The 2018 Economy, in 11 Graphs

The good, the bad, and the ugly

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Sure, we could have gotten you some socks or an anti-Trump coffee mug, but we instead opted for our ten coolest, most germane, info-packed graphics of 2018. And by ten, we mean 11 (inflation!).

Here they are, with minimal annotation and links if you want to head deeper into the weeds.

Everything you need to know about current macroeconomics, in one chart!

This figure, which often accompanies our monthly job analyses, makes numerous profound points. For example, it shows that as the unemployment rate has fallen well below the Federal Reserve’s estimate of the “natural rate”—the lowest jobless rate consistent with stable prices—inflation hasn’t sped up much at all and is, in fact, still below the Fed’s 2 percent price target. Even as wages have started climbing a bit—finally!—inflation has remained tame. The punchline: our estimates of the natural rate are too high and there’s more room to run in this job market than most people think!

The R's broke the tax code!

One reason the unemployment rate is so low is that both the tax cuts and federal spending last year went on the credit card—that is, they were deficit financed. The figure reveals how unusual that is. Typically, when unemployment is this low, the budget deficit is closer to zero than its current rate of about 4 percent of GDP. To be clear, this is not a generic complaint about deficits. Our point is that when we close in on full employment, our tax structure should bring spending more in line with revenues. Thus, the figure is a recognition that the Republican tax cut broke a critically important linkage in our economy.

D.C., we have a revenues problem.

Speaking of deficits, this figure provides, in our humble opinion, a muscular answer to the question: do our fiscal imbalances suggest a revenue problem, as many Democrats claim, or a spending problem, as Republicans tend to argue? The figure shows the Congressional Budget Office's forecasts for primary spending (spending other than interest payments) and revenues from two different editions of their long-term budget outlook, one from 2010 and the most recent, from 2018. The logic of the “spending problem” case implies projected outlays should account for a higher share of GDP in the 2018 projection, with the projected revenue share either higher or like that of the earlier forecast. That is, the “spending problem” scenario should show fiscal gaps being driven by more spending, not less revenue. In fact, the opposite is the case. Not only are primary outlays lower in the 2018 than the 2010 forecast but revenues in the 2018 budget outlook are much lower than in 2010’s outlook.

A stealth tax cut for avoiders and evaders.

In 2018, Congressional Republicans once againproposed cuts to IRS funding for the coming fiscal year. Since 2010, IRS funding has steadily eroded from $14.3 billion to $11.7 billion in FY 2018, with Senate and House Appropriators proposing even deeper cuts for FY 2019. These budget cuts have impeded the IRS's ability to conduct basic activities like outreach or answering phones, but most concerningly, they have undercut the IRS's ability to audit high-income individuals and corporations. Given that the 2017 tax law exacerbated income inequality by providing entirely new avenues for tax gaming among the wealthy, and that the federal government is forgoing billions of dollars in tax revenue from IRS audits that could be used to fund progressive priorities, it is clear that this seemingly bureaucratic budget issue has tremendous equity implications.

The vast extent of racial wealth inequality.

This year, CBPP published a landmark report about the relationship between state tax policy and racial equity. The report connects the racist roots of certain state tax policies, like supermajority-vote requirements for tax increases and property tax limits, to the modern-day racial inequities perpetuated by state and local tax laws. Our country’s stark racial wealth gap represents “the cumulative impact of many types of racial disadvantage and discrimination,” and the report offers a concrete, proactive agenda of progressive policies that states can pursue to address such disparities.

Who wants to see some actual, progressive tax policy?

Thanks to some bold number crunching by the nerds at the Institute for Taxation and Economic Policy, the figure compares a regressive, supply-side tax cut, like the one we got last year, to a highly progressive expansion of the Earned Income Tax Credit, the GAIN Act, proposed by Ohio Senator Sherrod Brown and California Representative Ro Khanna. One—the 2017 Tax Cuts and Jobs Act (better known as the Republican tax cut) raises after-tax inequality; the other (Brown-Khanna) lowers it. Let this serve as a template for the new House majority as they think about progressive tax reform.

The racial inequity in the tax law.

The 2017 tax law not only compounds income inequality by providing disproportionate tax benefits to wealthy individuals and corporations—it also further entrenches racial inequitiesby delivering greater tax cuts to white households in the top 1 percent than to members of all races in the bottom 60 percent. Because of our country’s long legacy of systemic racism, people of color are overrepresented at the lower end of the income distribution (and white people are overrepresented at the top), so the 2017 tax law’s regressive provisions mechanically provided the greatest benefits to wealthy, white households at the expense of low-income people of color. Going into 2019, it is vital that we keep up the drumbeat on the 2017 tax law’s unacceptable exacerbation of racial disparities and income inequality.

The importance of protecting the gains we've made on health coverage.

This graph exemplifies the success of the Affordable Care Act in significantly lowering the share of Americans without health coverage, and the consequences of Republican efforts to roll back that success. Over the past two years, as the uninsured rate remained unchanged from 2016 to 2017 in states that expanded Medicaid, uninsured rates increased in states without Medicaid expansion for the first time since the full implementation of the ACA. Last year (2017) was also the first year since full ACA implementation that progress on lowering the national uninsured rate stalled, likely the result of ongoing Republican sabotage efforts. Survey data from this year show that Medicaid expansion matters greatly for defending progress on the health coverage front, especially in light of repeated Republican attempts to undermine the ACA at the national level.

Work requirements: all hassle, no facts.

This year saw a big increase in a particularly dangerous Republican initiative: adding work requirements to safety net programs like Medicaid and food stamps (SNAP). Of course, as the figure shows, most able-bodied poor adults who can find work do so. Neither food stamps nor Medicaid alone provide families with anything like the income they need to make ends meet, so the incentive for the poor to work is already strong. Instead, work requirements—meeting the bureaucratic requirements imposed on the poor to prove they're working or seeking work—just create a big hassle for people who are stressed enough by their poverty. If anything, conservatives get the causality backwards: the security of the nutritional, medical, and housing supports creates a platform from which poor people can pursue and stick with steady jobs.

Newsflash: Minimum wage increases raise wages!

Research by Elise Gould of the Economic Policy Institute shows how much faster low wages went up in states that raised their minimum wage rates. The gain for low-wage female workers is particularly large. Couple this figure with the finding that, contrary to much of what you hear in these debates, minimum wage increases typically have their intended effect of raising pay without leading to much job loss, and the reason this is such a popular policy—in states both blue and red—becomes clear.

Here's some good news from a place that could really use it!

Last week represented a significant fiscal policy milestone for the Commonwealth of Puerto Rico, as the governor signed a tax package into law that will implement a local Earned Income Tax Credit starting in 2019. While not fully funded at the level of the mainland version, Puerto Rico's version of this valuable, pro-work wage subsidy will provide up to $2,000 for low-income working families and will help reduce high rates of poverty (especially child poverty) and unemployment. However, the federal government should strongly consider funding an expansion of Puerto Rico's EITC next year, given the severity of Puerto Rico's economic challenges.

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