The next Treasury secretary will have a mess on her or his hands. A handful of people have the diplomacy, broad view of the economy, and experience to do the job, and I am thinking Raphael Bostic, President of the Atlanta Fed, may be at the top of the list of the next Treasury Secretary. Donald Trump and Joe Biden would be served well by promoting the Atlanta Federal Reserve President. An Economics PhD from Stanford, a former professor at USC, and years at the Federal Reserve, Bostic has a comprehensive view of what our broken economy needs.
Today the Atlanta Fed sponsored a webinar on a fascinating research paper showing that one of the biggest barriers to expanding the labor force and releasing productive capacity are tax rates on the poor.
The idea that equity and growth go together is the theme of the over 150 research papers sponsored and highlighted by Economist Heather Boushey’s think tank, Center for Equitable Growth shows how growing wealth and income inequality reduces robust and stable demand for goods and services – if households don’t have money they can’t buy much.
Inequality also obstructs access to education — according to Eric Kelderman at the The Chronicle of Higher Education 90% of two year community compared to two thirds of prestigious universities experienced no change or an increase in enrolment this Fall, reflecting the tragic results of the pandemic on lower income families whose college students are more likely to attend community college.
According to Pew Research among the top 5% of households – those with incomes of at least $248,729 in 2018 – their share of all U.S. income rose from 16% in 1968 to 23% in 2018. .The richest families are the only ones whose wealth increased in the years after the start of the Great Recession. Overall, 61% of Americans say there is too much economic inequality in the country today.
The research paper on the huge tax rates faced by poor people written by Atlanta Fed researcher David Altig, and economists Alan J. Auerbach, Laurence J. Kotlikoff, Elias Ilin, Victor Ye described the poverty trap. Because the U.S. has a patchwork of federal and state tax and benefit programs each focusing on work incentives and disincentives 25% of low-wage workers face marginal net tax rates above 70 percent. Bettering oneself, going to night school, working another shift, being promoted to manager simply isn’t worth it, there is no hopeful way or rational way out of poverty. The richest 1 percent also face a high median lifetime marginal tax rate – roughly 50 percent — but they don’t lose their house, medical insurance, or access to food if they work more and, frankly, being taxed $500 for earning over $1000 over $350,000 probably isn’t even noticed.
This is what happens if you are poor and try to get ahead. If a low income household earner earns an extra $1 they may lose thousands of dollars in their own or their family’s Medicaid benefits. Medicare Part B premiums, the Earned Income Tax Credit, Child Tax Credit Supplemental Income, Supplemental Nutritional Assistance Program, Temporary Assistance for Needy Families, Obamacare subsidies, Section 8 Housing Vouchers and Childcare Assistance are all affected by earning too much.
As Steve Matthews from Bloomberg reports “poorer families may rely on Medicaid insurance, welfare payments, food stamps, housing vouchers and tax credits that are based on family incomes.” The research highlighted a single mother in Oregon who, if she earned $1000 more would lose $15,000 in housing subsidies.
Bostic, said of the poor, “They are not dumb. It’s on us to actually change those incentives so that people understand what the potential is and move forward towards opportunity.”
Bostic also said that “the Atlanta Fed can contribute to a more inclusive economy lies in the foundation of promoting maximum employment, by addressing the economic inequality that persists in this country. We have the ability and the responsibility to link economic mobility and resilience to broader economic health and to raise awareness among stakeholders who may not be fully attuned to the consequences of an inequitable economy.”
Someone, like Bostic, who can link the most tragic consequences of the pandemic, the recession and 30 years of wage stagnation and industrial decline which contribute and sometimes cause the growing inequality of longevity well-being, and opportunity is the best candidate to help lead the U.S. economy into the future.