Disagreement on How to Fix Job Woes

Don’t Pop the Champagne on a Job Recovery Just Yet

To glance at the recent headlines on jobs in Kentucky, you’d think things are really looking up. The latest monthly unemployment rate dropped from 7.4 percent to 7.1 percent. A state economist said in a press release that “Kentucky has now regained 96 percent of the jobs lost during the Great Recession and we are on track for a full pre-recession recovery by the end of this year.”

Look into the numbers, though, and things aren’t so rosy. The unemployment rate went down not because jobs exploded, but because the labor force declined by 18,000 people. That’s been happening for some time now, and while an aging baby boomer population explains a portion of that trend, a big factor is workers dropping out of the labor market—or never entering it in the first place in the case of young people—because they have become discouraged from finding work due to the lack of jobs. That can be seen in part in the below graph, which shows the share of Kentuckians ages 25-54 in the workforce.

labor force partiapation over time - job recovery blog

Source: Economic Policy Institute analysis of Current Population Survey data.

Being close to the number of jobs we had in December 2007, when the recession hit, is a far cry from saying we have achieved a full recovery. The Kentucky population 16 years of age and older has about 135,000 more people than it did then. The state’s jobs deficit—the gap between the jobs we had and the jobs we need to get back to pre-recession unemployment rates—is still 79,700 jobs, as seen in the graph below. To get back there in three years, we need to average 3,000 new jobs per month. In August, we added only 2,000 jobs, although job growth has been faster than that on average over the last six months.

ky jobs deficit - job recovery blog

Source: Economic Policy Institute analysis of Bureau of Labor Statistics data.

And as we pointed out in our recent report The State of Working Kentucky 2014, just because people are getting jobs doesn’t mean they are good jobs. A record number of Kentuckians are working part-time but would rather have full-time work. Real wages have been stagnant or declining for more than a decade, and one-third of jobs pay less than the poverty line for a family of four. Many of the jobs lost in the recession were better-paying jobs in the construction and manufacturing sector, while much of the new employment is in low-paid service jobs.

Jobs are increasing, and that’s good. But if returning to the number of jobs we had nearly seven years ago is considered success, it says a lot about how much we’ve lowered our expectations about what the economy should deliver.

Census Bureau Report Shows Slight Improvement in KY Poverty Rate

Number of Poor Kentuckians Remains High, State Still Climbing Out of Recession

Kentucky saw only slight improvements in some indicators of poverty and economic well-being last year, according to new Census Bureau data released today. Poverty remains high, highlighting that many have not yet recovered from the recession and underscoring the need to do more to help struggling Kentuckians afford basics like decent housing, reliable child care and transportation.

18.8 percent of Kentuckians lived in poverty in 2013, according to the new data. Although that is a decline from the 2012 state poverty rate of 19.4 percent, the change is not statistically significant. Poverty remains higher than the 17.3 percent rate it was in 2007 and the 15.4 percent rate of 2001.

Median household income rose 2.8 percent from 2012 to $43,399. But there was no statistically significant improvement in median earnings for workers over the last year once inflation is taken into account. And median household income is still $1,840, or 4 percent, less than it was in 2007 after inflation is factored in.

Kentucky is still struggling with the aftermath of the Great Recession. Although the state is experiencing some job growth it is still years from filling the jobs deficit caused by the recession. For many of those lucky enough to have a job, real wages are stagnant or declining, and have been for more than a decade. This makes it hard for even working Kentuckians to pay their bills and make ends meet.

“Jobs are too scarce, wages are not growing, and federal cuts to the safety net and critical programs have made the recovery slower and harder for families,” said Jason Bailey, director of the Kentucky Center for Economic Policy. “Policies that lift wages and make more investments in people can move the needle on these indicators and make our economy stronger for all of us.”

Other findings from today’s data include the following:

• 25.3 percent of children lived in poverty in Kentucky in 2013, also not a statistically significant change from 2012 and much higher than the 18.1 percent rate in 2001.
• The share of households receiving SNAP benefits declined from 18.2 percent in 2012 to 17.4 percent in 2013.
• Poverty for African Americans in Kentucky improved to 28.8 percent and median income improved as well to $29,703, but these indicators are still far worse than for whites, whose poverty rate is 17.3 percent and median income is $45,127.

Among the policy changes needed to enhance economic security is an increase in the minimum wage. As we reported in The State of Working Kentucky 2014, the erosion in the real value of the minimum wage is a big factor keeping down the wages of low- and moderate-income workers, making it increasingly difficult even for those with jobs to make ends meet. If the minimum wage had kept up with inflation since the 1960s, it would be over $10 an hour rather than $7.25. An increase in the minimum wage to $10.10 an hour would benefit more than one in four of Kentucky’s workers and 22 percent of the state’s children. The state also needs to make greater investments in education and social supports, which requires reforms to Kentucky’s tax system in order to generate the revenue to do so.

“Persistent high poverty is not an unavoidable reality, but something we can change through policy. We’ve let workers’ wages and public investments in our communities and neighbors erode over time, but with the right policies we can begin putting our state on a better path,” said Bailey.

Today’s data comes from the U.S. Census Bureau’s American Community Survey (ACS), an annual survey of demographic and economic data that the Census generally considers its best source of annual state-level poverty levels and incomes.

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S&P Report Says Growing Inequality Harming State Budgets, Especially in States More Dependent on Sales Taxes

new report from the credit rating agency Standard and Poor’s (S&P) says that growing income inequality is making it harder for states to generate the revenue needed to fund education and other public services, especially in states more dependent on sales taxes.

The report should be read both as a warning to Kentucky not to go down the road of a consumption-based tax system and as more evidence that the state should rely on progressive income taxes to better fund needed public services.

The report is a follow-up to a recent S&P study that suggested growing income inequality is actually harming U. S. economic growth by reducing consumer spending, limiting social mobility and creating more of a boom and bust economy. It extends that analysis to inequality’s impact on state revenues, and finds that the weaker economic growth resulting from rising inequality has meant a slowdown in annual state revenue growth over the last few decades. It’s also meant greater volatility in revenues since they’re more closely linked to the performance of financial markets.

S&P then analyzes how states with different mixes of taxes have performed in relation to growing inequality. They look at the ten states most dependent on income taxes and the ten states most dependent on sales taxes (Kentucky is in neither group, but Tennessee and Texas are among the sales tax-reliant). S&P finds that income inequality has a stronger negative effect in sales-tax dependent states than income tax-dependent states and is only statistically significant for the sales tax-reliant states.

What does this mean? That states with a less regressive tax structure—one that asks more in taxes from higher income people than those at the middle or on the bottom compared to other states—have been able to mitigate much of the effect of income inequality on revenues by aligning their tax systems to where incomes are growing: at the top. The income tax is a progressive tax while the sales tax is just the opposite, as seen in the graph below on who pays income taxes and sales taxes in Kentucky.

who pays graph
Source: Institute on Taxation and Economic Policy

The report suggests that states choosing to introduce new higher income tax rates for the rich in recent years have helped counteract the effects of the growing income gap on their budgets. The report does say that those states more reliant on income taxes face the problem of revenue volatility—bigger fluctuations in revenue from year to year—as widening income inequality has meant a greater share of income comes from investments as opposed to wages and salaries. But that challenge can be addressed by building up bigger rainy day funds in good times to help in bad times.

Income inequality is growing in Kentucky and the nation. Since 1979, nearly half of the income gains in Kentucky have gone to the top one percent. To protect and strengthen investments in schools, health and other services needed to improve quality of life, Kentucky would be wise to ignore partisans of a shift to greater reliance on sales taxes and make changes that create a fairer and more sustainable revenue system that recognizes the growing gap in incomes.

New Census Data Does Not Reflect Health Insurance Gains Made in 2014, But Shows How Much Kentuckians Needed Coverage

The Census data released today from the American Community Survey (ACS) shows that 616,000 Kentuckians or one in seven residents did not have health insurance in 2013, which is about what the uninsured rate was the previous year. Although Kentucky is making big gains in this area because of the Medicaid expansion and Kynect, they will not be reflected in Census data until next year. What the new data does show is how desperately Kentucky needed the coverage that is now available.

The new ACS data—for which respondents were asked if they had health insurance at the time they were surveyed—was collected between January and December 2013. Kentucky’s expansion of Medicaid eligibility through the Affordable Care Act (ACA), which qualified those with incomes up to 138 percent of the federal poverty level, did not go into effect until January 2014. The open enrollment period for Kentucky’s new health insurance exchange started on October 1, 2013—but only a portion of ACS respondents were surveyed during this time period, and enrollment in private insurance through the exchange is only a small part of the health insurance story in Kentucky. Of the more than 521,000 who received health coverage through Kynect, just about 15 percent did so with the private policies available through the exchange with the remainder signing up for Medicaid.

Census data in recent years has already shown that the ACA is reducing the share of young adults in Kentucky without health insurance as a result of the provision allowing them to stay on their parents’ insurance until age 26. Between 2010 and 2012, the share of 18 to 24 year olds in Kentucky with no health insurance dropped from 33 percent in 2010 to 26 percent in 2012. The share of Kentuckians in this age group with private insurance grew from 56 percent in 2010 to 62 percent in 2012.

While the overall impact of the ACA on Kentucky will be much better understood when the 2014 Census data is released next year, the 2013 data also does show how great the need for insurance was in 2013. The 616,000 Kentuckians without health coverage last year is a statistically significant increase from the 595,000 who were uninsured in 2012. However, the increase in the share that was uninsured from 13.9 percent last year to 14.3 percent in 2013 was not statistically significant.

What is clear from the data is that Kentucky entered the period in which coverage began to be available through Kynect and Medicaid with a large and persistent need for health care, aggravated by the ongoing weak economy and eroding employer coverage of health care.

Although it is not reflected in the new Census data, the ACA is dramatically increasing the share of Kentuckians with health insurance. Approximately 75 percent of those receiving insurance through Kynect were previously uninsured. A recent Gallup Poll estimates that the state’s uninsurance rate for adults dropped from 20.4 percent last year to 11.9 percent midway through 2014. And Kentucky’s Medicaid commissioner Lawrence Kissner recently reported that prior to the ACA at least 17 percent of residents were uninsured in 75 Kentucky counties, but it’s likely that now no counties have such a large share without coverage; the rate of uninsured may have fallen to less than five percent in four southeast Kentucky counties.

National sources also suggest that next year’s Census data will paint a similar picture for states that expanded Medicaid through the ACA. The Centers for Disease Control (CDC) just reported that the share of adults ages 18-64 without health insurance at the time of the interview during January through March 2014 was 18.4 percent, down from 20.4 percent in 2013. In those states that expanded Medicaid, the percentage decreased from 18.4 percent in 2013 to 15.7 percent in the first three months of 2014. In states that did not expand Medicaid, there was no corresponding significant decrease.

The Urban Institute’s Health Reform Monitoring Survey also shows a drop in the uninsured rate from the end of 2013 to the middle of 2014, with much greater increases in insurance coverage in states that adopted the Medicaid expansion. RAND’s Health Reform Opinion Study and the Commonwealth Fund’s Affordable Care Act Tracking Survey also show significant decreases in adults without health coverage between 2013 and 2014.

Two Pillars of Making Work Pay: Minimum Wage Increase and a State Earned Income Tax Credit

Increasing the state minimum wage and instituting a state Earned Income Tax Credit (EITC) and are two policies that complement each other and can help working families better make ends meet, as outlined in a new Center on Budget and Policy Priorities (CBPP) report. In combination, these policies (which we have previously promoted for Kentucky here and here) boost income, widen the path out of poverty and reduce income inequality.

As described in our recent report The State of Working Kentucky 2014, Kentucky families have experienced an erosion of wages over the past decade, making it increasingly difficult even for those with jobs to make ends meet. But increasing the minimum wage and establishing a state EITC can help address the economic insecurity created by low wages. One in four of the state’s workers would be helped by an increase in the minimum wage to $10.10 an hour, and more than one in five Kentucky families would benefit if the state created an EITC.

As emphasized in the CBPP report, a state EITC and a higher minimum wage each help working families meet basic needs and improve children’s life chances. The federal EITC lifts about 6.5 million people out of poverty, about half of whom are children, and low-income children in families that receive additional incomes through programs like the EITC do better and go further in school—and may work more and earn more as adults. Increasing the minimum wage also boosts income, lifts workers and their children out of poverty, and puts kids on a better path in life.

According to the report, the two tools are most effective when implemented together. They reach overlapping but different populations—for example, the minimum wage targets the very lowest-wage workers, regardless of family status or age while EITCs mostly benefit families with children and are available to some working families with higher incomes than provided by the minimum wage. Increasing both at the same time provides added support to the working families who need it most, together moving families beyond poverty and further down the road to economic security. The different timing of the two tools is beneficial—a larger paycheck can help with routine expenses, while the EITC is received at tax time and can be used for bigger expenses like car repairs or a security deposit. And improving both together allows the public and private sectors to share the cost of boosting incomes for workers.

Twenty-four states—including the District of Columbia—have a higher minimum wage than the federal minimum, and eleven states increased their minimum wage in 2014. Twenty-six states already have an EITC, and a few states have recently enacted EITC improvements. Three states recently both increased their minimum wage and strengthened their state EITC.

Kentucky has done neither. Proposed legislation to raise the state minimum wage to $10.10 and increase the minimum wage for tipped workers did not pass the 2014 General Assembly, although a local effort to increase the minimum wage in Jefferson County is currently under consideration. Similarly, proposals to create a state EITC have been introduced in the Kentucky General Assembly since 2002—often as part of broader tax reform plans—but are yet to pass.

In order to move Kentucky forward, state lawmakers should pursue these two important strategies for helping Kentucky families and growing the state’s economy. Here are some KCEP resources on these important tools:

Raising the Minimum Wage

“Increasing Kentucky’s Minimum Wage Would Help One in Four Workers Makes Ends Meet”
“Higher Minimum Wage Is Good for Kentucky Workers and the State’s Economy”
“Increase in Tipped Minimum Wage Is Long Overdue”

Creating a State EITC

“State EITC Would Make a Regressive Tax System Fairer”
“Infographic: A State Earned Income Tax Credit (EITC) for Kentucky”
“State EITC Would Help Working Kentuckians Afford Necessities”
“Interactive Map: How a State Earned Income Tax Credit Would Benefit Each Kentucky County”
“Fact Sheet: The Benefits of a Stated Earned Income Tax Credit by Legislative District”
“Working Family Tax Credits Help Kentucky’s Military Families”
“Myths and Facts about an Earned Income Tax Credit in Kentucky”

Report: Many in KY Still Working to Find Work

Addressing Tax Breaks on Retirement Income

Congressional Vote on Internet Tax Loopholes Could Help or Harm Kentucky’s Budget

The Senate is expected to vote soon on continuing a moratorium on state and local taxes of Internet access, and the specifics of what passes could mean hundreds of millions of dollars gained or lost to Kentucky’s state budget.

The moratorium, known as the Internet Tax Freedom Act (ITFA), passed originally in 1998, has been extended several times since then and is set to expire again on November 1. ITFA bars states from imposing sales taxes and telecommunications excise taxes on the fees paid by households and businesses for wired and mobile Internet access.

The original legislation was intended to be temporary, and it grandfathered in states that already had taxes on Internet access. According to a recent report, Kentucky loses about $80 million a year in revenue because of this ban. The ban gives an unfair advantage to Internet-based services against competing communications and entertainment services that are typically taxed like long-distance telephone service and cable TV. Kentucky’s telecommunications tax, which applies to such services, brought in $64 million to the state last year.

The lost revenue from this ban is only likely to grow as more people subscribe to Internet service, get faster and more expensive service, or cancel now-taxed services like telephone and cable TV in favor of Internet-based alternatives (like Skype for phone calls, Spotify for music and Netflix for movies).

There’s no evidence that taxes on Internet access are a deterrent to household subscriptions. If anything, banning taxes on Internet access contributes to worsening the digital divide by limiting public dollars to libraries, schools and community centers where many low-income people get their first exposure to the Internet.

While unfortunately Congress looks likely to extend the moratorium, the terms of the extension still matter greatly for Kentucky’s budget. One version of the extension links it with the Marketplace Fairness Act (MFA), a bill that passed the Senate in May 2013. The MFA empowers states to require Internet and catalog retailers with more than a million dollars in annual sales to collect and remit sales taxes on purchases of goods or services made remotely or online. Right now, those taxes are legally owed to states, but consumers rather than retailers are obligated to turn the revenue over if the seller doesn’t have a physical presence in a state. Many consumers don’t know that, so compliance is low.

As we’ve previously written, the MFA levels the playing field between online and bricks-and-mortar businesses and addresses the unfairness in taxation of consumers that don’t shop online, who tend to be lower-income. The MFA would result in an estimated $130 to $200 million more per year for Kentucky’s budgetary needs. The proposal that links the MFA and the ITFA also extends the moratorium on Internet access taxes only temporarily.

A second version, which recently passed the House and has been introduced in the Senate, worsens the situation by ignoring the MFA and making the moratorium permanent so that states could never collect taxes on Internet access subscriptions. The proposal also threatens other taxes that existed before the law was passed in 1998 that could be considered “indirect” taxes on Internet access—such as taxes on purchases that Internet access providers make—that had also been grandfathered in previously.

Kentucky Senators Mitch McConnell and Rand Paul both voted against the MFA last year. McConnell is also a co-sponsor of the Senate bill that would make the ban on Internet access taxes permanent.

A changing economy makes it harder for Kentucky to collect the revenue it needs to fund K-12 education, public safety, health care and other services that would move the state forward. One cause is Congress’s limits on states’ ability to keep their tax codes up to date. In the long-run, Internet access should be treated just like other telecommunications services when it comes to taxation. For now, linking the MFA to an extension of the moratorium on Internet access taxes would provide needed help to Kentucky’s budget, while turning the moratorium into a permanent ban will only it make it worse.