• Today, You Pay Your Federal Taxes. Tomorrow Is Real Tax Freedom Day.

    Today, You Pay Your Federal Taxes. Tomorrow Is Real Tax Freedom Day.

    This year, “Tax Freedom Day”—the day after which Americans have worked enough days of the year to pay their taxes—occurs just one day after “Tax Day,” April 15, the deadline for filing federal tax returns.

    That’s according to the Tax Foundation’s annual “Tax Freedom Day” report for 2019.

    In total, the report estimates, Americans will work for 105 days of the year to pay their collective $5.42 trillion tax bill—a figure equal to about 29 percent of Americans’ incomes.

    On a READ MORE...

  • Senate Bill Would Boost Paid Family Leave Without Government Program

    Senate Bill Would Boost Paid Family Leave Without Government Program

    Many federal lawmakers have been looking for ways to help more workers gain access to paid family leave, but the problem with most proposals—from Democrats and Republicans alike—is that they rely on the federal government to manage new paid family leave programs.

    Not so with Sen. Mike Lee’s Working Families Flexibility Act, which the Utah Republican reintroduced on April 4.

    Without establishing a new federal program, without raising taxes on workers, without imposing mandates on employers, READ MORE...

  • Google’s Internal Audit Bucks the Narrative on Gender Pay Gap

    Google’s Internal Audit Bucks the Narrative on Gender Pay Gap

    Whether it’s the result of political pressure or wanting to stay ahead of progressive trends, a number of larger companies are conducting internal audits to investigate whether they could be accused of having a so-called pay gap between men and women.

    Google conducts such an audit every year, and this year produced a surprising result. According to The New York Times, Google’s analysis found that more men than women were being underpaid.

    As a result, Google will award $9.7 million out of a compensation READ MORE...

  • 2 Senators Don’t Want Taxpayers Paying for Pensions for Rich Lawmakers

    2 Senators Don’t Want Taxpayers Paying for Pensions for Rich Lawmakers

    With the federal debt now over $22 trillion, does it really make sense to provide “plush” pensions to federal lawmakers—many of whom are millionaires in their own right?

    Freshman Sens. Mike Braun, R-Ind., and Rick Scott, R-Fla., don’t think so, and they’ve introduced the End Pensions in Congress Act, legislation to phase out congressional pensions.

    On average, former members of Congress receive about $41,000 per year in pension benefits after having served about 16 years. Speaker of the House Nancy Pelosi, a California Democrat who has been in Congress 32 years, will receive a six-figure pension.

    Under Braun’s proposal, federal lawmakers would stop receiving pension accruals. Those accruals currently cost taxpayers between $21,000 and $36,000 per year for every member. (Individuals first elected prior to 2013 receive the higher contribution amount.)

    That’s in addition to a base salary of $174,000, as well as generous benefits, including contributions to federal workers’ 401(k)-type Thrift Savings Plans.

    Under the End Pensions in Congress Act, members of Congress would still be able to save for retirement through the Thrift Savings Plan, and the government would still contribute up to $8,700 per year in taxpayer contributions to their Thrift Savings Plan. Moreover, they wouldn’t lose a dime of the pension benefits they’ve already accrued.

    That would also put members of Congress on a more equal footing with the constituents they represent—most of whom do not have defined benefit pensions.

    Only 15 percent of private-sector workers have defined benefit pensions, and among younger workers, the percentage is even smaller. A Pew survey found that only 6 percent of millennials, compared with 13 percent of baby boomers, have defined benefit pensions.

    The trend away from defined benefit pensions is twofold.

    First, pension plans don’t give workers choices, control, or even ownership of their retirement savings. That’s because a core principle behind defined benefit pension is that workers don’t know enough about how much they need to save, aren’t intelligent enough to invest on their own, and aren’t disciplined enough to actually save their money instead of spend it.

    While the government complicates the process of saving through its convoluted tax system, saving and investing is actually easier than ever before, and workers want to be in charge of their savings.

    Second, defined benefit pensions have oftentimes locked employers into unexpected and unaffordable pension costs that threaten their businesses’ viability. Thus, instead of providing a safe and secure form of retirement income, many workers’ pensions have created risk and uncertainty.

    That’s unfortunately the case for an overwhelming majority of the roughly 10 million workers who are part of multiemployer union pension plans.

    Collectively, the roughly 1,400 multiemployer pension plans across the U.S. have set aside only 42 percent of what they promised to pay, leaving a $638 billion shortfall in workers’ and retirees’ anticipated pension benefits.

    That shortfall has caused unions and employers to seek a taxpayer bailout for their underfunded promises.

    Pensions—if fully funded—can contribute to a secure retirement income for workers, and they can help attract workers as part of a total compensation package.

    But for members of Congress, pensions function more as windfall benefits.

    At $511,000, the median net worth of members of Congress is more than five times that of the households they represent ($97,300), and more than 200 federal lawmakers are millionaires. Providing lawmakers with $41,000 per year pensions does not make sense and is not fiscally responsible.

    Under current law, however, members of Congress cannot decline their taxpayer-financed pensions even if they want to, and senators cannot decline theirs without also losing access to saving through the government’s 401(k)-type Thrift Savings Plan.

    As mentioned above, the End Pensions in Congress Act enables lawmakers to maintain access to their Thrift Savings Plan—including the government’s 5 percent match—even without any further pension accruals.

    Another bill introduced by Braun—the End Plush Retirements Act wouldn’t end pension accruals for everyone, but it would allow members of both the House and Senate to decline their pensions without having to give up their access to saving through the Thrift Savings Plan.

    Eliminating congressional pensions would be a good start to tackling federal compensation reform. By bringing excessive and dysfunctional federal compensation in line with the private sector, Congress could save taxpayers more than $300 billion over 10 years and help create a more productive and efficient civil service.

    With the need for fiscal responsibility soaring each day, Congress needs to begin collecting the low-hanging fruit as soon as possible.

    Plush pension benefits for wealthy federal lawmakers need to go.

    Source link

  • Amazon’s New York Reversal Shows Exactly Why Crony Capitalism Fails

    Amazon’s New York Reversal Shows Exactly Why Crony Capitalism Fails

    Just months after announcing it would locate one of its headquarters in New York City, Amazon has announced that it’s pulling the plug on the Big Apple.

    Based on Amazon’s public statement, it seems the company couldn’t rely on the deals it had cut or the political support it had received to last beyond the next election. And businesses can’t base long-term decisions like this on shifting political sand.

    That’s part of the problem with crony capitalism. It may procure short-term wins for a select few politicians and for businesses that can afford to pay to play, but it’s not a strategy for long-term success.

    Employers want to set up shop in places where they can grow and succeed. The best environment for that is a level playing field with minimal government interference and low, broad-based taxes—not picking winners and losers through special-interest subsidies.

    A favorable business environment is one where local leaders work to help all businesses equally, not a select few. Employers want leaders who can listen to their needs without telling them how to run their business, and
    they want communities and leaders that welcome the jobs and economic growth that employers bring, instead of protesting their presence.

    It turns out this is not what New York City had to offer. Amazon said that certain politicians “made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward.”

    New York City is not a friendly business climate, and losing those special “relationships” would have left it exposed to the same burdens and barriers that other businesses face in New York.

    Those include: a top state marginal corporate tax rate of 17.2 percent (compared to a U.S. median of 6.8 percent); onerous zoning and land use laws (which could have prevented Jeff Bezos from arranging special helicopter pad access); outrageous property taxes; and all sorts of heavy-handed labor regulations, like Mayor Bill De Blasio’s proposal to mandate that employers provide all workers with two weeks of paid vacation.

    Amazon’s other choice for its headquarters location—Crystal City, Virginia—comes with greater certainty. Amazon still received significant deals and subsidies to build that headquarters, but even if it loses those special breaks, it will fall back on a far more favorable business climate than in New York City.

    According to the ALEC-Laffer State Economic Competitiveness Index, “Rich States, Poor States,” New York ranks dead last in the overall economic
    outlook ranking, while Virginia ranks among the top 10.

    And Amazon isn’t the only company wary of locating in New York. Plenty of individuals, families, and businesses are fleeing the state, and they’re taking their income and tax revenues with them.

    In fact, between 1997 and 2016, every dollar of income that left New York was replaced by only 71 cents coming in. That deficit will only continue under New York’s current policies.

    Democratic state Sen. Michael Gianaris likened Amazon to a petulant child that “insists on getting its way or takes its ball and leaves.” But the reality is the ball has always been in Amazon’s court. It gets to choose where to play ball—just like every business.

    Crony capitalism may be tempting for large companies, but it’s no match for a friendly business climate under stable political leadership. Amazon should stop looking for a sweetheart deal and instead choose to do business in places where low taxes and minimal government intervention are the norm.

    States and cities should also take a lesson from this New York episode: Crony capitalism isn’t the way to win over more business. The key is to provide a level playing field that offers opportunity for all businesses to grow and thrive.

    Source link

  • Reform Underfunded Multiemployer Pension Plans. Don't Bail Them Out.

    Reform Underfunded Multiemployer Pension Plans. Don’t Bail Them Out.

    Absent any congressional action, between 1 million and 10 million workers and retirees will lose most of their promised pension benefits over the coming decades.

    It would be unfair to stave off those losses with taxpayer bailouts, and doing so would establish the precedent that the federal government will stand behind pension promises that it didn’t even make. But it would also be irresponsible and destructive to do nothing.

    Congress’ Joint Select Committee on Solvency of Multiemployer Pensions faces a Nov. 30 deadline to issue a report, including legislative recommendations that address both the Pension Benefit Guaranty Corp.’s $54 billion multiemployer program deficit and multiemployer pension plans’ $638 billion in unfunded pension promises.

    While failure to reach a consensus and issue a report would avoid a taxpayer bailout, at least for the near term, no action would be decidedly worse than recommending and enacting fair, commonsense reforms.

    The longer Congress waits to correct fundamental deficiencies in multiemployer pension plans’ governance and the Pension Benefit Guaranty Corp.’s multiemployer program, the larger the problem will become.

    In 2016 alone, multiemployer pension plans promised their workers an additional $42 billion more than they set aside to pay them. Failure to rein in new unfunded pension promises could grow plan deficits by hundreds of billions of dollars before the first big wave of multiemployer pension failures hits between 2023 and 2025.

    If policymakers wait until hundreds of thousands of workers lose most of their pension benefits, they will be more likely to pass haphazard, costly measures that would unfairly burden taxpayers and condone reckless pension plan management.

    To avoid both massive pension losses and a taxpayer bailout, policymakers should first and foremost ensure that the Pension Benefit Guaranty Corp. can provide the insurance it requires multiemployer pension plans to purchase.

    Then, Congress should change the rules governing multiemployer pensions so that they cannot make promises they can’t keep.

    These 12 reforms would accomplish those goals:

    • Increase the Pension Benefit Guaranty Corp.’s multiemployer premium to at least $90 per participant per year (from $29).
    • Add a variable rate premium (similar to what nonunion pension plans pay).
    • Enact a standard PBGC eligibility age (tied to Social Security).
    • Have the PBGC take over multiemployer plans when

    READ MORE...

  • 430 More VA Medical Staff (at No Cost to Taxpayers)

    430 More VA Medical Staff (at No Cost to Taxpayers)

    Believe it or not, the Department of Veterans Affairs has 430 medical professionals who, instead of performing their duties as nurses or doctors, spend some or all of their time working for their federal employees unions.

    All of that happens on the taxpayers’ dime.

    Not anymore, according to the VA’s recent announcement.

    As of Nov. 15, the VA will repudiate part of its master collective-bargaining agreement. In particular, it will eliminate all forms of taxpayer-funded “official time” for its roughly 104,000 Title 38 medical profession employees.

    According to the Federal Labor Relations Authority, official time is that in which “an employee’s activities are not directed by the agency, but for which an employee is nevertheless entitled to compensation from the agency.”

    In other words, official time refers to taxpayers paying federal employees to perform non-federal activities unrelated to the jobs they were hired to perform.

    That means that hundreds of doctors and nurses at the VA receive their full federal salaries—averaging $74,000 a year for nurses and $187,000 for doctors, not including generous federal benefits—even if they don’t care for a single veteran.

    As acting VA Assistant Secretary for Human Resources and Administration Jacquelyn Hayes-Byrd said, “President [Donald] Trump has made it clear: VA employees should always put veterans first. And when we hire medical professionals to take care of veterans, that’s what they should do at all times. No excuses. No exceptions.”

    Of course, that same argument should extend to the entire federal workforce. Federal employees should perform the duties they were hired to do—and nothing else.

    While the administration does not have the power to prohibit official time for the rest of the federal workforce, or even all of the VA’s 380,000 employees, it can do so for the VA’s Title 38 medical professionals on the basis that official time negatively impacts patient care.

    For anyone who would challenge that negative impact, it’s hard to imagine how having hundreds of medical professionals not taking care of veterans as they were hired to do could not negatively affect veterans’ care.

    According to a 2017 Government Accountability Office report that examined official time at the VA, “a manager … interviewed said it can be especially challenging to find other staff to fill in for employees who are responsible for serving patients yet spend most of their work time on official time.”

    Without a complete prohibition on all official-time activities at the VA and across the entire federal government, taxpayers will pay a heavy price—upward of $163 billion a year—for federal employees to perform union activities.

    Trump has tried to curb these excessive costs and detrimental activities.

    Under his authority to interpret and apply official-time policies that are “reasonable, necessary, and in the public interest” and “in a manner consistent with the requirements of an effective and efficient government,” Trump issued a series of executive orders including measures to curb inefficient and counterproductive official-time uses.

    Among those orders was a prohibition against federal employees spending more than 25 percent of their time performing official union activities.

    Provisions of the president’s executive orders were declared unlawful by U.S. District Court Judge Ketanji Brown Jackson, an appointee of President Barack Obama, but based on the merits of the arguments and the president’s authority, the decision could be overturned by the U.S. Court of Appeals for the D.C. Circuit.

    In the meantime, at least our country’s veterans will have their health care partially insulated from the consequences of federal employees spending time working for their union instead of doing the jobs they were hired to perform.

    Source link

  • How Congress Can Make Tax Cuts Permanent Without Worsening the Debt

    How Congress Can Make Tax Cuts Permanent Without Worsening the Debt

    The economy is thriving under the Tax Cuts and Jobs Act. Wages are up, scores of jobs are being created, and small businesses are more optimistic than ever about the future.

    Making those tax cuts permanent and passing additional pro-growth tax reforms would help sustain higher economic growth, creating long-term benefits for all Americans.

    Even so, those benefits would be limited if policymakers fail to address the unsustainable mountain of debt we have already taken on. This part is critical because left unaddressed, the debt will inevitably lead to either an economic crash or decades of economic malaise.

    The root problem is not low taxes. After all, the IRS collected record revenue in fiscal year 2018. The problem is excessive government spending, and no amount of tax increases can fix that.

    Without restraining spending, further tax cuts today will only mean higher taxes in the future. To achieve fiscal sanity while respecting individual liberty, Congress should pursue tax reform 2.0 by eliminating tax credit spending in the tax code and reducing federal spending.

    The Heritage Foundation’s Blueprint for Balance shows how this can be done. The blueprint would achieve an extra $735 billion in additional tax revenues by eliminating narrowly targeted and inappropriate tax credits, or disguised spending, in the tax code.

    Getting rid of these credits would more than cover the estimated $657 billion drop in revenues over 10 years that would result from Tax Reform 2.0. Other measures would also help with this, like fully eliminating the state and local tax deduction so that people earning the same incomes across America pay the same in federal taxes.

    The state and local tax deduction is deeply inefficient, as it mainly benefits the wealthy and does little for the poor. It also encourages fiscal mismanagement by subsidizing state and local tax increases and discouraging tax cuts.

    Replacing this deduction and other narrow and inefficient tax credits with broad-based, pro-growth measures contained in Tax Reform 2.0 would achieve all the benefits of tax cuts without incurring the consequences and risks of higher debt.

    An even better proposal would be to simply cut spending and use the tax savings described above to lower taxes even further.

    Tax Reform 2.0 would solidify our economic growth and give a boost to working Americans. But regardless of whether or not Congress enacts it, and regardless of the revenue impact, one thing remains certain: Our current deficits are unsustainable.

    Without significant cuts in federal spending, no amount of tax cuts can grow the economy out of its debt, and no amount of tax hikes can cover federal spending without crashing the economy.

    If lawmakers want to prevent an eventual economic crash or a long period of meager or negative economic growth, they will need to reassess the size and scope of the federal government.

    The Heritage Foundation’s Blueprint for Balance gives Congress specific ways that it can reduce spending by $12.3 trillion over the next decade, balance the budget by 2025, and cut the projected debt by 23 percent in 2028.

    Tax Reform 2.0 has the potential to give our economy a significant long-term boost. To realize this full potential without future tax increases, lawmakers should couple Tax Reform 2.0 with commonsense tax policies that would get rid of narrow, perverse, and detrimental subsidies and credits in the tax code, as well as instituting structural spending reforms to reduce the size and scope of the federal government.

    Source link

  • 3 Examples of How Social Security Robs Americans of Greater Income Before, During Retirement

    3 Examples of How Social Security Robs Americans of Greater Income Before, During Retirement

    Social Security takes a whopping 12.4 percent of American workers’ paychecks, but a new backgrounder by The Heritage Foundation shows that workers are getting a bad deal from the program.

    Despite its popularity, Social Security typically provides very low—and in many cases, negative—rates of return.

    Although the program provided high returns and windfall benefits to its earliest recipients, Social Security is no longer a good deal for workers.

    The Heritage Foundation analysis shows that younger workers—even low-wage ones—would receive at least three times greater rates of return from private savings than Social Security will provide.

    To assess Social Security’s so-called “rate of return,” Heritage’s analysis compares what workers would receive if their payroll taxes were invested in personal accounts compared with what Social Security will provide under two scenarios: 1) current law, with roughly 20 percent benefit cuts beginning around 2034; and 2) a scenario whereby payroll taxes rise immediately to a level necessary to pay the program’s prescribed benefits.

    While virtually all workers—across income levels, both genders, and generations—would be far better off with personal savings than Social Security, younger workers get the worst deal from the government program.

    The average young male worker is virtually guaranteed a negative rate of return from Social Security. Take these hypothetical examples:

    Marc Perez is 23 years old and earns an average income of $60,006 per year. He will pay $547,088 in Social Security taxes (excluding disability insurance taxes) throughout his lifetime. In return, he will receive a monthly benefit of $2,209 in retirement.

    If he instead invested that same amount—$547,088—in a conservative mix of stocks and bonds, he would accumulate more than $1.5 million in a retirement account and could use that to purchase a lifetime annuity that would pay him $6,185 per month, or nearly three times what Social Security will provide.

    Even lower-income earners, like Ashley Martin, who generally receives higher returns from Social Security, would be better off saving and investing in their own personal retirement accounts.

    Martin is also 23 and makes $19,768 per year. She will pay an estimated $119,426 in Social Security taxes toward a program that will provide her with a $902 monthly benefit in retirement.

    If she instead invested that same amount—$119,426—in her own retirement account, she would accumulate $354,731 in savings. That would be enough to purchase an annuity that would provide her with $1,262 per month, or 40 percent more than Social Security can provide.

    Given the preceding examples, it will come as no surprise that high-income earners like Courtney Jones get the worst deal from Social Security.

    Jones is also 23 and makes $128,400 per year (Social Security’s taxable maximum). She will pay $860,050 in Social Security taxes throughout her lifetime and can expect to receive a monthly benefit of $2,683 from the government program.

    However, if she invested that $860,050 in her own retirement account, she would accumulate more than $2.8 million in retirement savings—an amount that could provide her with a monthly annuity of $10,132, or almost four times what Social Security can provide.

    If workers did not use their personal savings to purchase annuities, but instead drew down on them as needed in retirement, they would be able to leave sizable bequests to their heirs.

    In contrast, workers who die before reaching Social Security’s retirement age or shortly thereafter often receive little to nothing in return for their hundreds of thousands of dollars in payroll taxes.

    The ability to leave bequests would be especially meaningful for lower-income workers. Not only do lower-income workers tend to have lower life expectancies, and therefore receive less in Social Security benefits than higher-income counterparts, but their families do not receive the same leg up from bequests that middle- and upper-income families often receive from their elders to pay for a grandchild’s education or to purchase a home.

    After payroll taxes and other levies, there simply isn’t much left for lower-income workers to save for the benefit of their heirs.

    A young male earning only half the average wage would have enough in a personal account to provide the exact same income that Social Security provides, and to also leave $479,000 to his heirs if he died at the average life-expectancy age of 76. Even if he were to live to age 90, he would have $270,000 left in savings to leave to his heirs.

    Allowing workers to more easily save for their own needs today, and in retirement, instead of taxing them heavily to provide them with public benefits would enable workers to accrue higher retirement incomes in addition to greater take-home pay during their working years.

    Supplemental Security Income benefits for elderly individuals who face poverty could provide a floor below which no worker would fall, but such income security benefits would require only a fraction of Social Security’s current payroll taxes.

    Lawmakers need to act now—not only to address Social Security’s looming insolvency, but to reform the program in a way that reduces the tax burden on  workers, leaving them with more money to pursue their goals today and to put toward personal savings.

    Pairing Social Security reforms that limit the program’s size and taxes with universal savings accounts would help accomplish that goal by allowing workers to save, tax-free, for whatever purposes they want.

    The American people, not Washington bureaucrats, should be the ones to decide how much and how best to save for their needs today and in retirement.

    Source link

  • Meet a Government Entity That's in Worse Shape Than Social Security

    Meet a Government Entity That’s in Worse Shape Than Social Security

    Social Security is on track to run out of money by 2034, at which point the program will be able to pay only about 79 percent of its scheduled benefits.

    The Pension Benefit Guaranty Corporation—a government entity that insures private pension plans—will run out of funds almost a decade earlier, in 2025, and will be able to pay only about 10 percent of its scheduled benefits.

    The Pension Benefit Guaranty Corporation pays benefits if private pensions go belly up, but it is not a taxpayer-financed entity. So when it runs out of assets, it will be able to pay only as much in benefits as it takes in through premium revenues—likely 10 percent or less of insured benefits.

    Without reform, many union pension plan participants will receive mere pennies on the dollar in promised benefits.

    According to new data from the Pension Benefit Guaranty Corporation, multiemployer pension plans’ unfunded promises totaled an all-time high of $638 billion in 2015 (the most recent year available). That’s $638 billion the plans promised to pay their workers as part of their compensation but did not set aside to actually pay them.

    A small number of large and financially troubled multiemployer pension plans could shake the system with their insolvency over the next seven years, but it’s not just a few bad actors. Union-run pension plans across the country are in terrible shape.

    Of the roughly 1,400 multi-employer pension plans, only 36, or 0.7 percent, are at least 80 percent funded.

    Particularly troubling is the fact that of the 10.3 million workers and retirees who have multiemployer pensions, 96 percent of them are in plans that have less than 60 percent of the funds necessary to pay promised benefits.

    This could not happen to workers with defined contribution 401(k) or individual IRA retirement accounts that they own. Account values can vary based on contributions, market return, and investment choices, but workers know exactly how much is in their accounts and can prepare with relative certainty for retirement.

    They even can use their 401(k)s to purchase annuities that will provide guaranteed income for life. Many beneficiaries of defined-benefit pensions, on the other hand, have nothing more than a future claim to a first-come-first-served pool of money that almost certainly will be empty by the time they can retire.

    Massive projected failures of private union pension plans, along with the Pension Benefit Guaranty Corporation’s multiemployer program that insures them, caused Congress to establish a joint select committee on multiemployer pensions.

    This committee should look to enact immediate reforms that will help improve the financial status of multiemployer pension plans as well as the Pension Benefit Guaranty Corporation’s multiemployer program, without pushing any of the cost of private-sector pensions onto federal taxpayers.

    That means rejecting outright any form of private pension bailout—whether that be direct cash assistance or highly subsidized loans. If the federal government doesn’t extend the same offer to all workers’ retirement plans—be they 401(k)s, IRAs, or pensions—it shouldn’t do so for a select group of private union pensions.

    Instead of bailouts, federal lawmakers should: require union pension plans to fund their benefits the same way as non-union pension plans; allow or require deeply insolvent plans to spread the pain across workers and retirees by reducing benefits before their assets run dry; restrict insolvent plans from making new pension promises; and increase Pension Benefit Guaranty Corporation premiums significantly, including a variable-rate premium.

    If Congress fails to act now to establish more solid ground for multi-employer pensions and the Pension Benefit Guaranty Corporation, workers and retirees will lose out on more than $600 billion in promised pension benefits or taxpayers will be forced to pay for the promises of private-sector unions and companies. If that happens, it will be only a down payment on the $6 trillion in unfunded state and local pension promises that will become next in line for a federal taxpayers bailout.

    Congress didn’t make private pension promises, and it should not require taxpayers to stand behind them. It did establish and maintain a Social Security program that has amassed $16.1 trillion in unfunded obligations.

    Recent analysis from The Heritage Foundation shows Social Security is an extremely bad deal for younger workers—most average earners could receive at least three times as much income from personal savings as they can expect to receive from Social Security.

    Congress should not bail out private pensions, but it should get its own house in order by reforming Social Security to protect the most vulnerable as well as taxpayers, while freeing up resources for individuals to have more control over their retirement savings.

    Source link

  • Why Using Social Security for Paid Family Leave Is a Bad Idea

    Why Using Social Security for Paid Family Leave Is a Bad Idea

    This year marks the first time in more than a quarter-century that Social Security has had to dip into its trust fund balance.

    Since its theoretical trust fund is really just a bunch of IOUs, that means the government will have to issue $85 billion in publicly held debt this year—and $1.5 trillion over the next 10 years—in order to maintain scheduled benefits.

    As such, now is not the time to add a new entitlement to Social Security, adding to short-term deficits and expanding benefit payments.

    Yet that’s what a new proposal for paid family leave would do—increase Social Security’s scope and raise its costs.

    Under the proposal, workers could receive the equivalent of their future Social Security benefits as paid family leave benefits today in return for delaying the future date at which they begin collecting Social Security’s old-age benefits.

    It sounds tempting. Why not allow people to receive a benefit they are “entitled” to at a time when they may need it more, especially if it won’t—at least theoretically—cost the government any additional money?

    But that’s a slippery slope. If workers can borrow from Social Security for paid family leave, why not also borrow from it for things like repaying student loans or putting a down payment on a home?

    Before long, workers and families could become reliant on the government—instead of their own saving and budgeting—to meet their personal needs and significant life choices.

    Social Security is broken. It has $14.3 trillion in unfunded obligations and is on track to run out of money in 2034. As it stands, workers have no legal claim to future Social Security benefits, as Congress can change or even eliminate them at any time.

    Social Security needs to be fixed by redirecting the program toward its originally intended population, limiting the program’s growth and costs instead of expanding them.

    Social Security is an old-age program that already consumes 12.4 percent of workers’ paychecks. Moreover, maintaining the program in its current state would require between 15 percent and 16 percent of workers’ paychecks. Adding a family leave program would inevitably drive up Social Security’s costs even further and leave workers with less income to meet their needs and preferences.

    The Heritage Foundation estimates that using Social Security for paid family leave would add between $9 billion and $12 billion in new publicly held debt each year. It would also cause Social Security to become insolvent seven months earlier, bringing about seven more months of 21 percent benefit cuts.

    As initially designed, the proposal attempts not to impose any long-term costs on the government or Social Security, because workers would trade paid-leave benefits today for delayed retirement benefits in the future.

    The proposal’s authors estimated that workers could receive two weeks of paid leave for every one week of delayed retirement benefits (a 2-to-1 ratio). However, The Heritage Foundation estimated that it would cost workers up to twice that (a 1-to-1 ratio), and the Urban Institute estimated that the cost would be four times as much (a 1-to-2 ratio).

    Moreover, the American Action Forum estimated that it would add $226 billion in government debt between now and 2034, when the notional Social Security trust fund is slated to run dry.

    That’s all if the proposal stays as limited as its authors envision. If the proposed paid family leave program follows the same path as every other entitlement benefit in the history of the United States, its costs would be exponentially higher.

    If, for example, a future Congress were to waive the requirement that workers delay their Social Security benefits if they use the program for paid family leave, The Heritage Foundation estimated, the program would not be cost-free, but rather cost $114 billion over just the first 10 years.

    Further expanding the proposed paid family leave program to provide 100 percent of pay—instead of the roughly 50 percent replacement rate that Social Security provides—would bring the 10-year cost to $198 billion. And adding benefits for other types of non-maternal paid family leave would bring the 10-year cost to $231 billion.

    Even that is an understatement, because it doesn’t take into account that a more generous federal paid family leave program would cause private employers to eliminate their paid family leave programs, shifting the cost to federal taxpayers.

    Moreover, using Social Security for paid family leave could open the door to allowing workers to exchange future Social Security benefits for cash now to repay student loans or put a down payment on a home.

    There are lots of ways the federal government can help make family leave more accessible to workers without creating a new national entitlement or expanding and weakening Social Security:

    • Pro-growth economic policies that result in higher family incomes so that they can afford to take leave. Recent reports show that large companies, such as Lowe’s and Chipotle, responded to the Tax Cuts and Jobs Act

    READ MORE...

  • New Minimum Wage Law Puts DC Restaurants in a Bind

    New Minimum Wage Law Puts DC Restaurants in a Bind

    If a 10 percent tax on restaurant meals wasn’t enough to jack up the cost of dining in Washington, D.C., city residents just voted for a 275 percent increase in the minimum wage for tipped workers.

    Currently, the minimum wage for workers who also receive tips is $3.33 an hour in the district. Initiative 77, which passed with 55 percent approval on Tuesday, will raise that to the same rate as the district’s standard minimum wage of $12.50, and it will rise further to $15 by 2020.

    But tipped workers in D.C. already receive at least $12.50 in minimum wage because restaurants have to make up the difference if a worker’s earnings (tips plus wages) fall below the minimum wage.

    D.C. bartender Frank Mills understands that the $5 per hour wage paid by his employer bears little relationship to his actual income, which is up to $36 per hour. He worries the restaurant will now have to charge higher prices to cover higher labor costs, and that the higher prices could translate to fewer tips and less income.

    Talking to a reporter, Mills noted, “The economics here are not easy.” He worries happy hour customers will stop coming in from Maryland and Virginia due to the high prices. “To tell me all of a sudden we need a change when we’ve been thriving is backward thinking, truly.”

    The typical restaurant spends about one-third of its revenue on labor costs. Since full-service restaurants make a net profit of  about 6 percent on average, it’s obvious that restaurants will not be able to absorb this large bump in wages. Something has to give.

    The response is likely to be a combination of fewer workers, higher prices, poorer service, and closing restaurants—none of which is good for the customers.

    Consider a modest-sized restaurant in the district, one that has six servers waiting tables. The new tipped minimum wage will drive up their employment costs by about $240,000 per year.

    Those cost increases will cause restaurants to lay off workers and raise prices.

    A Heritage Foundation study that looked at the effect of a $15 minimum wage on the fast food industry found that it would increase prices by 38 percent and reduce employment by 36 percent.

    Since this measure only affects D.C.’s tipped workers, the effects will not be as widespread as if applied to all workers. But they will no doubt take a toll on the restaurant industry.

    It’s no surprise that some of the strongest opposition to Initiative 77 came from the restaurant industry and even many restaurant workers. More than 100 local restaurant and bar owners—from Rose’s Luxury, Big Hunt, Thip Khao, and beyond—signed a letter asking residents to vote “no” on Initiative 77.

    What may be surprising is that the majority of the D.C. City Council—hardly a bastion of free-market conservatism—also opposed the initiative.

    Mayor Muriel Bowser expressed her concern this way:

    I think if people vote for it, they would be voting for decreasing the pay of the thousands of servers who are making a living, and a good living, in D.C. right now. … And I think what’s on the table would dramatically reduce the earnings of our servers. But you don’t have to listen to me, you listen to them, and they’ll tell you, the servers across the city, they

    READ MORE...

  • How Restrictive Labor Laws Keep Puerto Rico's Economy Down

    How Restrictive Labor Laws Keep Puerto Rico’s Economy Down

    An economic crisis has engulfed Puerto Rico.

    The Financial Oversight Management Board, a federally-mandated advisory group, has worked to help Puerto Rico deal with its financial crisis and establish policies that will lead to long-run growth. The board says Puerto Rico must reform its labor market to have a bright future.

    While the oversight board has direct authority to enact certain fiscal reforms, it needs the Puerto Rican legislature’s approval to enact most of its proposed labor market reforms. Puerto Rico’s governor has agreed to most of the board’s proposed reforms, but the island’s legislature is trying to block the labor reforms that Puerto Rico’s people need.

    The board recommends several essential reforms: implementing “at-will employment” (allowing employers to fire employees without excessive legal hurdles or significant severance pay); making Puerto Rico the equivalent of a right-to-work state; and reducing unwarranted employee compensation requirements such as mandatory Christmas bonuses and excessive amounts of paid leave.

    Even with all of these changes, Puerto Rico would still have more onerous labor market regulations than the rest of the United States.

    Oppressive labor regulations choke Puerto Rico’s economy. The island’s labor laws discourage companies from operating in Puerto Rico and have driven its labor force participation rate down to 40 percent—one of the worst in the world.

    If Puerto Rico had the same labor force participation rate as the U.S. mainland—62 percent—it would have at least 50 percent more workers than it currently does.

    More workers would create a win-win for the commonwealth. If sidelined workers reenter the workforce, they would begin contributing to Puerto Rico’s tax base and their transition from welfare to work would relieve Puerto Rico (and the United States) of significant welfare costs.

    Half of Puerto Ricans are currently on Medicaid and about 40 percent receive nutritional assistance. By comparison, on the U.S. mainland, 20 percent are on Medicaid and about 12 percent benefit from nutritional assistance.

    That’s why Puerto Rico needs more people working productive jobs in the formal labor market. More workers means more tax revenue and less government spending.

    So why are so many Puerto Ricans not working?

    Primarily because it’s expensive to employ workers in Puerto Rico.

    For starters, Puerto Rico has the same minimum wage as the U.S. mainland. In the context of Puerto Rico’s economy, this is a much higher cost to meet—it is effectively 50 percent higher compared to the median wage. Moreover, regulations require employers to provide 27 days of paid leave, eight weeks of maternity leave, and mandatory Christmas bonuses.

    Additionally, employers in Puerto Rico cannot fire employees at will. Instead, they have to overcome extensive legal hurdles or provide significant severance pay.

    Finally, Puerto Rico is a forced-union territory, meaning workers must join unions and pay union dues. This drives employer costs up, creates inefficiencies in business operations, and prevents companies from setting up shop on the island.

    Economic research and historical evidence suggest that making Puerto Rico a right-to-work territory (by repealing Law 80) would attract companies to the island, increase business investment, and help more Puerto Ricans find work.

    In addition to what the board has proposed, Puerto Rico’s labor market and overall economy could benefit from a lower minimum wage. The island could also eliminate or waive the Jones Act, which drives up costs of mainland imports and exports.

    Puerto Rico has workers, but it needs businesses to employ those workers. Unless it makes it easier to do business, Puerto Rico’s economy will continue to stagnate.

    Puerto Ricans are flocking to the U.S. for better opportunities. This suggests that Puerto Ricans have much to gain and little to lose from reforming their labor laws.

    Balancing Puerto Rico’s budget, cutting the fat out of its excessively large government, reforming its public utilities, and adding transparency and accountability to the government’s operations are all important components of Puerto Rico’s economic turnaround.

    But without labor market reforms, there will be no new jobs. And without jobs, the commonwealth cannot grow.

    If Puerto Rico’s lawmakers continue to reject the board’s labor market reforms, the island can expect more of the same—workers and businesses moving from Puerto Rico to the U.S. mainland, leaving the island in an even worse economic and financial situation.

    Source link

  • 'Pay Gap' Myth Ignores Women's Intentional Job Choices

    ‘Pay Gap’ Myth Ignores Women’s Intentional Job Choices

    Tuesday is supposedly “Equal Pay Day,” but what does that mean?

    Well, according to outdated, flawed, and incomplete statistics that say women make only 82 cents on the dollar, compared with men, Equal Pay Day signifies how long into the new year women have to work just to catch up to the earnings of their male counterparts from the previous year.

    Equal-pay activists have declared April 10 as the approximate Equal Pay Day for 2018, but based on the 82-cent figure, the date should have been March 21.

    Regardless of the actual “celebrated” date, if women actually had to work that much longer than men to make the same amount of money, women might as well pack their briefcases and go home. After all, who would really work an extra three months to earn the same pay for the same job as their male counterparts?

    That level of pervasive pay gap simply doesn’t exist.

    Statistics matter, and they can help households, businesses, and governments make informed decisions. But statistics—particularly selective and incomplete ones—can also be misleading, and even detrimental.

    The pay gap is the perfect example of statistics gone awry.

    For starters, the data cited in the gender pay gap looks only at the median earnings of full-time wage and salaried workers. It doesn’t differentiate really important factors, such as education, occupation, experience, and hours, which account for nearly all of the differential in earnings between men and women.

    It turns out that accounting for all these factors eliminates all but an estimated 3 to 5 cents of the gender pay gap.

    Data is also subject to human error. Comparisons between survey data and administrative records reveal substantially underreporting of income within some of the most widely used survey data.

    Consequently, the data disregards substantial changes, such as large gains in women’s retirement incomes.

    And finally, data isn’t the supreme indicator, because not everything comes with a price tag or pay stub. What is the value of a flexible work schedule; a job with huge upward-mobility potential; particular benefits packages; the ability to tap into flexible, sharing-economy labor platforms, such as Uber and Airbnb; or to access new business platforms, such as Etsy for additional income?

    Workers who seek these job characteristics often do so despite lower pay. But those intentional choices don’t show up in the statistics.

    If a woman has the exact same job title as a man, but works 30 hours a week instead of 40, and sets her own hours and telecommutes, her paycheck likely won’t match that of the man’s—nor should it.

    One of the job qualities that women—particularly mothers—value most is flexibility. Flexibility is a difficult job feature to measure, but that’s exactly what a group of economists recently did using data from the Uber ride-hailing company.

    After analyzing data from more than 1 million registered Uber drivers, the authors tagged the average value of being able to set one’s own work schedule on an hour-by-hour and minute-by-minute basis at $150 per week. That’s the equivalent of $7,800 per year, or almost 20 percent of the median earnings of women in the U.S.

    In essence, this is the value of choice. It’s not the same value for everyone, but it shows that many workers are willing to sacrifice a lot in terms of pay for more flexibility and choice.

    On the opposite side, some employers are willing to pay a high price for flexibility from their employees—to log long hours and to work day or night.

    Economist Claudia Goldin has found evidence of “part-time penalties” in certain very high-income fields. This happens when certain companies—those in finance and law, for example—pay employees who work 80 hours a week more than twice as much as they pay those who work 40 hours per week.

    This likely has to do with certain employers’ need for employees to respond at all hours or to log double or triple time when needed, coupled with employees’ demand for higher pay when sacrificing so much of their own time and flexibility.

    Anecdotal evidence and the choices women and men make suggest that women value job choices more than men and that their preference for greater flexibility accounts for some—if not all—of the remaining pay gap between men and women.

    But choice is what legislation such as the Paycheck Fairness Act would squelch. Equal pay for equal work is already the law of the land. Imposing further-reaching policies in an attempt to eliminate pay differences that have little or nothing to do with discrimination could actually backfire.

    Pay regimes based on factors such as job titles or “equivalent work” would take away businesses’ freedom to determine the value of their work and undo decades of women’s progress by imposing one-size-fits-all jobs that take away women’s—and all workers’—freedom to negotiate pay in exchange for personal priorities.

    Source link

  • New Study Shows Minimum Wage Puts a Damper on Long-Run Earnings

    New Study Shows Minimum Wage Puts a Damper on Long-Run Earnings

    Economic studies consistently show that higher minimum wages lead to higher unemployment, particularly among teenagers.

    But that’s a consequence minimum wage advocates have been willing to accept in exchange for higher incomes for minimum wage workers who keep their jobs.

    It turns out, however, that higher minimum wages actually reduced the long-run earnings of teenagers who were exposed to the higher minimum wages.

    That’s according to a new study from the Mercatus Center, a nonprofit free market-oriented think tank, which examined the steep decline in teenage employment over the past two decades and, in particular, whether that decline in employment led to higher or lower human capital—in other words, workers’ knowledge and skills—and earnings.

    Between 1994 and 2014, labor force participation among 16- to 19-year-olds fell from 53 percent to 34 percent.

    That’s a huge decline over a relatively short period of time.

    Declining teen employment is important because job experience—even minimum wage experience—can play an important role in workers’ human capital development, which contributes to higher long-run earnings.

    Of course, if teens replaced employment with other, more productive activities, such as education and other forms of human capital development, then the decline in teenage employment could be a good thing and not a cause for concern.

    To help determine what caused the steep drop in teen employment over the past two decades, the authors—David Neumark and Cortnie Shupe—examined the impact of minimum wage laws, higher returns to schooling, and increased immigration.

    Minimum wage laws and increased immigration reduce employment opportunities by limiting the number of available jobs and increasing the amount of competition for those jobs.

    In turn, both factors can have a positive impact on wages by increasing the relative value of investing in schooling, since higher education leads to more job opportunities and greater earnings.

    The third factor—higher returns to schooling—causes teenagers to pursue school over employment (either attending school when they otherwise would have worked full time, or attending school exclusively when they otherwise would have worked while attending school).

    While the authors found that all three factors—higher minimum wages, increased immigration, and greater returns to schooling—contributed to the decline in teenage employment between 1994 and 2014, higher minimum wages had the largest impact.

    The minimum wage impact was particularly predominant for teens ages 16 to 17 since 2000.

    If higher minimum wages and the resulting shift in more teens attending school exclusively—as opposed to working full-time or working while in school—led to greater human capital, then minimum wages would still have a positive impact on earnings.

    However, when looking at the longer-term effects of minimum wages, immigration, and returns to schooling on human capital and earnings, the authors found:

    … no evidence that higher minimum wages … led to greater human capital investment. If anything, the evidence is in the other direction. Thus, it is more likely that the principal effect of higher minimum wages in the 2000s, in terms of human capital, was to reduce employment opportunities that could enhance labor market experience.

    So, while some workers benefited from higher minimum wages in the short term, the authors found that higher minimum wages had either no impact or a negative impact on the long-run earnings of workers exposed to higher minimum wages as teenagers.

    This is an important finding for policymakers to take into account when considering changes in minimum wage laws.

    The value of employment goes beyond the immediate wages it provides. Employment provides valuable human capital development that cannot necessarily be replaced by formal education.

    Since 2014, 21 states have changed their minimum wage laws. Twenty-nine states and the District of Columbia have higher minimum wages than the federal minimum wage ($7.25 per hour) and 41 localities have a higher minimum wage than their states, with some minimum wages topping $15 per hour.

    With declining employment and labor force participation weighing down individual incomes and overall economic growth (and contributing to unsustainable budget deficits), policymakers should be looking for ways to reduce excessively high minimum wages, as opposed to raising them.

    Source link