It’s hard to be happy about the prospect of the sequester—the huge, automatics cuts to domestic spending set to take place if lawmakers can't reach a long-term budget deal—going into effect at the end of the week. Not only will it will mean substantial cuts to important programs; it will be a further drag on an already weak economy, shaving 0.6 percentage points off our growth rate. The end of the payroll tax cut, which expired on January 1, has already pushed it down to around 2.0, but the sequester cuts will depress it below the rate needed to keep pace with those entering the labor market. As a result, we are likely to see a modest increase in unemployment over the course of the year if the cuts are left in place.
In February 1913, exactly a century ago, the Sixteenth Amendment gave Congress a constitutional green light to levy a federal tax on income. Later that same year, lawmakers made good on that opportunity. An income tax has been part of the federal tax code ever since.
Earlier this month, the Justice Department and 16 state attorneys general sued the Standard and Poor’s (S&P) credit-rating agency, accusing the company of improperly inflating the ratings of 40 collateralized debt obligations (CDOs)—essentially, securities made up of other mortgage-backed securities—at the height of the housing bubble. According to the suit, S&P misled investors by rating the risky securities as "triple-A," super-safe investments. But the purchases turned into massive investor losses when the bonds failed after the bubble collapsed.
Yes, pundits of all stripes are already starting to handicap the presidential fields for 2016. Yes, that’s a long time from now … although we are under three years to the Iowa Caucuses, and probably just about two years from the first debates, so it’s not all that long. More to the point: as long as the candidates are running—and they are—there’s no reason to pretend the contest hasn’t started yet.
We all do things that we regret. President Obama must surely regret that he ever listened to the extreme deficit hawks back in early 2010, when he appointed the Bowles-Simpson Commission, the fiscal zombie that just won’t die.
The commission is long defunct. The recommendations of its majority report never became law (because that required a super-majority). But the dreams and schemes of B-S have become the gold standard of deflationists everywhere. The test of budgetary soundness is: does it meet the recommendations of Bowles and Simpson?
If Republicans have any political sense at all, they’ll support not just raising the minimum wage, but indexing it.
The economic case for raising the wage, at a time when economic inequality is rampant, working-class incomes are declining, and Wal-Mart sales are falling through the floor, is overwhelming. But while Republicans may blow off the economic consequences of not raising the federal standard, they can’t be so cavalier in dismissing the political consequences.
Raising the minimum wage from $7.25 to $9 should be a no-brainer. Republicans say it will cause employers to shed jobs, but that’s baloney. Employers won’t outsource the jobs abroad or substitute machines for them because jobs at this low level of pay are all in the local personal-service sector (retail, restaurant, hotel, and so on), where employers pass on any small wage hikes to customers as pennies more on their bills. States that have a minimum wage closer to $9 than the current federal minimum don’t have higher rates of unemployment than do states still at the federal minimum.
Barack Obama’s State of the Union address last week—which called for, among other things, universal pre-K and raising the minimum wage—offered a bold program for rebuilding the middle class. But the president’s continuing commitment to budgetary austerity makes these commitments hollow, if not cynical. And just as Obama and the Democrats paid the price in the 2010 midterm election for excess caution and conciliation, the results of tokenism are not likely to be pretty in the midterms of 2014.
In his 2013 State of the Union, President Obama proposed a $9 federal minimum wage, indexed to inflation. Here to discuss the minimum wage as a policy is Arindrajit Dube.
Dube is a professor of economics at the University of Massachusetts Amherst and a widely respected scholar of labor markets and the minimum wage. Along with T. William Lester and Michael Reich, he is the author of Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties (2010), a major study that found no adverse employment effects of minimum wages increases by studying counties that cross state lines.
Speaking about the U.S.-Mexico border in San Diego, California on Monday, Secretary of Homeland Security Janet Napolitano assured the audience that "the border is secure ... I believe it is a safe border," an assessment she reprised yesterday in a Senate hearing on immigration reform. "I often hear the argument that before reform can move forward we must first secure our borders, but too often the ‘border security first’ refrain simply serves as an excuse for failing to address the underlying problems," Napolitano said. "Our borders have, in fact, never been stronger."
President Obama did not say last night that “the state of the Union is strong” a favorite phrase used in past State of the Union speeches. Instead he said, “The state of the Union is stronger.” That phrase points away from “the rubble of crisis” and toward a brighter future. In that respect, the address shared much in common with the president’s Inaugural, which presented a broad, liberal vision for Barack Obama’s second term and set policy goals for years down the road. In his address to the join session of Congress, the president was able last night to lay out more specific proposals than he could in his Inaugural speech.
In something that shouldn’t come as a surprise, at all Republicans have already announced their opposition to a minimum-wage hike. Here’s House Speaker John Boehner, throwing cold water on the proposal:
“I’ve been dealing with the minimum wage issue for the last 28 years that I’ve been in elected office,” Boehner told reporters at a press conference, arguing that raising the minimum wage would hurt people trying to climb the “ladders of opportunity” that Obama mentioned in his speech.
Besides universal preschool, the most overtly progressive policy proposed by President Obama last night was a large minimum-wage hike, from the current rate of $7.25 per hour—instituted in 2009—to a new rate of $9 per hour. Not only is this higher than the minimum wage in every state other than Washington, but when adjusted for inflation, it’s the highest minimum wage since 1981.