As most of you know, U.S. foreign aid is one of the least understood – and despised — government endeavors. Most people wildly exaggerate how much we spend. Most people think foreign aid is about 25%- 30% or more of the federal budget. The real figure is one percent, and more than one-third of that is security assistance, not economic aid.
There are also lots and lots of misconceptions and anachronisms in public perceptions of where the money goes and for what purposes. Forget sacks of grain for starving Ethiopians and well-digging in quaint little villages. We still do that. But American developmental assistance abroad is much more sophisticated and strategic than it used to be. We help to improve education, energy and food security, financial stability, regulatory regimes, gender equality, and much more. We also try to coordinate our assistance worldwide development goals, other countries’ aid, and private and non-profit sector developmental aid. Which countries receive the lion’s share of aid might surprise you, too
Yet, surely foreign aid’s small size and public ignorance about it do not by themselves justify the aid or prove that it works, for us or the recipients. Measuring success can be tricky and depends on the objectives, the performance measure, the available data – and the eye of the beholder. All of these were thorny issues back when I followed development issues slightly closely a few decades ago. I am looking forward to learning what’s new in measuring results. (I know there is now one office that coordinates our foreign aid.)
Since this is one of those some-details-needed topics I will open our meeting with a brief tutorial on (1) what we spend our foreign aid money on and (2) what the big goals are. Here are the questions I will focus on and some background readings.
A new schedule for June – Sept will be available.
DISCUSSION QUESTIONS –
- What: What does the USG spend its foreign aid funds on? Who spends it, doing what, and in which countries?
- Why: Goals, objectives, strategies.
- Context: How does our foreign aid fit in with other countries’, UN/World Bank/other IGOs, and private sector aid?
- Benefits: How do they measure success? Benefits to recipient countries. Benefits to USA including strategic/political. Which aid is vital versus elective v. obsolete/harmful?
- Alternatives to aid: Aid v. trade. Private charity and its limits. Etc.
- Public support and future: Why is foreign aid so unpopular? Does/should it matter? Will the need for it ever fade away?
SUGGESTED BACKGROUND READING –
- Our foreign aid budget, visualized. How much, for what, and where? Recommended.
- Our foreign military aid, visualized.
- U.S. foreign aid:
- Evaluating success can be comically obtuse and bureaucratic. If you understand any of this you’re hired.
- Global effort: Progress made on the “Millennium Development Goals.” Important.
NEXT WEEK: Lessons of the Six Day War, 50 years later.
Most of you know the broad outlines of this. Here is a pie chart showing where the federal govt (2/3 of taxes go there) spends our tax dollars. It is from the liberal Center for Budget and Policy Priorities. For a breakdown of state and local spending in California go here. For CA it’s basically 75% goes to five major activities: Education 25% + health care 20% + 10% prisons + 10% public safety + 10% welfare. In most other states the pie chart looks about the same.
Now that Trumpcare is dead, he and the congressional GOP say they will move on to tax reform. Tax reform could take many forms and end up quite different from the plans proposed by Trump and other Republican leadership, if it happens at all. (And, again, who pays how much or saves how much is not the only thing that matters about taxes.)
Still, the Tax Policy Center (a think thank) estimated how the total tax burden would change under the Trump and House GOP tax reform plans, based on what was known n February 2017. I can’t get the charts to paste into this post. So, please see this NPR summary of the main findings here.
As you would expect, even though almost all American households would see some reduction in taxes under either proposal, the rich get much, much more tax relief. According to the TPC analysis, the bottom 40% of households would get about a 1%-2% increase in after-tax income, while the top 1% of households would get a 13%-17% boost.
[Sunday key update: Trump’s tax plan contains many, many hidden windfalls for the wealthiest earners and could raise taxes on millions of families, including via the corporate tax. I’m sorry to pour it on, but truth is truth.]
And, this analysis does not even include the effects of the GOP’s proposed cut in the corporate tax rate or a “border adjustment tax.” Off the top of my head, I would guess that since a BAT would be a lot like a sales tax on imported goods, it probably would hit working people the hardest, at least in the short run before trade patterns and exchange rates adjust. To Trump, I imagine a BAT’s main appeal is that it privileges exports over imports. But, to the House GOP members tentatively supporting it, a BAT’s main appeal is that it would raise enough revenue help make room for the other tax cuts. Corporate taxes tend to be passed through to consumers, so I’m not sure reducing them would change the overall tax burden much. We’ll find out.
I’ll do one more quick post tomorrow with pie charts on what the federal government spends our tax money on.
In tax policy, taxes are “progressive” if payers contribute more as a proportion of their income than they do lower income payers. Liberals like a progressive tax structure because they believe wealthier people (1) can afford the burden more, and (2) generally benefit more from the pubic goods that government supplies (like public universities and property right protections).
How progressive is the American tax system? Not very! Yes, federal taxes are fairly (albeit not highly) progressive, as this chart shows.
So, leftwing paradise? Wrong. First, note only some federal taxes are progressive (especially income and estate taxes). Payroll taxes for Social Security and Medicare burden working people the most because they don’t apply above a certain level of income. Payroll taxes comprise almost ½ of all federal taxes paid (not shown on chart).
More importantly, about 1/3 of all taxes are paid to state and local governments. When they are included – so, all taxes at all levels – the burden of paying for government in America is basically flat as a share of income. This is because state/local taxes like sales and sin (tobacco, alcohol) taxes are highly regressive, so much so that every one of the 50 states has a regressive overall tax burden. Even California. In seven states, the poorest 20% of people pay more than four times the rate the richest 1% pay!
This chart that includes all taxes at all levels shows the flatness.
It breaks Americans into five income groups, from the bottom-earning 20% to the top 20%. It also breaks the top 20% down into the top 10%, next 5%, next 4%, and finally the top 1%. For each quintile and very top, a pair of bars compares the share of total income each group earns to its share of total taxes paid at all levels. Note how closely what most groups pay is to what they, on average, earn. The richest pay a little more than their “fair share” when measured this way, and the bottom 40% pay a bit less.
There is more to tax fairness than what I have described. And, fairness is not the only thing that matters in a tax system. More on this stuff later.
I timed this topic in the expectation that the Republican Congress would have completed Obamacare repeal and be nearing completion of its first budget, with yet more large tax and spending cuts. Like everybody else I overestimated their competence. President Trump just announced that repeal is dead and it’s time to move on to…more tax cuts (aka tax reform.) Since by law the first major step in preparing the FY2018 federal budget must be completed by April 1 and the FY2018 budget is not even close to finished yet, now would be a good time for both the GOP and CivCon to focus on taxes and spending.
Radically altering who bears the burden of paying for the American government has been the GOP’s raison d’etre for 20+ years. Obamacare repeal itself would have been a big tax cut on the wealthy and a big cut in subsidies for low-income Americans. It also would have opened up room in the budget for the really huge tax cuts they were planning as the real centerpiece of GOP governance. (I will explain how on Monday, or just see the link below.) I guess creating such room is wasn’t worth walking the plank of taking away millions of people’s health insurance.
Anyway, even without all of this drama, a number of considerations would complicate our discussion of tax fairness. There is more than one way of defining what’s equitable, for instance. Beyond fairness, Public Finance 101 says that a good public finance system should have other features, like be as “efficient” as possible (minimally distorting to the private economy). It should be sustainable and stable, simple,; and politically acceptable. Oh, and no discussion of the costs of government makes any sense if it ignores the benefits of government. As I have mentioned 8 million times, informed citizens must have a rough idea of what and who our taxes are spent on.
For links, I’ll try something a little different this week. This post will stay at the top of the website all week. It has the usual meeting discussion questions and a few short, useful introductory articles.
But, below it I will do 2-3 short posts. Each one will have one or two simple charts that illustrate something important about how high the tax burden is in the United States and who bears it. The idea is we need to know what is before we meet to debate what should be.
DISCUSSION QUESTIONS –
- Tax level/burden: What is the level and distribution of the tax burden now? Federal v. state/local taxes. Which types of taxes (income, corporate, payroll, etc.) cost the most? Who pays which taxes?
- Spending: Biggest programs and who benefits? Biggest misconceptions?
- Loopholes like the mortgage interest deduction are equivalent to spending. How are these “reverse tax burdens” distributed?
- Fairness: Ways of defining it + how should it be defined?
- Short run: How and for whom does GOP plan to change tax burden?
- Long run: How should/will burden be shared?
- What changes to tax fairness would Americans accept?
SUGGESTED BACKGROUND READING –
- Principles: The 5 principles of a good tax system = Equity, adequacy, simplicity, exportability, and neutrality. Very short and recommended.
- Public opinion on taxes/spending is plain nuts:
- ACA repeal: Why GOP must repeal Obamacare’s taxes to make room for future tax cuts.
NEXT WEEK: Which moral standards should we use for judging historical figures?
Several members of our Meetup group asked what I had in mind by “elites.” I deliberately left it undefined to make a point. Americans have some very different ways of defining the horrible, no good elite that everyone supposedly voted to overthrow. In fact, I think vast differences in the way we define our elites lay at the core of our political polarization even before we elected Donald Trump president.
Trump’s populism claims to be a call to arms to overthrow the “Washington establishment” and its collaborators here and abroad. As he said in his inaugural address (in between the talk of carnage and despair):
“For too long, a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost. Washington flourished, but the people did not share in its wealth. “
Trump’s parasitic elite seems to be our national governing elite, the establishment politicians and the permanent “deep state” that they command. His Hellish vision of a collapsing America sold out by its own elite is pretty stark, that’s for sure.
But, how specific is it, and how accurate? Who exactly are these quislings and what did they do, and to whom? Maybe history helps. When CivCon discussed modern American populism last June, I noted that populist movements everywhere share a basic characteristic. They identify some despicable, self-dealing elite that exploits the virtuous but powerless masses. The elite is not only privileged; it is unfairly privileged. The elite can be a real or imagined; Its victims all of “the people” or just a subset.
Moreover, Right and Left populist movements in U.S. history usually pick a different elite to resent and not quite the same “We, the people” to champion. Left-wing populism’s villain is concentrated private power, like the Robber Barons and their trusts or today’s giant corporations and the 1% that help them rig the game for plutocracy’s sake. Its victims are everybody else (well, except people of color, until recently), but especially the lower classes and the poor. In contrast, right-wing populism has tended to see a conspiracy of both the top and the bottom against the middle. Its corrupt overlords are government insiders helping an undeserving underclass and/or foreigners redistribute wealth and cultural prestige away from hard-working real Americans.
I’m not trying to dismiss this whole topic nor one side’s POV. Quite the contrary. I feel confident in saying that elites have failed the country, as do large majorities of Americans in poll after poll going back years. But, I am pretty knowledgeable about this stuff. I believe I can connect our country’s worst problems to specific failures by the people with all of the power and influence. I picked this topic so we can explore why just about everyone else thinks the same – even though they seem t disagree about who the elites are and what they are doing wrong and why.
We have plenty to talk about on Monday. Here are some discussion ideas and readings.
DISCUSSION QUESTIONS –
- Who are America’s elites? Are there multiple elites with different interests and power sources, such as…
- Economic class versus social/cultural elites.
- Racial and ethnic elites?
- Educated and regional/cosmopolitan elites.
- Do our elites perpetuate power unfairly, or are they a meritocracy?
- Why is everybody so mad at elites? Do Americans agree on who to be mad at and why?
- Are elites indeed responsible for the mess we are in? Why?
- Is Trump just scapegoating? What should/could be done to reduce the power of American elites?
SUGGESTED BACKGROUND READING –
- It happens: In many countries corrupt elites use “extractive institutions” to enrich/perpetuate themselves and immiserate everybody else.
- Liberal hatred of elites versus conservatives’ hatred of elitism. Recommended.
- Short: Economic inequality always leads to political inequality.
Long: Politicians deliberately created our “Robin Hood economy.”
- Conservative POV:
NEXT WEEK: A change of pace – What’s going right in the USA these days?
I had this idea for us to do a series of meetings in the run-up to November that highlighted the starkest policy differences between the two presidential candidates. Oops. Donald Trump’s candidacy and Media’s obsession with horserace trivia make that pretty hard to do. Trump’s policy platform involves him basically riffing a stream of consciousness on whatever topic an interviewer brings up, hoping to run out the clock before anyone notices he has no policy ideas at all nor a rudimentary grasp of the issue. No one seems to know exactly what Trump’s position on the minimum wage is, much less what it might be tomorrow or in a face-to-face debate with Clinton.
But, I’m not sure it really matters. As I keep hammering away at week after week, we are electing a political party to govern us more than an individual. And, the Dems and GOP at all levels hold irreconcilably-opposite views on the minimum wage. The Republican Party is wholly opposed to raising the minimum wage at all. Period. Many conservatives would prefer it be abolished or reduced, although I doubt they would take the political risk of trying it at the federal level. Marco Rubio and Ted Cruz oppose any federal minimum wage.
In stark contrast, Democrats really, really want to raise the minimum wage, either nationally or in as many states as possible. Hillary Clinton campaigned on raising it by 60%, from $7.25 to $12 per hour, to be phased in over several years. This would be the largest such increase in history. Under pressure from Bernie Sanders, Clinton stated she would sign a $15 minimum wage bill if a Democratic Congress sent one to her. This would double it. This November 8, minimum wage increases are on the ballot in five states. Democrats want to make this a wedge issue – one that motivates base voters to turn out – like Republicans did with same sex marriage bans in 2004.
Luckily for us, the debate over what would happen if the minimum wage were raised significantly is not all theoretical. The current federal minimum wage is just $7.25 per hour, one-third lower in inflation-adjusted terms than it was in the late 1960s. However, 29 states have a higher minimum wage, 12 of which are over $9.00 per hour. California’s is $10 – the nation’s second-highest –and Brown just signed a law to raise it to $15 in 2022. This means that lots of studies have been done comparing places that have raised the minimum wage to those that have not raised it. The results are generally encouraging to the liberal economic case for raising the wage. Yet, as I will explain, it’s not quite that simple.
On Monday I will open with a brief tutorial on the minimum wage and the types of questions we should be asking about what might happen if we raised it to various levels. I don’t think lowering the minimum wage is really on the table right now as a viable policy option, although if Trump wins, all bets are off.
DISCUSSION QUESTIONS –
- Current policy:
- How high are U.S. minimum wages now and how high are they due to rise in some states?
- What else does govt do to support working poor? How important a policy tool is the minimum wage in comparison?
- Arguments: What arguments are used to support and oppose raising/lowering/ending the minimum wage
- Evidence: Based on history what affects would raising min. wage have on:
- Helping people: Raising incomes of the working poor, reducing poverty and reliance on govt transfer programs.
- Hurting business: Killing jobs, raising prices, other business decisions (like replacing workers with machines).
- Would more spending on other govt programs (EITC, etc.) do more to help the working poor than raising the min. wage?
- Can we predict what would happen if we abolished the min. wage?
- Will raising min. wage really put a dent in inequality?
- Will it make low-wage pay more “fair?” What’s fair?
- Does the minimum wage subsidize big corporations more than it helps the poor (they can keep paying low wages)?
- Politics: Is this a winning issue for Democrats or Republicans? How big a winning issue?
SUGGESTED BACKGROUND READING –
- ABCs of the issue:
- Raising the min. wage probably won’t do much good. Recommended and balanced.
- No, the economic case for a big raise is pretty simple:
- Would fast food workers just get replaced by robots?
- Do NOT raise the minimum wage:
Next Week (Sept 26): Progressives’ Constitutional Philosophy.
It is Econ 101 that ever rising labor productivity is the key driver of modern economies. When the amount of output per worker is higher every year than the year before all of the good stuff that Americans have come to expect is possible. The economy grows steadily with room for higher wages/benefits and consumer spending, business profits, savings and investment, and enough tax revenue for government to meet public investment and social needs. Without rising productivity, the economic pie stops getting bigger and we are all left fighting over the size of the slices. A zero-sum economy begets zero-sum politics, and we all look around for someone to blame.
Sound familiar? It’s starting to happen. Worker productivity roughly doubled in the USA from 1945 to the early 1970s, then slowed down for the rest of the 20th century. But since then it has slowed to a crawl, only growing about 0.5% annually since 2000. In 2016, productivity actually began falling.
Now, maybe the fall is temporary, an artifact of the Great Recession. Maybe it is not happening at all. There is some evidence that the way experts measure labor productivity fails to capture some important improvements in the quality of the goods and services workers produce. Maybe.
But, there I another problem independent of measurement error. Even before U.S. labor efficiency slumped, American workers were not getting paid in line with what they were producing. Since 1973, U.S. workers have become 75% more productive, but average worker compensation (pay + benefits) grew by less than 10%! When liberals say rising inequality is unfair, this is what we mean. It’s not some philosophical judgement of how much people are “worth” to society. How well do you think regular people will fare if, on top of this unfairness, the productivity slump persists and the pie stops growing altogether?
So, this is not a dry topic about formulas and equations. It is about what makes our economy healthy and innovative and how we can ensure that regular Americans share in the wealth they produce.
To keep us focused, I will start us off on Monday with a quick summary of:
- What is meant in plain English by labor productivity and what really drives it (opinions differ on the latter); and
- The main theories of why it has stagnated recently and whether we have a long term problem.
Then, we can debate any aspect of this broad topic-of-everything we want to discuss. The main driver of productivity in the long-run is technological innovation, but other things matter, too, including public policies. I hope we can devote a good chunk of time to discussing the growing divergence between worker compensation and productivity. But, keep in mind that any public policies to close that gap need to do so by raising the former, not reducing the latter.
DISCUSSION QUESTIONS –
- Measuring it: How do they measure labor productivity? Could it be growing faster than experts think?
- Ensuring it: What keeps U.S. labor productivity rising; e.g., healthy biz/entrepreneur climate, R&D/Universities, tech innovation, worker edu/skills, government action/inaction?
- Problem. Why has productivity suddenly cratered? The recession?
- Problem! Is something deeper afoot? Are we entering a prolonged period of “secular stagnation” like we talked about in 2013?
- Problem!! Why has pay not kept up with productivity for decades?
- Solutions: Which pubic policies might (a) goose worker productivity in the short-term and long-term, and (b) ensure American workers benefit from it? Left vs. right solutions.
SUGGESTED BACKGROUND READING –
Productivity Puzzle –
- This one chart shows how vital productivity growth is! Recommended.
- Overview of our economy’s low growth problem, including sagging productivity. Recommended.
- The productivity paradox Recommended. (If blocked by paywall, click here then on 5th link from the bottom, “Populists and Productivity.”
- The Great Productivity Puzzle. Recommended.
- Relax, innovation will return.
- Neither party really knows how to boost long-run economic growth. Krugman agrees.
- Progressive POV: Part 1 and part 2. Recommended.
- Conservative POV.
Next Week: Do government anti-poverty programs really work?