise Payroll Taxes 50% for Everyone

20.9%:  $834 billion

26.1%: $834 billion

This funding challenge is even worse, because these revenue estimates are unrealistically high.  They do not take account of how much higher payroll taxes could dampen employment and wages.  They do not consider how much higher income and payroll taxes could reduce the incentive to work among part-time workers.  The estimates also ignore the prospect that many large American companies could shift more of their operations to lower-tax countries when faced with a doubling of U.S. corporate taxes,

The idea of Medicare for All has powerful appeal. It promises to both achieve universal coverage and provide truly equal healthcare to everyone.  But its reality carries an equally powerful cost: Paying for it would crush most taxpayers and businesses, and overwhelm the U.S. tax system.  Sad to say, it’s a policy equivalent of the Venus Flytrap, drawing people in and then (financially) eating them alive.

This essay was originally published by Washington Monthly on January 9, 2020

A Fair and Winning Tax Reform for Democrats: Broad Payroll Tax Relief Financed by Wealthy Americans

December 11, 2019

The brass ring for a Democratic presidential candidate is a plan that appeals to people’s sense of social justice and to their self-interest. The last two Democrats who won the White House pulled off this feat with promises to hike taxes on high-income people and corporations to pay for middle-class tax relief. But this period of deep economic inequality calls for a broader approach. Democrats should pledge to cut taxes on everyone who works for a living—and pay for it by raising taxes on those who live off their wealth.

There is a simple and direct way to do it: Exempt the first $10,000 in wages or salaries from payroll taxes, and finance it by ending the tax preferences on capital gains and dividends that mainly benefit wealthy people. The result will be a system that finally applies progressive tax rates to both capital and labor income.

That would make a meaningful difference for working families. Based on data from the Congressional Budget Office (CBO), the $10,000 exemption would increase the resources of working households by $986 to $1,216 per-year over the next decade. The average annual benefit would come out to $1,084 per household, in today’s dollars.   

That would be enough to cover Americans’ median monthly mortgage payment—which, as of this writing, is $1,030 including taxes and insurance. It would be equivalent to a 6.7 percent annual raise for working households in the lowest income quintile (up to $25,600) and annual raises of 3.2 percent, 2.1 percent, and 1.4 percent for those with incomes in the second, third, and fourth income quintiles, respectively.

All of those costs could be covered by taxing the proceeds that wealthy people collect from their financial assets in a fair fashion. The Institute on Taxation and Economic Policy has estimated that taxing capital income at the same rates as labor income would raise roughly $1.53 billion in additional revenues over the next 10 years. Based on data and analysis from the Tax Policy Center, that would be $90 billion more than the $1.44 billion cost of exempting the first $10,000 of labor income from the employee side of social security taxes, also known as OASDI.   

This progressive tax approach can be carried out in a number of ways. A plan to exempt the first $5,000 in wages and salaries from OASDI payroll taxes would cost $721 billion over the next 10 years. According to CBO, raising the corporate tax rate to 30 percent would generate $867 billion in new revenues over that decade and still leave the corporate rate five percentage-points lower than before Trump’s 2017 tax Act. Alternatively, CBO also reports that a 0.1 percent tax on stock transactions would raise $821 billion in new revenues over the next decade, or $100 billion more than the revenue cost of a $5,000 payroll tax exemption. 

Whatever the details, payroll tax relief provides an unambiguous way to give working Americans meaningful support. At the same time, higher taxes on the capital gains and dividends banked predominantly by high-income investors, their stock market transactions, and the corporations that generate those capital gains and dividends can all provide equitable ways to pay for it. Any Democrat looking for a meaningful way to resonate with today’s voters might want to think about making such a proposal.

The essay was originally published by Washington Monthly.

An Affordable Approach to Universal Coverage

November 18, 2019

A majority of Americans and virtually all Democrats believe in universal healthcare coverage and the federal government’s responsibility to make it happen.  The Affordable Care Act (ACA) had a strategy to achieve it.  But the progress stalled when congressional Republicans axed ACA’s penalty for going uninsured and the Supreme Court made the ACA expansion of state Medicaid programs optional. Today 12 percent of Americans – 40 million people — remain uninsured.

The next President and Congress can quickly approach universal coverage without overhauling Medicare, imposing new taxes on middle-class families, or forcing anyone to give up their current private coverage.  They can do it by simply adding a new option to the ACA that allows people to enroll in the Federal Employees Health Benefits program (FEHB).

This option will give the uninsured and others access to the same coverage available today to the Secretary of the Treasury, the Attorney General, the White House chief of staff, and other federal civilian employees.  The option also will attract many of those currently covered by non-group policies purchased through ACA exchanges, because the FEHB coverage provides better coverage at less cost. 

In a new study, we compared the coverage and costs under the FEHB’s standard BlueCross BlueShield policy and the standard BlueChoice Silver plan available on ACA exchanges.  A median-income family on the ACA Silver plan has monthly premiums of $1,206 to $2,804, an $11,250 deductible and maximum annual out-of-pocket costs of $13,700.  If that typical family switched to the FEHB’s BlueCross BlueShield policy, its monthly premiums would fall to $589 per month with a $700 deductible and maximum out-of-pocket costs of $10,000.

Compared to the FEHB standard plan, the ACA Silver plans also have higher copays to visit a person’s primary doctor or specialists and higher copays for every diagnostic or lab test, ultrasound, X-ray, EEG or therapy treatment.  Under the ACA Silver plans, patients also pay a larger share of the charges for surgical procedures and hospital admissions, as well as $40 for each maternity-related service compared to no charge under the standard FEHB policy.

Beyond these basic terms of service, how much people pay for healthcare depends on how sick or injured they are.  In any year, 50 percent of individuals and 42.5 percent of families remain healthy and so incur modest medical costs, and another 40 percent of individuals and 42.6 percent of families have medical issues that produce medium-sized medical bills.  However, most medical costs for individuals and their insurers involve the 10 percent of individuals and 15 percent of families with serious medical issues that produce high or very high bills.  

We analyzed people’s actual medical costs based on their incomes and whether they face low, medium, high or very high medical bills, under the two standard policies.  The results: Most people covered by the FEHB policy personally pay out much less than most people covered by the ACA policy. 

A family earning just over median income – here, 400 percent of the federal poverty line (FPL) – who incur low or medium medical bills would save an average of $6,663 (low bills) or $12,287 (medium bills) under the FEHB standard policy compared to the ACA Silver plan.  If their medical bills are high or very high, their savings under the FEHB plan average $7,318 and $7,294, respectively. The prospect of such savings should attract many of the uninsured, as well as ease the financial burdens on many families currently covered by ACA policies.

Based on the ACA’s large subsidies for lower-income people, some households earning from 100 percent to 250 percent of the FPL would not save by opting for the FEHB coverage.  They could stick with their ACA plan or, better, the new policy can include funds to offset anyone’s additional personal costs from choosing the FEHB coverage.  Better still, the plan could increase the government’s share of FEHB premium costs for lower-income individuals and families.

Sine the federal government now picks up 65 percent of premium costs for individuals under the FEHB standard plan and 65.7 percent for families so covered, this approach will inevitably increase the government’s costs.  The question is, by how much?

Let’s assume that the plan achieves universal coverage. If everyone who currently lacks group coverage, whether insured or not, opts for the standard FEHB policy, it would cost the federal government about $72 billion more in 2020, than if everyone were covered under an ACA Silver plan. If we also raised the government’s premium contributions for lower-income people to 86 percent, universal coverage would cost the government $90 billion in 2020.  For reference, the Sanders-Warren Medicare for All approach would cost $2 trillion to $3 trillion in 2020.

We could pay for this new option by merely rolling back one of President Trump’s recent tax giveaways.   He and the GOP Congress cut the corporate tax rate from 35 percent to 21 percent.  Congress could fund the FEHB option by resetting the corporate rate at 30 percent. That’s a deal that no Democrat (and some Republicans) can reasonably resist.

How the economy can shape a president’s impeachment 

November 11, 2019

Reprinted from The Hill – October 25, 2019

President Trump’s two biggest headaches – the impeachment inquiry and a weakening economy – may soon intersect. No one supports impeachment because economic growth and business investment have slowed down. But waning growth deprives Trump of the argument President Clinton used so skillfully during his impeachment ordeal — namely, while his congressional opponents fixated on persecuting him, the president was hard at work successfully promoting prosperity for everyone.

Clinton’s case that he delivered good times was solid. His impeachment inquiry was triggered in January 1998 by Linda Tripp’s tapes of Monica Lewinsky; the special prosecutor and congressional Republicans spent a year sparring with Clinton, until the House impeached him in December. Throughout the year, the economy grew 4.5 percent, peaking in the fourth quarter with 7.0 percent growth just as the Republicans voted to impeach.

Everyone felt the boom. Over the course of that year, consumer spending jumped 5.3 percent and business investment soared 10.9 percent. Strong growth actually accelerated through Clinton’s Senate trial in January 1999, his acquittal in February 1999, on a bipartisan vote of 55 to 45, and the rest of 1999.

By contrast, Richard Nixon faced impeachment under badly deteriorating economic conditions. The economy was strong when his ordeal began in October 1972 with the Washington Post’s report that the FBI saw Watergate as part of a broader spying effort by Nixon’s reelection campaign. Growth remained robust well into 1973, as did support for Nixon. Just as Nixon’s fight with Special Prosecutor Archibald Cox over his tapes came to a head in the Saturday Night massacre, in Autumn 1973, growth, consumer spending and business investment all began to weaken substantially. By November 1973, the economy entered a recession that lasted through 1974 — through the epic struggle that ended in July 1974 with the Supreme Court directing the president to hand over the tapes, followed by his resignation in August.

Including Trump, three of the last nine American presidents have faced impeachment. In all three cases, the state of the economy and the president’s decisions about it have played no role in the actions that have led to impeachment. But economic conditions are part of the environment in which the American people evaluate for themselves the importance of a president’s decisions and actions.
While there are too few cases here to call it a sample, there is extensive research showing how economic conditions affect a president’s public support — and the paths of Clinton’s and Nixon’s struggles against impeachment generally followed the economy’s trajectory at the time. It is only sensible to expect that economic conditions affect the significance that people attach to the acts that lead to an impeachment, especially among people whose partisanship doesn’t determine their view of it.

The fact is, Donald Trump enters his impeachment period with economic conditions much weaker than those in place when his two predecessors’ troubles began. The economy grew 6.0 percent from mid-1972 to mid-1973, the year leading up to the start of the Watergate hearings and 4.4 percent in the year before Clinton’s dalliances went public. In the year leading up to the recent revelations around Ukraine, consumer spending, business investment and overall growth all rose barely 2.0 percent.

No one can say whether we will tip into recession while President Trump struggles to hold on to his office. But recent signs recall Nixon’s predicament. Growth depends on rising productivity and expanding employment. In recent months, employment gains have slowed, and productivity and output in manufacturing have both turned negative. According to the National Association of Business Economics, 74 percent of its members now expect a recession will begin in 2020 or 2021, citing Trump’s signature trade and tariff policies as a primary reason.

The intersection of economic conditions and impeachment also may have a feedback loop, whereby the path of a president’s impeachment affects the economy. Many studies have found that political and economic uncertainty dampen business investment, consumer spending and growth, especially if the economy is already weak. So, we wouldn’t expect to see evidence of economic impact from Clinton’s impeachment, since the outcome was never in doubt and the economy was strong.

By contrast, the economy went into recession just as Nixon’s impeachment battle got going in November 1973. His fate turned uncertain as the legal struggle over his tapes moved to the Supreme Court in June 1974. And some residual uncertainty persisted after he resigned, since Gerald Ford had become vice president barely eight months earlier, and most Americans had little sense of his goals and values.

Many factors drove the 1973-1974 recession. But its path was consistent with the proposition that impeachment-related uncertainty didn’t help. At a minimum, the third quarter of 1974, covering the Supreme Court’s order to release the tapes and Nixon’s resignation, was the worst quarter since the recession began more than a half-year earlier. In fact, business investment cratered in the third quarter of 1974 and continued to decline sharply for another six months.

Like Nixon, Donald Trump has to fight impeachment with a slow economy. For now, however, the outcome in the Senate seems assured. But if the Senate’s verdict becomes more uncertain and the economy deteriorates further, Trump could meet a version of Nixon’s fate.

Trump’s Economic Program Leaves Most Americans Worse Off

September 24, 2019

This is a reprint from the Washington Monthly, September 24, 2019 issue

President Trump’s tax and tariff policies form the heart of an economic program that he’s promised will help average Americans. The hard data, however, show that he’s actually imposed substantial costs on about 70 percent of Americans.  

That’s because of both the growing burdens imposed by both the tariffs and the tax changes that provided no relief to the nearly 43 percent of U.S. households that paid no income tax before, less than nothing to five percent whose taxes went up, and not much to an additional 22 percent of Americans whose small tax benefits are dwarfed by the negative income effects of Trump’s tariffs.

It may get even worse. If the president goes ahead in December with his plan to increase and expand tariffs on imports from China, 80 percent of the country—roughly 102 million households with 258 million people—will be worse off under his economic program.

The tariffs directly raise the prices for thousands of foreign and U.S.-made goods produced with Chinese or European parts. The U.S. companies that sell those goods lose some business; and as we pay more for some products, we have less left to pay for everything else. So, consumers cut back and businesses follow suit, forcing them and their suppliers to cut the hours their employees work or their jobs – setting off another round of cutbacks by households that squeezes more companies and workers. On top of all this, retaliatory tariffs on U.S. exports by China and the European Union trigger similar cutbacks by American companies and workers. Compared to a world without Trump’s tariffs, his trade program dampens our Gross Domestic Product (GDP), loses jobs, and lowers incomes and wages, compared relative to . 

For most Americans, those costs exceed any savings they can incur from the president’s tax changes. It’s a reminder of just how dramatically his tax program favors the high-income bracket. To begin, 42.7 percent of “tax-paying units” (households and spouses filing separately), covering 154 million people in 2018, got little or nothing from Trump’s tax cuts, because their incomes were too small to trigger income tax liability before those changes. Trump’s decision to cap people’s deductions for their state and local taxes also turned his tax program into a tax increase for five percent of households, living mainly in high-tax blue states.

Additionally, the 2017 tax changes provide so little for the lower 40 percent of tax-paying households that Trump’s tariffs wind up swamping those meager tax benefits. Across the bottom quintile, or 20 percent of taxpayers, the tax benefits averaged just $60 per-household in 2018, and the benefits for the next 20 percent of taxpayers amounted to $380. Trump’s tariff program costs the average household an estimated $690 in foregone income.

That estimate is based on the Tax Foundation’s calculations that Trump’s current tariffs have shaved $62.5 billion per-year from our GDP, and that foreign tariffs imposed in retaliation cost our GDP another $25.6 billion. GDP may just be a particular way of measuring the value generated by the economy, but almost all of it ultimately translates into people’s incomes. 

The rest is arithmetic.  Trump tax changes such as the expanded standard deduction did raise the share of households whose incomes are below the threshold for the federal income tax from 42.7 percent to 44.4 percent.  That leaves 55.6 percent of households paying some income tax in 2018, so each 20 percent of them represent 11.1 percent of all U.S. households.  So, the president’s economic program has cost another 11.1 percent of tax-paying households $630 in 2018. An additional 11.1 percent will pay $310 more in 2018.

  , There are also the 42.7 percent of households with incomes too low to trigger any income tax liability before Trump’s tax changes and the five percent who saw their taxes go up under those changes.  Both of those groups bear the full $690 net costs from his tariffs.  Adding it all up, Trump’s economic policies have imposed significant net costs on 69.9 percent of American households, or roughly 89.2 million households with 226 million people. What’s more, the ripple effects of Trump’s tariffs cost Americans in other ways. Using Tax Foundation data, his tariffs—and retaliation by our trading partners—have cost the economy 272,864 jobs and dampened people’s wages by $25.6 billion or $246 per working household.  Moreover, tariff payments by U.S. business jumped $35.7 billion from 2016 to 2018.  Economists expect that almost all of those payments are passed along in higher prices. Even if U.S. businesses pass along just three-fourths of those payments, Trump’s tariffs have directly cost an average household $282 in higher prices for goods and commodities.

And, if Trump carries out his threat to double down on his tariffs this winter, the annual impact on GDP will nearly double from $88.1 billion to $167.8 billion. As that lost GDP results in lower wages and incomes, Trump’s tariffs will cost the average household an estimated $1,315. At that rate, those costs will overwhelm the $930 in average tax savings claimed by the third income quintile of taxpayers, adding another 11.1 percent of households to the 69.9 percent who already are net losers. When the president asks voters for another four years, he will have to explain how his signature economic policies have left the vast majority of them worse off.  

The Surprising Public Policy Case for Electronic Cigarettes

August 1, 2019

Read the report: The Impact of Electronic Cigarettes on Cigarette Smoking By Americans and Its Health and Economic Implications

For more than a half-century, federal, state and local governments have adopted a variety of strategies to discourage Americans from smoking cigarettes – from health warnings on cigarette packaging, advertising restrictions and anti-smoking public education campaigns, to multiple taxes and bans on smoking in buildings and other public spaces.  Getting people to quit and stay off cigarettes is a steep climb, because tobacco contains the addictive chemical nicotine, along with the dangerous carcinogens inhaled from smoking cigarettes.  Moreover, manufacturers have reinforced the addictive hold of their cigarettes by artificially increasing their nicotine content and adding more chemicals that reinforce the effects of nicotine. As a result, cigarette smoking by Americans has declined quite slowly: From 1964 to 2011, nearly a half-century, the share of American adults who smoked fell from 42 percent to just under 20 percent.

Given the cynical practices of the cigarette manufacturers, the logical alternatives to further reduce smoking rates entail either reducing the nicotine, so people can quit more easily, or eliminating the carcinogens. The first approach has been tried and doesn’t work very well:  People using low-nicotine cigarettes often maintain their nicotine fix by smoking more or inhaling more deeply.  The second option is more promising: Electronic cigarettes or e-cigarettes eliminate the carcinogens while leaving intact the addictive nicotine.

With my colleague Siddhartha Aneja, I recently conducted a study for the Progressive Policy Institute evaluating the promise and possible dangers of rising e-cigarette use. The data from the Centers for Disease Control and Prevention (CDC) clearly suggest that as e-cigarettes or “vaping” have become popular, starting around 2013, cigarette quitting rates have accelerated.  Smoking rates among adults fell more than 20 percent in four years, from 18 percent in 2013 to 14 percent in 2017.  While high school students have the highest rates of vaping – a matter of s concern to many — their use of cigarettes fell more than 40 percent over those years, from 12.7 percent in 2013 to 7.6 percent in 2017.

A number of factors apart from e-cigarettes have contributed to this encouraging news, from higher cigarette taxes to smoking bans in many public spaces.  To learn more about the impact of e-cigarettes, we performed statistical analyses of CDC data on the changes in rates of smoking and vaping by age, gender, race and ethnicity.  The results suggest that the rising use of e-cigarettes can explain about 70 percent of the acceleration in the decline in cigarette smoking from 2013 to 2017.

With the recent substantial rates of vaping among adolescents, some analysts speculate that the sharp decline in adolescent cigarette smoking could be temporary, if e-cigarette use is a gateway to cigarette smoking.  Happily, statistical analysis also indicates that those concerns are misplaced.  At a minimum, rising rates of vaping among adolescents have not been followed a few years later by any moderation in the declining smoking rates of adolescents and young adults now a few years older.  

Moreover, statistical analysis and studies also confirm that e-cigarettes are an effective tool to help people stop smoking. This suggests that vaping could be an instrument of public policy, however politically incorrect it may be to say so.  The British government, for one, urges organizations that provide smoking cessation services to offer up e-cigarettes as a viable way to quit smoking.  Further, Public Health England has concluded that “the evidence does not support the concern that e-cigarettes are a route into smoking among young people” and estimates that using e-cigarette is 95 percent safer than smoking regular cigarettes. 

That finding is an important public policy matter, because treating cigarette-related diseases accounted for nearly nine percent of U.S. healthcare spending, or more than $310 billion in 2018.  Further, depending on age, the annual per capita healthcare costs of cigarette smokers are 9 percent to 10 percent greater than those of nonsmokers and e-cigarette users, and the annual per capita healthcare costs of ex-smokers are 20 percent to 34 percent higher than those of nonsmokers and e-cigarette users.

Ironically, the use of e-cigarettes actually increases lifetime healthcare costs, because their use reduces cigarette smoking rates, and ex-smokers and nonsmokers on average live longer than smokers.   Moreover, the economic value of their additional years of life far outweigh the additional healthcare costs that arise from living longer.  Nonsmokers and vapers also are more economically productive than smokers, all other factors being equal, because cigarette smokers miss more work due to illness and come to work impaired by illness more often.  

While e-cigarettes do not deliver the deadly carcinogens that come with smoking cigarettes, there has been little scientific study thus far of any long-term health effects of vaping.  We need more.  Similarly, while smoking rates among high school students have fallen sharply, their high rates of vaping and associated nicotine dependence suggest that the restrictions on the age of people purchasing cigarettes and the places they can smoke should apply to e-cigarettes. 

Having said that, future regulation of e-cigarettes should also take account of their positive impact on declining rates of cigarette smoking, their effectiveness in helping people stop smoking, and the annual healthcare savings and productivity benefits that come from stopping smoking.

Trump Acts Like a Populist. His Regulatory Record Suggests Otherwise

July 18, 2019

The administration has consistently favored big businesses over average people.

by Robert J. Shapiro

At some point, every president has had to grapple with the fact that he is not a king. The unhappy realization usually comes after they’ve been unable to pass one of their biggest priorities through Congress. Recall Bill Clinton with health care, George W. Bush with social security privatization, and Barack Obama with gun control. Donald Trump has learned this, too, when he tried—and failed—to repeal Obamacare. Having to work with a co-equal branch of government often serves its intended purpose: to prevent the executive from imposing his or her unchecked will on the country.

But that is not the case with regulation. The regulatory process usually doesn’t involve the opposition party, at least beyond eliciting occasional complaints, and it usually draws little public scrutiny. As a result, the president’s regulatory record provides special insight into his undiluted priorities and beliefs.

The Brookings Institution catalogues all new regulatory moves, and it has reported that Trump and his appointees have taken 175 significant regulatory actions since he took office in January 2017.  While Trump’s legislative agenda has focused on building a border wall and lowering taxes for wealthy people and businesses, his regulators have mounted sustained attacks on environmental standards, consumer and worker safeguards, and barriers to discrimination. They have consistently favored big businesses and important interest groups over average people. For all his bluster about America’s “forgotten men and women,” a close look at Trump’s regulatory record reveals him to be anything but a populist.

Most presidents use their regulatory authority to nudge the economy in one way or another. The Federal Trade Commission and the Federal Communications Commission, for instance, typically focus on promoting competition. Others are designed to simply help Americans, like the Consumer Financial Protection Bureau which is responsible for protecting people from fraud and abuse by financial companies. Partisan disagreements are a regular part of this process. But most of the time, the controversies come down to arguments over a new rule’s relative economic costs and benefits.

On occasion, Trump’s regulators have addressed traditional economic matters, as by creating a fast track for FDA approval of new gene and cell therapies, streamlining procedures authorizing small companies to export natural gas, and proposing a simpler licensing process for commercial space launch vehicles. But their main actions have had little to do with improving the economy. Instead, Trump’s regulators have mounted a sweeping assault on environmental and consumer protections.

Perhaps because climate was one of Obama’s signature regulatory issues, Trump’s EPA moved quickly to roll back new limits on greenhouse gas emissions by coal-fired power plants, which were put in place under Obama’s Clean Power Plan. Trump’s EPA also repealed Obama-era limits on methane emissions by oil and natural gas producers and sidetracked requirements that states track and reduce CO2 emissions on their highways. What’s more, it threw out the previous administration’s rules raising fuel-efficiency standards for cars and trucks and weakened requirements that oil companies install equipment to control offshore spills, allowed oil drilling on federal lands with endangered species and proposed the same for most of the Outer Continental Shelf, and suspended limits on how many toxic metals a power plant can discharge into surface water.  Meanwhile, Trump is the first president since the EPA was established nearly 50 years ago to issue no new regulations strengthening environmental protections.

Nor has he used his regulatory power to beef up protections for consumers and workers. Since healthcare was Obama’s signature legislative achievement, it seems unsurprising that Trump’s regulators would do everything they can to undermine it. Starting in January 2017, they moved quickly to shorten the open enrollment period for Obamacare under the law and watered down the requirements for coverage. They have also proposed ending the Affordable Care Act’s ban on insurers discriminating on the basis of gender, gender identity, or pregnancy. It doesn’t end there. They recently proposed new rules to allow states to certify “short-term health plans” that exclude people with pre-existing conditions, have no caps on out-of-pocket costs, and don’t  cover “essential benefits” like hospital care, prescription drugs, and mental health or substance abuse services.

Trump appointees have also made it materially easier for people to be ripped off: they repealed a requirement that payday lenders determine if a borrower can repay a loan before lending them funds; lessened the performance standards that for-profit colleges have  to meet before they can accept federal student loans; issued new rules to increase the hours that truck, bus, and school bus drivers can work without resting; expanded the exemptions from minimum wage and overtime regulations; and nullified people’s rights to stop internet service providers from selling their personal information.

Equally disconcerting, the Trump administration regularly uses new rulemaking to advance the conservative social agenda. New regulations make it substantially more difficult for family planning clinics that provide abortion services for low-income people to receive federal dollars, and permit employers to exclude contraceptive services from their health plans if they object on “moral” or “religious” grounds.

Finally, Trump and his agency heads have deliberately weakened regulations to prevent discrimination. They shelved the requirement that communities receiving federal housing funds develop plans to combat housing discrimination based on race, along with guidelines barring auto dealers from charging higher interest rates based on race and allowing transgender students the right to choose their bathrooms. Most recently, they proposed to sharply narrow the circumstances under which colleges and universities have to investigate their students’ allegations of sexual assault.

After almost three years with Donald Trump in the White House, a clear theme has emerged. He and his appointees have used their regulatory authority to enhance the power of big businesses and conservative activist groups and weaken the rights of ordinary people. Despite Trump’s self-branding as the tribune of the working class, his record exposes him as dismissive at best, and hostile at worst, to the people a real populist would be championing.

How much credit does Donald Trump deserve on the economy? Based on the data, not much.

June 21, 2019

Presidents deserve credit on the economy when their policy changes leave most people better off by creating conditions that stimulate employment, growth, investment, or consumer spending. Donald Trump’s tax and spending program approved by the GOP Congress in late 2017 has changed certain economic conditions. While it’s still early for a final judgment on Trump’s economic record, the results so far suggest his policies have only weakened the economy.

Let’s start with jobs. The jobless rate today is 3.6 percent. But unemployment had fallen steadily for more than six years before Trump took office, from 10 percent in October 2009 to 4.7 percent in January 2017. Since Trump’s program was enacted in December 2017, the jobless rate has fallen from 4.1 percent to 3.6 percent.

But the official data from the Bureau of Labor Statistics show that the decline in joblessness has actually slowed under Trump’s policies: In the 17 months before Trump’s program went into effect, unemployment dropped by 12.5 percent of its total decline. In the 17 months since then, it’s dropped by 8 percent.

Trump is correct that the economy has grown faster after his policies took effect: Real GDP growth has accelerated—from 2.5 percent in 2017 to 2.9 percent in 2018 and 3.1 percent in the first quarter of 2019. But a deeper dive into the data shows that Trump’s policies had almost nothing to do with it.

The administration’s policy approach was to spur business investment sufficiently to sustain higher growth. In October 2017, as Congress debated Trump’s tax proposals, the head of his Council of Economic Advisors (Kevin Hassett) predicted that the business tax changes would “boost [to] capital spending and then GDP growth.”

Yet, the Bureau of Economic Analysis (BEA) reports that business investment has contributed less to GDP growth since December 2017 than it did before. In fact, with the exception of the beginning of 2018—immediately following the passage of the GOP’s big tax breaks for corporations and other businesses —business investment has slowed down.

From then until now, real fixed business investment has grown just 4.3 percent—a significant slowdown from the 6.3 percent gains that took place from the end of 2016 to the end of 2017, when the tax breaks were passed.

What’s more, Trump’s policies have not boosted consumer spending. This key indicator of economic health also has slowed since December 2017: Personal consumer spending grew 2.9 percent in the five quarters since Congress enacted Trump’s program—less than the 3.4 percent gains in the five quarters before his policies became law.

Equally disconcerting, Trump’s approach to trade hasn’t helped the economy. Trump repeatedly promised to reduce the trade deficit and imposed new tariffs within months of taking office. Yet, the trade deficit has increased sharply under his tenure, rising from $503.0 billion in 2016 to $550.1 billion in 2017 to $627.7 billion in 2018. For context: While the trade deficit jumped $125 billion over Trump’s first two years as president, it increased by just $13 billion over Obama’s last two years in office.

Based on the Bureau of Economic Analysis’s GDP reports, the only factors boosting growth since Trump’s policies took effect have been inventory changes and rising government spending. But since the inventory changes are happening independent of Trump, his only real basis for claiming credit for the economic state of our nation is that his policies have briefly goosed the economy by expanding budget deficits.

Presidents can affect federal spending from nearly the time they take office. The non-partisan Congressional Budget Office (CBO) reports that over Trump’s first two years as president, his policies increased the budget deficit by 33.3 percent. At the same time, revenue changes also drive what happens to the budget deficit, and Trump’s tax breaks have reduced federal revenues significantly. Since they took effect in January 2018, the deficit has jumped more than 17 percent.

Here, the past looks like prologue, because things are only looking to get worse. CBO has forecast that budget deficits under Trump will keep rising this year and in 2020 and beyond. If CBO is correct, the deficit will jump more than 54 percent during Trump’s first—and hopefully only—term. Here, too, the contrast with Obama is stark: In the last four years of his presidency, the budget deficit fell by more than 46 percent.

In the opening rally for his 2020 campaign, Trump insisted that the economy is “soaring to incredible new heights,” as “perhaps the greatest economy we’ve had in the history of our country.’’ But the data don’t lie. His policies have failed to boost business investment or consumer spending and failed to reduce the trade deficit or budget deficits. It’s unsurprising that the latest consensus forecast by Wall Street economists and CBO’s latest outlook concur that the U.S. economy is slowing down, That’s what Trump can honestly take credit for.

This essay was originally published by Washington Monthly.

Why Americans Distrust and Fear Immigrants

March 22, 2019

Donald Trump demonstrated the power and broad appeal of attacking immigrants in 2016, with special emphasis on non-white immigrants. He did it again in last year’s midterm elections, when his passionate followers seemingly were unmoved by the cruelty of separating young children from their mothers at the border, or by Trump’s audacious claim of presidential powers to nullify the constitutional right to birthright citizenship. Race-baiting is usually an integral part of right-wing-populist politics, and of the President’s broader personal brand of nationalism. Yet the response (or lack thereof) to his racialized anti-immigrant themes is based on more than simple prejudice, since we know that millions of Trump voters once backed Barack Obama and millions more were long-time traditional “Main Street” Republicans.

For a fuller understanding of Trumpism, I dug into the official jobs numbers over the past decade. These data help reveal the real economic foundations for many Republican voters’ current hostility toward diversity, especially among the nearly-two thirds of white adults who do not have college degrees. They show two realities. First, that employers have a strong preference for hiring college-educated job candidates; and second, that increasing diversity in employment has produced distinct losers as well as winners over the current business cycle. The data document clearly that new employment at every educational level has tilted strongly toward Hispanics and Asians, and strongly away from whites. Consider the following: The number of employed white high school graduates plummeted by 4,854,694 from January 2008 to August 2018, a 16.9 percent decline despite nine years of expansion – while the number of employed non-white high school graduates increased 3,343,341 or 27.2 percent over the same period. [Give ONE representative statistic here that will make readers go, Oh, I see what he means, gee. Something comparing employment data between whites and nonwhites would be ideal]

Social scientists have not examined these issues with sufficient care, much less political consultants. They need to reconsider the employment data for the last decade, and progressives generally need to think hard about this, too. There is a conviction among many on the left that bigotry alone fuels anti-immigrant views and those holding those views are irredeemable “deplorables.”  But the power of that cultural explanation also relies on the conspicuous absence of an economic explanation. The numbers I studied provide such an explanation. If supporters of a diverse economy and country cannot recognize this dilemma, the job issues that millions of their fellow Americans face will only worsen, with the potential result that right-wing populists will win and progressives will lose more elections.

The Labor Market’s Sharp Tilt in Favor of College Graduates …

Everyone knows that college graduates enjoy a strong advantage in landing new jobs.  Yet, the full extent of that edge is still unappreciated by most people. From January 2008 to August 2018, covering both the initial losses in the Great Recession and sustained gains over more than nine years of economic recovery and expansion, total employment increased by a net 8.8 million. On top of that, the economy had shed nearly 7. 7 million jobs from January 2008 to January 2010 and restored those jobs from January 2010 to April 2014.  So, all told, the changes in the makeup of employment occurred through the destruction of 7.7 million jobs followed by the creation of 16.5 million jobs (7.7 + 8.8 = 16.5).

Through that process, the number of employed people with high school diplomas or less contracted by nearly 4.3 million, and jobs held by people with college training short of a bachelor’s degree rose by just 750,000. Meanwhile, the number of employed college graduates increased nearly 12.4 million. Pause for a moment to consider what these numbers mean. Most employers have little or no interest in creating new jobs for non-college graduates, but their demand for college graduates is so great that the increase in jobs held by people with bachelor’s degrees was equivalent to 140 percent of the total net increase in jobs. These new hard facts of economic life in the United States are summarized below.

Table 1. Changes in Employment by Educational Level,

January 2008 to August 2018

Education January 2008 August 2018 Change
Number Share of Jobs Number Share of Jobs Number Percent
No HS Diploma 14,876,054 10.5% 12,105,851 8.1% -2,770,203 -18.6%
HS Graduate 41,014,359 29.0% 39,503,006 26.3% -1,511,353 -3.7%
Some College 40,365,097 28.6% 41,114,244 27.4% 749,147 1.9%
B.A. or More 45,041,297 31.9% 57,402,029 38.2% 12,360,732 27.4%
Total 141,296,807 100.0% 150,125,130 100.0% 8,828,323 6.2%


 … And Equally Sharp Tilt in Favor of Hispanics, Asians, and Blacks


While those data provide a vivid portrait of one critical change in the workforce, the picture is much more complicated, in an unexpected way, when we also factor on race and ethnicity. At the beginning of this business cycle, much larger percentages of whites and Asians had college degrees, compared to blacks and Hispanics. One might, therefore, reasonably have expected to find job gains concentrated among the former two ethnic groups. Yet that is not what happened at all. Rather, white employment fell across most of the four educational groups shown in Table 1 above, while Hispanic, Asian, and black employment rose across most of those groups.

These developments have attracted little notice, mostly because the way the government collects the data obscures them. The Census Bureau classifies whites, blacks, and Asian as races and Hispanic as an ethnicity, which is certainly correct technically. As a result, however, much of the jobs data issued by the Bureau of Labor Statistics (BLS) classify as whites both non-Hispanics and Hispanics who identify as white. Similarly, much of BLS’s data count as blacks and Asians all non-Hispanics and Hispanics who identify as black or Asian. As a result, when employment among Hispanics rises (or falls), it pushes up (or down) employment of whites, blacks, and Asians, depending. An accurate picture of who is employed in America emerged only when we resorted those online Census data into the following four categories: non-Hispanic whites, non-Hispanic blacks, non-Hispanic Asians, and Hispanics.

Here’s what the revised data show. At the beginning of this business cycle, Asians and Hispanics accounted, respectively, for 4.8 percent and 13.6 percent of all U.S. employment: Together they made up 18.4 percent of the workforce in January 2008. By the end of this period in August 2018, the numbers of Hispanics with jobs had increased by close to 6.1 million, and the number of Asians with jobs had risen more than 2.9 million, for a combined increase of almost 9 million. Since all U.S. employment increased by just over 8.8 million, the jobs gains by these two groups exceeded the total gains in employment. In the annals of modern economic change, that constitutes a remarkable development, and an extraordinarily rapid advance in diversity.

Black employment also increased over this period by more than 2.3 million. In this case, blacks accounted for 10.8 percent of all U.S. employment at the beginning of the period, yet their gains accounted for 29.1 percent of all employment gains over this period. Together, employment of Hispanics, Asians, and blacks increased by 11,533,154 over this period. In other words, three minority groups accounting for 29.2 percent of all employment in January 2008 were responsible for a staggering 130.6 percent of the total net increase in employment – offset by a major decline in the dominance of whites in overall employment. [Some readers may see these two numbers, and the vast gulf between them, and wonder how can this really be? So maybe add a short sentence anticipating and answering this question] This is what the increasing diversity in employment has meant, in the most concrete and real terms, in this business cycle.  As we will demonstrate, these remarkable shifts rest on basic demographics, our seeming political incapacity to sensibly debate and update immigration policy, and the persistent wages disparities across the four racial and ethnic groups.


We can celebrate the dramatic advances by immigrants and other minorities and still recognize the Americans living on the other side of this ledger. In January 2008, whites accounted for 70.7 percent of all employment. But since then, as every other group achieved large gains, total white employment contracted by about 2.7 million positions.

Once again, we all know that people’s level of education makes a big difference in their job prospects. Most notably, the number of employed Americans with high school diplomas or less, who numbered nearly 55.9 million in January 2008, fell sharply. Given the other developments, we cannot be surprised that those losses were not distributed in anything like an even way racially or ethnically. While the total employment of high school graduates fell by about 1.5 million, the number of employed Hispanic high school graduates increased more than 2.5 million, and the number of Asian and black high school graduates with jobs rose by 474,134 and 330,881, respectively. Unavoidably, those gains are counterbalanced by a virtual collapse in the employment of white high school graduates, whose numbers fell by 4,854,694.

The pattern is much the same among people with college training short of a bachelor’s degree. Overall, their employment increased by a modest 750,000 from January 2008 to August 2018. Dig deeper, and we find that employment of people in this educational group increased by nearly 2.1 million among Hispanics, 981,000 among blacks and 279,000 among Asians. Again, the other side of this enhanced diversity was a decline in the numbers of employed whites with the same education, by almost 2.6 million.

The pattern changes somewhat at the top and bottom of the educational ladder, but not in a fundamental way. At the top, a little more than 45 million college graduates were employed in January 2008; and by August 2018, their numbers had risen to 57.4 million. All four racial and ethnic groups saw gains at this educational level, but those gains were not proportionate to their share of employed college graduates in January 2008. At that time, 22.1 percent of all employed college graduates were Hispanic, Asian, or black. By August 2018, their numbers had increased by nearly 2 million among Hispanics, 2.1 million among Asians, and 1.8 million among blacks.  As a result, the three groups accounted for 47.1 percent of the increase in the college-educated workforce, distributed reasonably across the three groups.

Again, the arithmetic here dictates that the job gains by white college graduates lagged behind considerably, relative to their share of college graduates at the beginning of this period.  In January 2008, 77.9 percent of all employed college graduates were white, which came to nearly 35.1 million people. Their numbers increased by almost 6.5 million over the period, so by August 2018, whites accounted for just 52.9 percent of all job gains by college graduates. The bottom line: the numbers of employed college graduates grew 18.4 percent among whites, compared to gains of 53.1 percent among blacks, 56.2 percent among Asians, and 71.4 percent among Hispanics.

Finally, at the bottom of the educational ladder, the number of employed people without high school diplomas contracted by almost 2.8 million over this business cycle. Here, the employment losses were disproportionately large among blacks as well as whites. All told, the number of employed people without high school degrees declined 18.6 percent. But those numbers fell 27.6 percent among whites (down over 1.7 million) and 33.5 percent among blacks (down 564,000). The story is quite different for Hispanics and Asians. Employment of Hispanics without high school degrees fell just 7.9 percent (504,000), while employment among their Asian counterparts actually increased by 5.4 percent (nearly 30,000).   Here are the numbers for each racial and ethnic group at each educational level:

Table 2:  Changes in Employment by Race and Ethnicity and by Education,

January 2008 to August 2018

Employed Non-Hispanic Whites
Education January 2008 August 2017 Change
Number Share of Jobs Number Share of Jobs Number Percent
No HS Diploma 6,279,099 42.2% 4,548,228 37.6% -1,730,871 -27.6%
HS Graduate 28,730,506 70.0% 23,875,812 60.4% – 4,854,694 -16.9%
Some College 29,845,066 73.9% 27,274,552 66.3% – 2,570,514 -8.6%
B.A. or More 35,080,000 77.9% 41,531,288 72.4% 6,451,288 18.4%
Total 99,934,671 70.7% 97,229,880 64.8% -2,704,791 -2.7%
Employed Non-Hispanic Blacks
No HS Diploma 1,682,986 11.3% 1,118,852 9.2% -564,134 -33.5%
HS Graduate 5,274,760 12.9% 5,605,641 14.2% 330,881 6.3%
Some College 4,904,044 12.1% 5,884,635 14.3% 980,591 20.0%
B.A. or More 3,427,843 7.6% 5,247,340 9.1% 1,819,497 53.1%
Total 15,289,633 10.8% 17,856,468 11.9% 2,566,835 16.8%
Employed Non-Hispanic Asians
No HS Diploma 556,205 3.7% 585,969 4.8% 29,764 5.4%
HS Graduate 1,225,782 3.0% 1,699,916 4.3% 474,134 38.7%
Some College 1,244,819 3.1% 1,523,587 3.7% 278,768 22.4%
B.A. or More 3,779,158 8.4% 5,903,739 10.3% 2,124,581 56.2%
Total 6,805,964 4.8% 9,713,211 6.5% 2,907,247 42.7%
Employed Hispanics
No HS Diploma 6,357,764 42.7% 5,852,802 48.3% -504,962 -7.9%
HS Graduate 5,783,311 14.1% 8,321,637 21.1% 2,538,326 43.9%
Some College 4,371,168 10.8% 6,431,470 15.6% 2,060,302 47.1%
B.A. or More 2,754,256 6.1% 4,719,662 8.2% 1,965,406 71.4%
Total 19,266,499 13.6% 25,325,571 16.9% 6,059,072 31.4%

These racial and ethnic reshufflings of the workforce at every educational level, remarkable in themselves, also help solve the mystery of why Donald Trump’s attacks on immigrants of color and other minorities have struck such a deep chord among many non-college-educated white Americans in particular. Before and during these reshufflings, as our recent research has shown, their inflation-adjusted incomes had declined, as they aged, from 2001 to 2013: For example, a typical 42-year old in 2013 earned less than he or she had earned at age 30 in 2001. On top of that, more than half of non-college educated Americans were homeowners in 2008 and so suffered large losses in the housing collapse. For many white Americans, the racial and ethnic reshuffling of the labor force provided yet another economic blow and the last piece of the economic foundation necessary to their support of Trump’s demagogic attacks on immigrants and minorities.

Why is this happening?

In one sense, the major force at work here is simply the labor market. When employment plummeted in 2008-2009, most of the nearly 7.7 million people who lost their jobs were ready to go back to work whenever employers started hiring again. Those jobs came back, although the people filling them were often very different.  On top of all those people, millions more continued to enter the labor force looking for work for the first time.  That is what happened, at least for Hispanics, Asians and, to a lesser degree, black Americans from 2010 to 2018. But it was different for working-age whites: Their numbers on the job market actually contracted over the same years.

Those singular developments in the labor market drew on a combination of demographic shifts, policy decisions, and basic economic incentives.  Starting with demography, the facts are that whites in the United States simply are older, on average, than blacks, Asians, and Hispanics. From 2010 to 2018, the average median age of whites was 43.6 years, compared to 40.7 years for Asians, 39.3 years for blacks, and 36.5 years for Hispanics. That tells us that some of the decline in the numbers of employed whites came about because, compared to the other groups, a larger share of whites reached retirement age and a smaller share entered the workforce. In the same way, some of the increase in the numbers of employed Hispanics and blacks occurred because a larger share of Hispanics and blacks grew old enough to enter the workforce and smaller shares retired.

Much of these age-based differences reflect differences in birthrates, which have been substantially lower for whites than for blacks, Asians or Hispanics for at least the last quarter-century.  But some of the age-based differences also reflect, yes, differences in immigration rates.   The racial and ethnic breakdown of the pool of recent immigrants broadly parallels the disproportionate increases in the labor force and job gains by Hispanics and Asians, compared to whites and blacks. From 2000 to 2014, nearly 17 million immigrants entered the United States from four parts of the globe —an estimated 8,580,000 immigrants arrived from Latin America, and another 5,007,000 came from Asia, compared to 2,384,000 from Europe, the Mideast and Canada, and just 974,000 from Africa. About 68 percent of those immigrants were of prime working age when they arrived (ages 20 to 49 years old). Not surprisingly, over the years, from 2000 to 2014, Hispanic immigration added some 5,834,400 working-age people to the labor force, and Asian immigration added another 3,404,760 potential workers—compared to 1,621,120 working-age people from predominantly white countries, and 662,320 from mainly black countries.

This recent dominance of immigrants coming from Latin America and Asia, compared to everywhere else, cannot properly be called a matter of national policy, since the last time Congress enacted any significant changes in immigration policy was nearly three decades ago (1990).  Stated more accurately, we should attribute the remarkable dominance of Hispanic and Asian immigrants to the long-time political stalemate over immigration that has resulted in the absence of a national immigration policy.  Beyond these demographics and politics, the changing composition of employment also reflects differences in people’s work habits and expectations. We can see this in the differences in the four groups’ labor participation rates — the share of working-age people in each group that actively are looking for work on top of the share already employed.  Over this business cycle, the labor participation rate has been consistently higher among Hispanics (66.2 percent) and Asians (63.7 percent) than among whites (63.0 percent) or blacks (61.4 percent).

All told, from 2010 to 2018, the prime working-age labor force contracted by 5,125,072 people among whites. Over the same period, it expanded by 791,428 among blacks, by 2,015,115 among Asians, and by 2,602,962 among Hispanics. So, in relative terms, when employers created new jobs over this period, the supply of Hispanics on the job market had expanded sharply, the supply of Asians and blacks looking for work had expanded substantially, and the supply of available white workers had contracted significantly.

A final critical reason why many employers are more inclined to hire Hispanics, Asians and blacks than whites in this business cycle is the economics of wages.  At every educational level except people without high school degrees, whites’ wages are higher than the wages of blacks¸ Hispanics and, in some case, Asians. There is a long history of immigrants and minorities working for less than others with the same education, sometimes willingly and often unwillingly. Italians, Poles, Eastern Europeans, and Irish, as well as blacks, did so a century ago. Apparently, that pattern has not changed a great deal.


The data from the “Annual Social and Economic Supplement” to the Census Bureau’s Current Population Surveys  tell us the following eco0nomic facts of current life: On average, Hispanics work for less than whites at every educational level except for people without high school degrees; blacks work for less than whites at every educational level; and Asians work for less than whites among high school graduates and people with college training short of a bachelor’s degree

The largest pay differences are evident among high school graduates, the group with the largest decline in employment among whites and large job gains by Hispanics and Asians. From 2008 to 2017, the average annual earnings of white high school graduates, at $37,734 (in 2017 dollars), were 35.5 percent more than the average for their black counterparts ($27,848), 20.7 percent more than the average for Asians with that education ($31,270), and 25.3 percent more than the average for Hispanic high school grads ($30,114). The pay differences are substantial but smaller among workers with college training short of a bachelor’s degree. Across this group, whites took home on average $42,112 per-year over this period, which was 26.9 percent more than blacks with the same education ($33,198), 23.4 percent more than Hispanics with that education ($34,130), and 14.4 percent more than Asians ($36,819).

The pay disparities associated with race and ethnicity are also significant among those with college degrees or more. Across the college graduates in the four groups, whites took home on average $78,916 per-year over this period, or 27.6 percent more than their Hispanic counterparts ($61,794) and 29.6 percent more than black college graduates ($60,903).  However, white college graduates also earned on average 1.7 percent less, at $78,916, than their Asian counterparts at $80,290.

The larger exception to the general pattern involves people without high-school degrees. Among people without high school diplomas, white workers on average earned $20,270 per-year over this period, which was 8.3 percent less than Asian workers ($22,111) and 10.9 percent less than Hispanic workers ($22,745). However, black workers without high school diplomas earned the least of the four groups at an average of $16,390 per-year over this period, or 27.9 percent less than their Hispanic counterparts, 25.9 percent less than their Asian counterparts, and 19.1 percent less than employed whites int this educational group.

Social scientists have established that discrimination in a variety of forms is a crucial force behind the earnings differences among people with comparable education.   The ambitions of new immigrants and minorities also play a role, as does the higher prevalence of part-time work among Hispanics, Asians, and blacks than among whites. Whatever the precise mix of these factors and others, people who will work for less are more likely to be hired. Paired with the accompanying racial and ethnic differences in the supply of additional workers over this period, these wage differences explain much of the dramatic gains in employment by Hispanics, Asians, and blacks and the equally startling contractions in employment for whites during this business cycle.

How to Advance a Diverse Workforce without Dividing America

 Like Bill Clinton in 1992, Donald Trump got serious traction in 2016 because many millions of Americans had legitimate economic grievances. Under George W. Bush, and through Barack Obama’s first term, income progress slowed, stalled, or worse for most Americans.  Global trade and capital flows produced new veins of long-term unemployment. Financial deregulation and Wall Street’s self-dealing precipitated a crisis that wiped out the home equity of millions of homeowners and Congress sent taxpayers the trillion-dollar bill to rescue the self-dealers. All of this created an ideal environment for serious reforms. Of course, that’s not what Trump truly offered and certainly not what he produced. Instead, he has consistently scapegoated immigrants and dismissed blacks. The pressing question now is how to blunt the appeal of Trump’s anti-immigrant, anti-minority populism by grappling with the economic developments that helped produce his presidency.

The only answer is to broaden the benefits of a diverse economy by addressing the economic grievances of millions of Americans in ways that don’t divide the country. A reasonable place to begin is with policies to promote broad income progress. Mainstream economics can tell us at least how to support the conditions required for such progress. First, invest more in infrastructure, education, and basic research, and promote private as well as public investment by reducing deficits. (Rolling back Trump’s tax giveaways to businesses and wealthy people would help here.) The next piece is more challenging. Whatever people feel about the global economy, we cannot escape it. So, we have to welcome foreign investment and reach out to foreign demand, especially for manufactured goods. . A similar agenda supported the long economic boom under Bill Clinton.  However, we now understand a great deal more about the downsides to globalization.  For example, this time we also need to use our leverage and in some cases the World Trade Organization to stop manufacturers in China and elsewhere from free-riding on American innovations.  This time, we also need serious and fully-funded new initiatives to help those workers and communities most vulnerable to globalization.

In that context, the new shape of the job market also clearly makes universal access to higher education a social necessity. Many elite universities today forgive tuition for students from families earning less than $120,000.  The government should do the same for young people attending all public colleges and universities. But that won’t help millions of people struggling with large student debt. In the interest of fairness—and without busting the budget—the government can create a revolving fund to buy up all outstanding student loans used to cover tuition and reissue them at the Treasury’s 10-year bond rate (about 2.75 percent today).

Equally important, the tens of millions of Americans too old to go back to college—and sinking or barely treading water in today’s job market—need access to training for better jobs. Congress should take a direct approach here as well.  Any adult should be able to enroll in up to two community college training courses per year on the government’s tab, with a certification system for those who successfully complete their courses.

We also should protect people’s incomes from fast-rising health-care costs, because those costs have squeezed many companies’ capacity to raise wages for nearly two decades. . We can change that without a divisive struggle over universal single-payer. Instead (or in the meantime), Congress should restore and fully fund Obamacare, which slowed those rising costs substantially for several years. On top of that, anyone with medical bills that exceed 20 percent of their income should be able to buy into Medicare, which would relieve not only their financial pressures but also the collateral pressures on everyone else’s insurance premiums.

Finally, Americans of all races and ethnicities deserve a level playing field for their wages and salaries. Congress should begin to provide that for both immigrants and minorities most vulnerable to working for lower pay and those others priced out of employment as a result, by ensuring that all laws and regulations that affect hours and compensation cover everyone, wherever and however they work.  To ensure that all employers respect a level playing field for all workers without college training – white, black, Hispanic, Asian or any other background — Congress should also create a pathway to citizenship or legal status for all undocumented resident here, and then raise the minimum wage for everyone to $15 per-hour over three years.


This is a daunting agenda and a fantastical one as long as Donald Trump remains President.  But for the throng of would-be Democratic presidents, addressing the legitimate economic grievances of non-white and white Americans is a necessity.  Against Hillary’s own record and character, her rainbow agenda utterly failed here. Trump truly overwhelmed her among the white non-college graduates who comprised 44 percent of the 2016 electorate – beating her by 36 points overall (64 to 28), including 27 points among women (61 to 34) and 48 points among men (71 to 23).

Addressing the economic trials facing non-college educated white Americans is also a matter of fairness.  This is simply an argument for reality-based employment policies. It’s an argument, for example, to extend the “Work Opportunity Tax Credit,” which today rewards hiring of veterans and felons, to cover non-college graduates unemployed for at least three months.  And when progressive politicians and pundits propose economic reforms, this is a case for saying out loud that the commitment to help struggling families includes white, Hispanic, black and Asian families.  If we cannot manage that, our claims to economic fairness are hollow, and right-wing attacks on stultifying political correctness will sadly be proven true.

The Economic Tea Leaves Point to a Downturn in 2020

March 10, 2019

Do the latest economic data signal a recession is coming?  The best answer is, yes, but not quite yet: The economic tea leaves point to a recession beginning over the next 12 to 15 months – so, just in time for the 2020 presidential campaign.

The jobs numbers for February were released last Friday, and they were awful – gains of just 20,000 jobs nationwide over the last month.  What does that tell us?  Taking a wider view, employment gains over the last six months averaged 190,000 per-month.  Yet, an even longer view shows that job growth has been slowing, since employment increased by an average of 228,000 job per month in the preceding six months.  Also, keep in mind that employment is what economists call a “lagging indicator”:  Job losses don’t begin until a recession is already here.  In the last three business cycles, employment continued to grow until the same months when two of those recessions began, in July 1990 and March 2001, and one month into the most recent recession, which began in December 2007.

While employment cannot foretell when a recession will arrive, there is one remarkably canny signal:  In the six to nine months before every recession since the 1960s, the Treasury “yield curve” has flattened and then turned negative.  That’s economist-speak for a particular unusual development:  Global investors lose confidence in the short-term outlook and so demand that the U.S. Treasury pay them as much or more to lend Treasury funds for a short period as for lending the funds for a longer term.  That is precisely what’s been happening for more than a year.

Back in January 2018, the yield on Treasury 10-year securities was 102 basis points higher than the yield on three-month Treasury bills (2.46 percent versus 1.44 percent). Since then, the gap has narrowed to just 22 basis points (2.69 percent versus 2.47 percent).  It’s the same story for six-month Treasury bills and 20-year Treasury bonds: The difference in their yields has flattened from 103 basis points to 37 basis points.   Moreover, while every downturn since the 1960s has been preceded by a yield curve that flattens and then turns negative, there has also been only one “false positive,” and it happened 50 years ago.

The other fairly reliable signal is housing:  When housing starts and housing sales fall by 20 percent or more, a recession is almost certainly coming.  Here, the facts are that sales of existing homes have been falling for the past year with only one brief uptick; and new home construction has been flat or falling since May 2018.  To be sure, while housing sales and housing starts clearly are falling, they haven’t reached the 20 percent decline that rings the alarm bell.

Frankly, none of this should surprise anyone.  This current business cycle began way back in July 2009, which makes it nearly ten years old.  The longest expansion in U.S. history lasted 10 years (March 1991 to March 2001).  In one respect, expansions are like people: They weaken as they age, and eventually, they all expire.  The crucial difference, of course, is that the economy comes back to life, which is why we call it a business cycle.