Topic: Tax and Budget Policy

California’s 6-Month Paid Leave Program is Not as Popular as You Think

By Emily Ekins

At a press conference earlier this month, California Governor Gavin Newsom announced a new plan to offer 6-months of paid family leave in the Golden State. Despite it being the most generous in the nation, CNN parenting contributor Elissa Strauss felt it’s not enough, saying it’s “so much better than nothing, but leaves room for improvement.” Yet, the Cato 2018 Paid Leave Survey finds that at the national level, Americans are not supportive of establishing a 6-month paid leave program. 

The survey found that less than half (48%) support “establishing a new government program to provide 6-months of paid, job-protected, leave to workers after the birth or adoption of a child or to deal with their own or a family members serious illness.” Fifty-percent (50%) oppose establishing a 6-month paid leave program. 

Find full survey results here 

Notably, support is low despite the question not mentioning anything about tax increases or other trade-offs that are required when establishing a new government program. As the New York Times rightfully points out, it remains unclear how California will pay for 6-months of paid family leave benefits.

Fortunately, the Cato 2018 Paid Leave Survey asked Americans how much they’d be willing to pay in higher taxes each year to establish a 6-month paid leave program. The survey finds that 66% of Americans would oppose establishing a 6-month paid leave program if it cost them $525 per year in higher taxes, 68% would oppose if it cost $750 a year, and 69% would oppose if it cost $2,100 in higher taxes.[1] These costs are based on using certain program assumptions from the Family Medical Insurance Leave (FAMILY) Act sponsored by Sen. Kirsten Gillibrand (D-NY) and Rep. Rosa DeLauro (D-CT). (See here for more information).

Without mentioning tax increases, majorities of women (54%), mothers of children under 3 (59%), and African Americans (59%) favor creating a 6-month leave program, while majorities of men (58%) and whites (54%) would oppose. Latinos are evenly divided with 49% in support and 45% opposed. But, each of these groups opposes a 6-month program once taxes are mentioned. Majorities oppose among women (64%), men (67%), mothers of children under 3 (54%), whites (71%), Latinos (58%), and African Americans (51%) if a 6-month paid leave program cost $525 a year in higher taxes. 

Some could reasonably point out that California is more liberal than the rest of the country, with California voting Democratic in 7 of the past 10 presidential elections. To consider how Democratic-leaning Californians might feel about increasing their taxes to pay for a 6-month paid leave program, we can examine what Democrats nationally think about it:

When no taxes are mentioned 61% of Democrats support establishing a 6-month paid leave program and 38% are opposed. This includes 67% of Democratic women and 55% of Democratic men. (In contrast, 70% of Republicans oppose, including 64% of Republican women and 76% of Republican men). However, Democratic support flips as soon as tax increases are mentioned. If the 6-month program cost people $525 a year in higher taxes, 55% of Democrats would oppose the program and 44% would favor. If costs turned out to be higher, 67% of Democrats would oppose if the program cost them $750 a year in higher taxes and 71% would oppose if it cost them $2,100 a year in higher taxes. Furthermore, majorities of both Democratic women and men oppose a 6-month paid leave program once costs are considered.

These results suggest that if California voters more closely resemble national Democratic voters rather than the nation as a whole, they would like the program in theory but not in practice. While they may desire to offer a 6-month paid family leave benefit to people, they would not tolerate the higher taxes likely required to properly fund the program. 

California already has the highest income tax rates in the country, reaching up to 13.30%, with the average family paying 9.30%, and a statewide sales tax rate of 7.25% percent in addition to local sales tax rates. Especially given these conditions, it remains uncertain voters would be willing to tolerate another tax increase. One option to keep costs low could be to means-test the program so that only the needy would receive benefits. Otherwise, the program may be too expensive for voters to accept. Another option is to promote tax-advantaged savings accounts. Eighty-two percent (82%) of Democrats, as well as 78% of all Americans, would support creating tax-advantaged family leave savings accounts that could be used if people needed to take family or medical leave.

Altogether, these results indicate that while Californians may be excited about the benefits that this new program would offer, they are likely to resist the higher taxes likely required to make the program possible.

Read about the full survey results and analysis here.

For public opinion analysis sign up here to receive Cato’s upcoming digest of Public Opinion Insights and public opinion studies.

The Cato Institute 2018 Paid Leave survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online during October 1-4, 2018 from a national sample of 1,700 Americans 18 years of age and older. Restrictions are put in place to ensure that only the people selected and contacted by YouGov are allowed to participate. The margin of error for the survey is +/- 2.4 percentage points at the 95% level of confidence. 

     

 

[1]Public support doesn’t change much after taxes reach $525 a year perhaps because Americans aren’t supportive of the program to begin with. After taxes are mentioned there may be a threshold after which cost-conscious people will be opposed. Those who remain in support even if the costs rose to $2,100 a year may be very ideologically committed to establishing a program, they think someone else will foot the bill, or they may not believe taxes would actually be raised that much.

Topics:
Government and Politics, Tax and Budget Policy

Welfare Cowboy

By Chris Edwards

A reporter called the other day to ask what I thought about the National Endowment for the Arts (NEA) giving subsidies to the National Cowboy Poetry Gathering in Elko, Nevada. The government appears to have given the cowboy poets hundreds of thousands of taxpayer dollars over the years.

As the symbol of rugged individualism in the American West, I’m surprised cowboys aren’t embarrassed to take government hand-outs. The amount of money is not large, but when private groups get hooked on subsidies they become tools of the state. They lose their independence and may self-censor.

From the government’s perspective, subsidies placate dissent and encourage subservience. I’m not just talking about cowboys, but recipients of all the federal government’s more than 2,000 subsidy programs.

The NEA launched the poetry subsidies in 1985 to fix the negative image of cowboys as “strong, silent types.” Bikers and gun owners also have image problems, so we might expect the NEA to next sponsor poetry at the Sturgis Motorcycle Rally and the Crossroads of the West Gun Show.

I’m not receiving any NEA subsidies, but I nonetheless crafted a song sung to the tune of Rhinestone Cowboy:

“Welfare Cowboy”

 

I’ve been studyin’ the budget so long

Complainin’ about the wasteful mor-ons

I know every hand-out in the dirty hallways of Congress

Where money’s the name of the game

And our taxes get washed down the pork-barrel drain

 

There’s one program so surprisin’

On the road Elko, Nevada

That’s where NEA shines a light on its inanity

 

Like a welfare cowboy

Writing poetry for a subsidized gathering

Like a welfare cowboy

Getting hand-outs from people they don’t even know

And offers gained from a lobbying lasso

Note: the cowboy poets appear to have received about $35,000 every year or two from the NEA since the 1980s. They also receive support from the Nevada government and City of Elko.

Topics:
Tax and Budget Policy

Government Octopus Threatens Economy

By Chris Edwards

As the government shutdown drags on, it is starting to damage activities across the economy because federal tentacles are in everything. But we better get used to it because with rising deficits and growing partisan discord such disruptions will probably become more frequent and damaging.

Sadly, the expansion and centralization of government power in recent decades has made our $20 trillion economy dependent on a small group of self-interested and often ill-informed politicians. Centralization and dysfunction at the core is a toxic mix.

The shutdown is affecting activities that the government needlessly monopolizes—such as air traffic control. It is affecting activities that the government needlessly regulates and subsidizes—from Smuttynose’s beer labels in New Hampshire to Betty Gay’s home repairs in Kentucky.

And it is needlessly harming a large group of people that it has micromanaged for far too long—American Indians. “The shutdown has hit Native American tribes especially hard because so many of their basic services depend on federal funding,” notes the Washington Post. Education, health care, road maintenance, and other services on reservations are often run by the federal government or run by tribal employees paid by the federal government.

That dependency has long resulted in mismanaged and low-quality services for the million people who live on reservations. In the New York Times, one tribal leader spoke of federal support, “The federal government owes us this: We prepaid with millions of acres of land,” while another said the shutdown “adversely affects a population that is already adversely affected by the United States government.”

Read the rest of this post »

Topics:
Tax and Budget Policy

U.S. Corporate Tax Rate Still Too High

By Chris Edwards

Democrats are making waves in tax policy by promising to reverse some of the 2017 Republican reforms. Rep. Alexandria Ocasio-Cortez called for raising the top federal individual income tax rate to 70 percent, which was the rate before Ronald Reagan came to office. I noted that the global economy has dramatically changed in recent decades, and such a high rate would be even more damaging today.

Democrats are also calling for a higher federal corporate tax rate, partly reversing the GOP’s cut from 35 percent to 21 percent. Democratic House Budget chair John Yarmuth, for example, is proposing to raise the rate to 28 percent. The problem, again, is that the global economy has changed and U.S. businesses face a more intense competitive climate than ever.

The chart shows the average federal-state corporate tax rate in the OECD industrial countries since 1980. The United States led a global wave of corporate tax rate cuts in the 1980s, but then federal policymakers sat on their hands for three decades as other countries continued cutting.

President Trump pushed hard and convinced Congress to reduce the federal corporate rate to 21 percent. But state taxes are piled on top of that for a combined U.S. federal-state rate of 27 percent. That is still higher than the 24 percent average of the OECD countries in 2018, according to KPMG. The global average rate per KPMG is also 24 percent.

On corporate taxes, America is still a high-rate country.

The data is sourced from OECD and KPMG.

Topics:
Tax and Budget Policy

Punitive Marginal Tax Rates and A Partial Appeal to The Economics Literature

By Ryan Bourne

Alexandria Ocasio-Cortez hit headlines last week for advocating marginal income tax rates “as high as 60% or 70%” on those earning $10 million plus per year. Under her plan, revenues from such a policy would be put towards funding a “Green New Deal.”

Matt Yglesias, Paul Krugman and Noah Smith were quick out of the blocks to defend the idea of massive marginal tax hikes on high earners as simply sensible, mainstream economics. They appealed to the work of economists Peter Diamond, Emmanuel Saez, Thomas Piketty and others, who have set out the case for very high marginal tax rates on top incomes in academic journals over the last two decades.

These economists have indeed recommended the optimal marginal tax rate for the top 1% of income earners in the U.S. should be a combined (federal, state and local taxes) rate of 73 percent or higher – designed with the aim of maximizing revenue from top taxpayers.

But their recommendation is not analogous to jacking up marginal federal income tax rates on very high earners in our current code. Furthermore, their result depends on highly contentious philosophical positions and economic assumptions.

Read the rest of this post »

Topics:
General, Tax and Budget Policy

The Cost of the Border Wall Keeps Climbing and It’s Becoming Less of a Wall

By Alex Nowrasteh

Social scientist Bent Flyvbjerg described the selection of government-funded infrastructure projects as “survival of the unfittest” because proponents of those projects systematically exaggerate the benefits and underestimate the costs.  President Trump’s proposed border wall with Mexico provides a striking example of this: A wall along the border with Mexico will likely cost about $59.8 billion to construct.

The Office of Management and Budget (OMB) recently sent a letter to Congress where it argued that $5.7 billion would pay for approximately 234 miles of a new physical steel barrier along the border.  That new estimate comes to about $24.4 million per mile.  This new OMB estimate is 41 percent more costly than the approximately $17.3 million per mile construction costs that the Department of Homeland Security (DHS) estimated just a few years ago, 2.7 times as expensive as Mitch McConnell and Paul Ryan estimated, and 5 times as expensive as Trump’s lowest estimate. 

Even worse, the $24.4 million per mile estimate does not include the large cost overruns for government construction projects.  Applying a conservative 50 percent cost overrun estimate to building the border fence brings the total price tag to approximately $36.6 million per mile.  Building a steel fence along the remaining 1,637 miles of Mexican border not covered by pedestrian fencing would cost approximately $59.8 billion, excluding any maintenance costs. 

There are a few caveats about the above estimate.

First, the 50 percent cost overrun estimate is conservative.  A small sample of large construction projects selected by my colleague Chris Edwards shows that cost overruns boost total project costs by an average of 3.3 fold.  The cost of the border fence is thus very likely to be more than double what I estimate above.

Second, this estimate is for the steel bollard barrier and not a concrete wall.  In other words, the currently proposed steel border fence is far cheaper than the concrete and steel wall originally proposed by President Trump.  Making it out of concrete could more than double the price.

Third, our cost estimate does not include the low-ball $864,353 annual per mile cost of maintaining the current border fence – which is likely a lot less expensive than repairing the barrier that has been proposed by Trump. 

Fourth, the OMB’s cost estimate per wall is more in line with previous Trump administration requests than estimates made by organizations that are ideologically committed to building a wall regardless of the cost to taxpayers.    

Since 2017, administration officials at the OMB have been relatively consistent in estimating that the government cost of building a border wall is around $24 million per mile.  However, the incentives for and history of government agencies systematically underestimating the costs of government construction projects makes this the lowest possible estimate.  If it is built for about $24.3 million per mile than it would be the first time that a large government construction project has come in at or below cost in a very long time.

The cost of the border wall keeps getting higher, the border wall keeps becoming less of a wall, and the administration keeps promising that it will cover less and less of the border.  At this rate, President Trump might end his administration with less fencing than he began it. 

Topics:
International Economics, Development & Immigration, Tax and Budget Policy

High Tax Rates Won’t Work in Today’s Economy

By Chris Edwards

Rep. Alexandria Ocasio-Cortez is making headlines calling for raising the top individual income tax rate to 70 percent to fund a Green New Deal. Sympathetic commentators are saying that such a high rate on the wealthy is no big deal because the top tax rate used to be 70 percent and above. Noah Smith at Bloomberg says the congresswomen’s plan would be “a return to the 20th century norm.”

The problem is that globalization has dramatically changed the economy over recent decades. High tax rates were not a good idea back then, but they would be disastrous now.

Before the 1980s, capital controls under fixed currency exchange rate regimes kept money bottled up within countries, keeping taxpayers in national economic prisons. That regime broke down, and today trillions of dollars flows over borders under flexible exchange rate systems, while industries and entrepreneurs have become highly mobile. Tax bases are far too movable these days for governments to sustain yesteryear’s excessive tax rates, as I discuss in Global Tax Revolution.

Every industrial country has figured that out, and their policy decisions refute the soak-the-rich tax dreaming of Rep. Ocasio-Cortez. Top income rates have plunged around the world since 1980 under governments of both the political left and right.

The chart shows the average top federal-state income tax rate for 26 core OECD countries that have good data back to 1980. The average top rate among these high-income nations fell from 68 percent in 1980 to 47 percent today. The average rate for all 35 OECD countries today is 43 percent. The top U.S. federal-state tax rate at 46 percent in 2017 was above the OECD average. The recent GOP tax cut dropped the top federal rate a few points, but raised the effective state rate by capping deductibility. On individual income taxes, America is not a low rate country.

 

The 26 countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States. Data for 2000-2017 from the OECD. Data for 1980-1995 from Global Tax Revolution.

Topics:
International Economics, Development & Immigration, Tax and Budget Policy

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