March 19, 2019

U.S. Adds 157,000 Jobs; Jobless Rate Edges Up to 7.9%

Retail, construction, health care and the wholesale trade sector added positions, while the government again shed jobs. Government payrolls have been shrinking almost every month over the last four years.

The monthly jobs numbers were close to what economists had forecast, although many had hoped for an upside surprise. Recent weeks have brought a slew of gloomy economic data, showing that the nation’s output unexpectedly shrank at the end of 2012 and that consumers were becoming increasingly pessimistic about their finances and job prospects.

Dysfunction in Washington over the budget and higher tax rates that kicked in last month could further dampen consumer confidence and hiring early this year.

“The combination of eliminating the payroll-tax forgiveness along with continued stagnation in wages, I think, could be a real hit in terms of jobs,” said Christine Owens, executive director at the National Employment Law Project, a labor advocacy and research group.  “If you add in sequestration” — the across-the-board cuts to federal spending currently scheduled for March 1 — “that paints a pretty bleak picture.”

Job growth has been steady but uninspiring in the last year, trudging along just barely fast enough to keep up with population growth but not nearly quickly enough to put a major dent in unemployment. A backlog of 12.3 million idle workers remains.

“I have been working for 40 years and I have looked for jobs many times in the past, including in bad economies, and I’ve never experienced anything like this,” said Mary Livingston, a human resources professional in Wayland, Mass. She was laid off two years ago Friday.

She said she believes employers are reluctant to hire her because of her age — she’s 63 — and the fact that she hasn’t held a permanent job in so long. But she said they seem unwilling to hire anyone at all.

“I’ve seen positions posted two years ago that still have not been filled,” she said. “There seems to be this tremendous fear of making a decision. A lot of my colleagues will go for 15, 20, 23 interviews with the same company.”

Uncertainty over fiscal policy and the fragility of the economy still seem to be holding back employers, despite a number of underlying sources of growth in places like the housing market and auto sales. Economists are forecasting job growth of around 170,000 a month for the rest of 2013, comparable to what employers have been adding over the last year.

Exactly what this pace of job growth means for the unemployment rate depends on whether many of the workers sitting on the sidelines decide to join, or rejoin, the labor force. Right now, labor force participation rates — that is, the share of people of working age who are either working or looking for jobs — is hovering around 30-year lows.

Only those who are actively looking for work are counted as unemployed, so if the labor force participation stays low, even modest job growth can cause the unemployment rate to fall quite a bit.

“The decline in the labor force participation rate brought the unemployment rate down much faster than anyone would have thought, given the jobs numbers,” said John Ryding, chief economist at RDQ Economics. “The aging of America accounts for a little bit of it, but you’d still expect that job searches would go up and participation would rise as opportunities are opening up.”

For the long-term unemployed — who now represent 40 percent of all jobless workers — the opportunities still seem few and far between. Millions have exhausted their unemployment benefits and many more will roll off the government’s system in the coming months with no viable options in sight.

“Who are these people who are getting jobs? Where are they? I don’t know them,” said Karen Duckett, 51, who was laid off from her job as director of housekeeping at a retirement community in late 2011. She recently received a letter saying that her benefits would end in two weeks because the unemployment rate in Maryland, where she lives, has fallen below 7 percent and so the state no longer qualifies for the third tier of federal emergency benefits.

“I am just so angry right now,” said Ms. Duckett, who has been invited for only two interviews despite submitting dozens of applications. “How do you expect for me to find a job in two weeks if I haven’t been able to find one in a year and a half?”

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Today’s Economist: Casey B. Mulligan: Tax Exclusions for Health Insurance


Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

The magnitude and distributional effects of the tax exclusion for health insurance look quite different when viewed from the perspective of the entire safety net.

Today’s Economist

Perspectives from expert contributors.

Expenditures on health services, especially those made through employer-sponsored health-insurance plans, are largely excluded from a host of taxes. The tax exclusions affect both the size of the health-services sector and society’s distribution of disposable income.

By excluding health services from tax, governments in effect redirect money toward health care and away from other activities that might be subsidized or prevent government from reducing overall tax rates, or both. The tax exclusions therefore have a lot in common with direct government spending on health, and for this reason are often described as “tax expenditures.”

A typical approach to estimating the size of the health subsidy implicit in the tax exclusions is to estimate the amount of federal personal income tax revenue that is lost because of the income that escapes tax. It’s important to know the amount of the implicit subsidy, because it is directly related to the amount by which the health sector is enlarged by public policy.

However, the income-tax approach underestimates the amount of the exclusion, because health services are often excluded from many other taxes. The payroll tax is an important instance: employer-provided health-insurance premiums are exempt from payroll and state personal income taxes, too, regardless of whether the employer or employee pays them.

Health-insurance premiums paid by employers on behalf of their employees will escape pretty much anything that taxes an employee’s wages and salaries, because those premiums are not officially considered part of employee wages or salaries. For example, the food-stamp program and Section 8 housing subsidy programs implicitly tax wages and salaries by withholding benefits according to how much a person earns, but for that purpose they ignore employee fringe benefits like health insurance.

Health goods and services often escape state sales taxes, depending on the type of good or service delivered or the type of organization delivering it. Many health services are delivered by nonprofit institutions that escape corporate income and property taxes, too. Just as with the housing industry, we vastly underestimate the government’s effect on the health industry if we focus only on the income tax.

A good summary statistic for the overall effect of tax exclusions on the health industry would be a measure of the marginal tax rate on earned income that included all the relevant taxes. When an employee accepts a $1 pay cut so that his employer can add that dollar to his health insurance contribution, that overall marginal tax rate would tell us how much of that dollar comes back to the employee in the form of the various tax reductions.

I am not aware of a marginal tax-rate measure comprehensive enough for this purpose (it would also need to pay special attention to the Medicaid program and its different treatment of adults and children), but previous studies have taken some useful steps in this direction. The studies find marginal tax rates greater than 50 percent for families above but near the poverty line, which means most of the money they might devote to employer-provided health insurance would come back to them in terms of reduced taxes and enhanced benefits.

More study is needed to quantify accurately the government’s effect on the health market. But we can be sure that public policy has served to enlarge the health industry at the expense of others and that previous estimates do not fully appreciate the magnitude of the distortion.

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Bucks Blog: More Flexibility Added for Roth 401(k) Conversions

The new fiscal bill, the American Taxpayer Relief Act of 2012, includes a provision that adds more flexibility to Roth retirement accounts.

Now, individuals can convert their existing 401(k) retirement plan to a Roth 401(k)– assuming their employer offers the Roth version, and allows conversions — regardless of whether they are eligible to take distributions out of the plan.

Previous rules allowed conversion from a 401(k) plan to a Roth version only if you were eligible to take funds out of the account. That meant, in general, that you had to be 59 and a half, dead, disabled or had left the employer (unless the plan allowed “in service” withdrawals), said Michael Kitces, a financial planner who summarized the change in his blog.

“It wasn’t very useful for most people,” he said. But now, he added, “Even if you still work there, and are younger than 59 and a half, you can do conversions.”

Investors who convert from a traditional, tax-deferred account to a Roth account do so because they have decided it’s preferable to pay taxes on their contributions now and avoid paying them later, when tax rates are likely to be higher. (Employee contributions to Roth 401(k)’s are taxable, but withdrawals are tax free.)

Essentially, Mr. Kitces said in his blog, the new rule means you can now do “intra-plan” 401(k) conversions “from traditional to Roth in the same manner you can do so for I.R.A.’s.”

The change doesn’t necessarily mean there will be a rush of people converting their 401(k)’s, he said. For one thing, your employer has to offer Roth 401(k)’s. (About 40 percent of employers do, according to the benefits consultants Aon Hewitt.) And as with I.R.A. conversions, you have to have the money to pay the taxes on the conversion. “We certainly expect to see some people take advantage,” he said, “but don’t expect an onslaught of conversions due to this provision.”

Alison Borland, vice president for retirement solutions and strategies at Aon Hewitt, noted that it’s optional for companies to offer Roth 401(k) plans, and it’s also optional for them to offer conversions. But the new rules may make conversions more compelling to employees, she said, so there may be more incentive for companies to allow them.

Previously, she said, the amount to be converted was subject to annual limitations on retirement plan withdrawals, which can vary by employer. But under the new provision, she said, employees can convert the entire balance in their plan to the Roth version.

“I do think this will give more plan sponsors a reason to add it,” she said. She also noted that companies will probably need additional guidance from the I.R.S. before they actually begin to allow conversions.

Would you consider converting your 401(k) to a Roth version, if you’re given the opportunity?

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Obama and Boehner Circle Each Other on Budget Impasse

Mr. Obama, in his first formal remarks since the night of his re-election, said he would open discussions with Congressional leaders next week to seek a compromise, and then, before an applauding crowd of supporters in the White House’s East Room, defended the “detailed plan” that he campaigned on — including higher taxes on the wealthy.

“I’m not wedded to every detail of my plan. I am open to compromise. I am open to new ideas,” he said. “But I refuse to accept any approach that isn’t balanced.”

“We have to combine spending cuts with revenue, and that means asking the wealthiest Americans to pay a little more in taxes,” he said, calling for Congress to immediately extend existing tax rates for 98 percent of taxpayers.

Mr. Boehner, citing a “cordial” conversation with the president on the morning after the election, said that he was “hopeful that productive conversations can begin soon so that we can forge an agreement that can pass the Congress.”

But he insisted, as the Repulicans put it throughout the campaign, that “the problem with raising tax rates on the wealthiest Americans is that more than half of them are small-business owners.” He added, “Raising tax rates will slow down our ability to create the jobs that everyone says they want.”

Their dueling appearances seemed almost like a reprise of the debates over tax proposals, which were the sharpest point of division in the presidential election.

Asked if the results of the election had weakened his hand, Mr. Boehner said: “There is a Republican majority here in the House. The American people re-elected the Republican majority.”

Indeed, his hands are tied partly because members of his party still have a wary eye on the electoral landscape. Senator Mitch McConnell of Kentucky, the Republican leader and a crucial player in the budget talks, is up for re-election in 2014 and may resist any deal that could foster opposition back home.

But many members of Congress clearly see recent events as creating an opening in the postelection session of Congress, when some retiring and defeated lawmakers could have a freer hand on voting for legislation, absent political consequences. Republicans were weakened by losing seats in both the House and the Senate, while Democrats are eager to move to issues like immigration, which animated Latino voters and helped deliver victory on Tuesday.

“The conditions are there to act,” Senator Bob Corker, Republican of Tennessee, said on Thursday. “I think the environment is different now.”

One reason is that if Washington were to remain in complete gridlock, all tax brackets would revert automatically to those under President Bill Clinton and spending would be cut automatically across the board – the abrupt changing of economic gears known as the “fiscal cliff” because of its likely economic effects.

The nonpartisan Congressional Budget Office underscored the stakes in a report Thursday that framed Washington’s dilemma. It said that if automatic spending cuts went into force and all the Bush-era tax cuts expired, the nation would slip into recession next year and unemployment would rise to 9.1 percent, from October’s rate of 7.9 percent. But simply canceling those deficit-reduction measures would risk a financial crisis that would make matters worse, the report said.

The report suggested that allowing the Bush-era tax cuts to expire for households earning more than $250,000 a year — favored by the White House and its Democratic allies, but strenuously opposed by Congressional Republicans — would have relatively modest economic effects.

Congressional aides said that on a conference call of House Republicans on Thursday, a number of lawmakers spoke up to say they needed to give their leaders breathing room and avoid brinkmanship.

“I don’t want to box myself in,” Mr. Boehner said on Friday. “I don’t want to box anybody else in. I think it’s important for us to come to an agreement with the president. But this is his opportunity to lead.”

But the forces arrayed against a budget deal remain powerful, and the gap between the parties — at least in their public postures — is wide. Liberals, backed by Senator Harry Reid of Nevada, the majority leader, say Social Security should not be part of any deal.

“House Republicans must end their intransigence on tax cuts for the very wealthy and sit down on a bipartisan basis to finish the work of this Congress,” said Representative Sander M. Levin of Michigan, the ranking Democrat on the House Ways and Means Committee, where tax legislation is written.

Mr. Boehner said that “by lowering rates and cleaning up the tax code, we know that we’re going to get more economic growth.”

“It’ll bring jobs back to America,” he said. “It’ll bring more revenue.”

But a second Congressional Budget Office report released Thursday threw cold water on Republican beliefs that a simplified tax code that lowered income and payroll taxes and closed loopholes to make up for lost revenue would substantially close the deficit by increasing economic growth. Such a plan would raise about $100 billion a year by 2020, far less than what Democrats say is necessary, the report said.

There are other pressing and potentially costly matters facing the lame-duck Congress, too. One is an extension and overhaul of farm programs, including emergency relief for the drought, which persists over much of the nation’s middle.

Another is providing federal assistance to the states hit hard by Hurricane Sandy, a bill that could easily come to tens of billions of dollars.

Then there is the looming deadline for raising the debt ceiling, a matter that may prove hard to untangle from the related questions of spending and taxation.

“It is an issue that is going to have to be addressed, sooner rather than later, ” Mr. Boehner said on Friday.

The Treasury Department expects the country to hit its debt ceiling, a legal limit on the amount the government is allowed to borrow, close to the end of the year. That would give Congress only a matter of weeks to raise the ceiling, now about $16.4 trillion, before sending financial markets into a panic.

In 2011, Congressional Republicans would not raise the debt ceiling without a broader agreement to cut the country’s deficit and set it on a better fiscal path. The impasse over finding spending cuts and tax increases to do that led to the creation of the automatic spending cuts that loom on Jan. 1, the same time the Bush-era tax cuts were also set to expire.

Reporting was contributed by Jonathan Weisman, Jennifer Steinhauer, Annie Lowrey and Helene Cooper.

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Bucks Blog: The Possible Unintended Consequences of Higher Taxes

Leslie Quick III, who described himself as a centrist Republican, said he and his new partner spent $2 million of their own money to start Massey Quick, a wealth manager and investment adviser — something they might not have done if tax rates were higher.Tom White for The New York TimesLeslie Quick III, who described himself as a centrist Republican, said he and his new partner spent $2 million of their own money to start Massey Quick, a wealth manager and investment adviser — something they might not have done if tax rates were higher.

Paul Sullivan writes in his Wealth Matters column this week about President Obama’s proposal to make Americans who make more than $1 million a year pay at least the same percentage of their earnings as middle-class earners.

The number of people affected by the proposal is quite small, Paul notes — about 60,000 people. But the plan has several unintended consequences for people who make far less than $1 million a year. Under the proposal, only taxpayers who pay an income tax rate of 28 percent of less would continue to get a tax exemption for the interest on municipal bonds. Now, all taxpayers can claim the exemption.

Limiting the exemption could raise the cost of borrowing for municipalities, and that cost would then be passed on to city and state taxpayers. And the change could limit the number of people interested in buying municipal bonds — at a time when the municipal bond market has been weak.

Have you bought municipal bonds in the past? Would a change in the tax laws affect your decision to buy them in the future?

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Economix Blog: A Closer Look at Romney’s Economic Plan

Now that we’ve had a day to digest Mitt Romney’s economic plan, Matthew Yglesias looks between the lines and finds what he calls an “agenda on social welfare policy that’s basically every bit as extreme as anyone else’s.”

So although Robert Reich calls the plan “unremarkable” and “way too reasonable for the current G.O.P.,” Mr. Yglesias points out that Mr. Romney’s commitment to lower taxes will have to come at the expense of something, and that something could very well be Medicare.

In the plan, Mr. Romney says that “before President Obama exploded the size of the federal government, our existing tax rates were more or less adequate to pay for the government we needed.”

True, in 2006, the Bush-era tax rates were able to finance government spending with a much smaller deficit. But even without a financial crisis, the aging demographics of the United States population mean that in the absence of serious health care cost reform, the government will need more money to pay for Medicare and Medicaid services for the elderly, disabled and poor in coming years.

“Maintaining America’s commitment to health insurance for senior citizens is going to require higher taxes,” writes Mr. Yglesias. “When politicians try to say that we can get by with Bush-era levels of taxation indefinitely, they mean we can get by with Bush-era levels of taxation if we scrap Medicare.”

The Romney camp argues that some of the tax cuts — particularly the drop in the corporate tax rate from a high of 35 percent to 25 percent — will be offset by more companies’ bringing their operations back to the United States and more investment here by companies, generating more corporate income to be taxed at the lower rate. But many economists and tax experts say that without reforming the tax code and eliminating the many loopholes that already allow companies to pay far less than 35 percent — or less than 25 percent, for that matter — it’s hard to imagine such a corporate tax cut being that effective.

Mr. Romney’s campaign officials declined to say just how much they believed the lower rate would be offset by generation of taxable revenues in the United States by more companies. And the plan also specifically “does not promise the immediate creation of some imaginary number of jobs, because government cannot create jobs.”

Campaign officials did say that the plan, in its totality, would raise economic growth over all to an average of 4 percent on an annual basis, induce private companies to create 11.5 million jobs and reduce the unemployment rate to 5.9 percent by the end of Mr. Romney’s first term in office.

That strikes economists as hugely ambitious. “I think it’s a stretch,” said Michael Spence, a Nobel Prize-winning economist and the author of “The Next Convergence: The Future of Economic Growth in a Multispeed World.” “Nobody knows how well we’re going to respond both on the public- and private-sector side and restore competitiveness.” Acknowledging that the plan was of course an “opening shot,” Mr. Spence, a senior fellow at the Hoover Institution, said: “Does his set of policies do it? My answer would be no.”

There are several challenges for Mr. Romney, one of which he would create on his own. By calling for a shrinking of government, he is promising to shrink the federal work force. Although the private sector dominates employment, layoffs by government at all levels have weighed heavily on the labor market during the weak recovery. Mr. Romney said he planned to reduce the federal work force by about 10 percent, which works out to about 282,000 workers at current levels.

And one thing Mr. Romney did not address at all in the plan unveiled on Tuesday was housing. The recent crisis was set off by a collapse in the housing market, and millions of owners currently owe more than their homes are worth. Despite record low interest rates, home sales are still sluggish. That’s bad news for the more than 1.1 million unemployed construction workers, not to mention the millions of others in banking, real estate, retail and home improvement whose livelihoods depend at least in part on a robust housing market. It’s hard to imagine a healthy economy without some fix for housing. Mr. Romney’s campaign officials say a plan for that is coming.

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Push for Broad Budget Deal Intensifies Among Leaders

The White House suggested for the first time that Mr. Obama might be willing to agree to extend by a few days the Aug. 2 deadline for legislation to increase the government’s debt ceiling if a deal was in sight, stepping up the pressure on the two parties to come to terms.

Mr. Obama met separately at the White House with Republican and Democratic leaders. But neither side reported any substantive progress as they searched for a formula that would include deep spending cuts, cost-saving changes to entitlement programs and an overhaul of the tax code that would increase revenues by closing certain tax breaks and eliminating deductions but also lower some tax rates.

Politically, the main question remained whether House Republicans would be willing to negotiate over any package that could be construed as raising taxes, and throughout the day there were signs of internal debate among party leaders.

Speaker John A. Boehner has shown continued interest in a deal if it can be done in a way that emphasizes lower tax rates.

But Representative Eric Cantor, the No. 2 Republican, and others like Representative Paul D. Ryan of Wisconsin, the Budget Committee chairman, warned that the most specific proposal to be made public so far — and the one that has done the most to reopen the possibility of a bipartisan accord — relied far too much for them on higher revenues to cut projected deficits.

That plan is the one put forward Tuesday by the so-called Gang of Six, a bipartisan group of senators who worked for months to reach an agreement and whose work was lauded by Mr. Obama as a sign that a deal was possible. The plan included a net increase in government revenue of about $1 trillion over a decade.

“I am concerned with the Gang of Six’s revenue target,” Mr. Cantor said.

Deepening the impasse was growing opposition among House Republicans to a fallback position developed by Senator Mitch McConnell, the Republican minority leader, that would allow the debt ceiling to be raised without any support from Republicans but also would not impose the dollar-for-dollar cuts in spending that have been central to the party’s negotiating position.

With no other good alternative in sight other than missing the Aug. 2 deadline and risking a default on United States government debt, some Republicans appeared more willing to consider a deal that would give them the deep spending cuts they have sought. Conservatives have been increasingly divided over how far to go in sticking to their no-taxes principles if it means walking away from progress toward restraining the growth of government.

At the White House, officials mixed signs of encouragement with concern that time is running out to avert a full-scale crisis.

“There is still time to do something significant if all parties are willing to compromise, because the parameters of what that might look like are well known, especially to the participants in the negotiations the president oversaw last week,” said Jay Carney, the White House spokesman, who later limited any extension to a matter of days.

With an eye on the calendar, the president summoned leaders of both parties to build on Tuesday’s release of the $3.7 trillion deficit-cutting plan by the Senate’s Gang of Six.

Administration officials saw that plan as evidence there was some bipartisan consensus to cut spending, reshape entitlement programs like Medicare and call for a future tax overhaul, slicing trillions of dollars from projected deficits over the next decade.

The four top House leaders — Mr. Boehner, Mr. Cantor; Representative Nancy Pelosi of California, the Democratic leader; and Representative Steny H. Hoyer of Maryland, the No. 2 Democrat — met privately Wednesday and, according to officials, reviewed problems with the McConnell plan. Putting it in place would require some House Republicans to back it, and the idea has met with heated resistance in the House even as a last-ditch effort.

Such talks between the party leaders in the House are rare given the polarized relations in that chamber and reflect the recognition that the Republican majority cannot pass the increase in the debt limit without a significant number of votes from Democrats.

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Economix: Imagining the End of the Bush Tax Cuts

My column this week examines the political challenge at the center of the deficit debate: the mismatch between the government services that voters want and the taxes that they are willing to pay. I suggest that a deadlock over the Bush tax cuts – expiring on Dec. 31, 2012, as prescribed by current law — may be one of the most plausible medium-term solutions.

Two notes about the column:

First, the Congressional Budget Office projects that not only would the short-term deficit come under control if Congress let current law stand, but the long-term deficit would, too. Austin Frakt has reproduced the chart on the Incidental Economist blog.

But these calculations assume that the Alternative Minimum Tax affects more and more families over time because Congress stops passing exemptions. The calculations also assume that Congress ignores something called real bracket creep, in which more families are hit with higher tax rates as incomes rise over time.

Both of these situations seem pretty unlikely. It’s just hard to imagine a world in which the United States government collects taxes equal to 30 percent of gross domestic product, up from an estimated 14.4 percent this year.

Second, a fair question to ask is, But won’t President Obama worry about taking the blame, just as he did when the tax cuts expired last year? Yes and no. Here’s Jonathan Chait at The New Republic, who has done some of the best writing on this subject (subscription required):

… what happens at the end of 2012? Well, the economy should be two years further along into a recovery. And Obama’s re-election will be behind him. At that point, his choice is easy. All he has to do is refuse to extend the tax cuts on income over $250,000 a year. He can say he favors a tax cut for income under that level, but he won’t have to follow through on that pledge, because Republicans will never agree to pass a tax cut only on income under $250,000. In a hostage standoff where one party secretly hates the hostage and the other party is at best indifferent to the hostage, then the hostage is probably going to die. End result: All the Bush tax cuts disappear starting in 2013.

Mr. Obama could blame Republicans for letting taxes go up on the hard-working middle class. (Hey, he wanted to extend them!) But their expiration would be a huge policy boon. It would slice $3.9 trillion off the national debt by 2020. How much is that? It would reduce the budget deficit to about 2.5 percent of gross domestic product, which means it would be out of the danger zone where the debt is growing faster than the economy.

I don’t want to suggest this chain of events is very likely. (And I don’t know that Mr. Chait does either.) But no single solution to the deficit seems likely. This one seems more plausible than many others.

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