Douglas Hall – RI Future

July 14, 2016

CNBC’s state rankings flawed and anti-middle class

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From the headlines, you would think that CNBC is the gold standard economic authority. After the cable news network released its 10th annual “America’s Top States for Business 2016” listing, in which Rhode Island was ranked dead last, local corporate media raced to bring the bad news to readers and viewers. CNBC ranks R.I. worst state for business, CNBC: Rhode Island ranked ‘Bottom State for Business‘, and RI back to dead last in new CNBC rankings are typical examples from the Projo, Channel 10 and Channel 12 respectively.

Missing from the Cassandra-like coverage is any hint that the rankings are meaningless and based on metrics that rate our state on how well our policies kowtow to the whims of business, not on how well they benefit the poor and middle class. Only Ted Nesi even approaches this angle in his coverage, but he did so through the lens of competing political discourse. But what about the economics of the report? Does it hold up under scrutiny? I’ve tackled the subject of economic rankings before, here and here, trying to bring some sort of real economic analysis to bear.

I asked Doctor of Economics Douglas Hall, Director of Economic and Fiscal Policy at the Economic Progress Institute, for some insights. Hall said that many of CNBC’s economic indicators “have a lot of merit and point to the need to address matters via public policy, such as repairing the state’s crumbling infrastructure and the need to help Rhode Islanders improve their educational attainment. But when you deconstruct their aggregate groupings,” said Hall, “many of the categories are deeply flawed and point to policies that would severely undermine the well-being and quality of life of working families in Rhode Island.”

One indicator the report uses is “union membership and the states’ right to work laws.” Low union membership and strong anti-union right to work laws contribute to a higher economic ranking for a state in CNBC’s report, yet Hall says that “research clearly shows that as unionization rates have gone down, the well-being of the American middle class has gone down.” In Hall’s view, this metric “taints the entire aggregate measure.”

Another metric, the CNBC aggregate category for the cost of doing business, considers the cost of paying wages and presumably, says Hall, “a state in which every employee worked for sub-poverty wages would get a very high grade in this category, while those paying living wages that can sustain a family and support a viable business community through demand for goods and services, would get a low grade in this category.”

It seems clear that these rankings of states by various business interests, including corporate entities such as CNBC, puppet organizations such as ALEC and members of the State Policy Network (which includes the RI Center for Freedom and Prosperity) and various Chambers of Commerce are are not objective measures of a state’s economic well-being, but are tools crafted to shape public policy to the advantage of large business interests and to the detriment of the poor and middle class.

The most sensible tactic in dealing with such garbage is to file it accordingly.

June 10, 2016June 10, 2016

Speaker: No minimum wage increase this year

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Speaker Nicholas Mattiello said that though he “is very supportive of raising the minimum wage,” and that Rhode Island “needs to be competitive” with our neighboring states, he has, “heard from the business community” that they need time to absorb the current wage before increasing it again. Mattiello said that the minimum wage has gone up four years in a row and, “I’ve indicated that we’re going to look at it next year.”

Massachusetts currently has a $10 minimum wage and they are going to $11 in 2017. Connecticut has a $9.60 minimum wage and will go to $10.10 in 2017. Rhode Island’s minimum wage of $9.60 will remain in effect until at least 2018, making our state an outlier. Speaking at a community event in Providence last night Governor Gina Raimondo expressed some disappointment that the 50 cent increase in the minimum wage that she had proposed was not in the budget.

Douglas Hall, Director of Economic and Fiscal Policy at the Institute, had this to say:

We are disappointed that the house budget does not include an increase to the state’s minimum wage. Increasing the minimum wage to $10.10 would have raised the wages of 78,000 Rhode Island workers. What businesses in Rhode Island need most are consumers with disposable income–the real ‘job creators’–to buy their goods and services. A $10.10 minimum wage would have given our lowest income workers an additional $27 million in wages. While we are happy to see a slight increase to the Earned income tax credit, the research shows that coupling both an EITC increase with an increase in the minimum wage reduces poverty and boosts the economy.

“And while we hate to see Rhode Island’s minimum wage workers fall further behind neighboring Connecticut and Massachusetts, the real concern is that every year we do not increase the minimum wage, we’re effectively cutting the wages of our lowest income earners, as inflation eats away at their already inadequate wages. More than a quarter of those who would have benefited from an increase to $10.10 have children, and more than a quarter are married. One in five Rhode Island children have a parent who would have seen an increase in wages. Instead, a full-time, year-round worker earning the Rhode Island minimum wage will see the buying power of their $19,960 eroded by inflation. With one in five Americans living in a jurisdiction that’s on a path to a $15.00 minimum wage, Rhode Island families working hard for low-wages are being told they have to wait.”

May 11, 2016

State estate taxes are vital tools for broadly shared prosperity

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A new report released this morning by the Center on Budget and Policy Priorities (CBPP) emphasizes the importance of state estate taxes as tools for broadly shared prosperity and as a means to ensure that the very wealthy don’t avoid taxes by sheltering their wealth.

This report comes at an opportune time for Rhode Island, just a week after learning that policymakers are considering increasing Rhode Island’s estate tax exemption from the current $1.5 million to $2 million, a move that would benefit the heirs of fewer than 100 estates.[1] As seen in Figure 1, the increase in the estate tax exemption enacted two years ago already has significant negative impact on state revenues.

As Rachel Flum, Executive Director of the Economic Progress Institute, notes, “We face a choice: we can either invest in the things that help our communities thrive and all of us prosper, or hand yet another tax break to a few of our state’s wealthiest people.” Changes to our estate tax have already compromised our ability to make critical investments in the Ocean State. Increasing the estate tax exemption from $1.0 million to $1.5 million in the 2014 General Assembly depleted revenues by $8.4 million in 2015 and by $6.1 million already in 2016, according to the Department of Revenue.[2]

The CBPP report, State Estate Taxes: A Key Tool for Broadly Shared Prosperity, calls on states that have repealed their estate taxes to reinstate them, and suggests that the eighteen states that have estate taxes in place (including every state in the Northeast except New Hampshire) consider improving them. At $1.5 million, the Rhode Island estate tax exemption falls midway between the $1.0 million exemption in Massachusetts, and the $2.0 million in Connecticut.

The CBPP report emphasizes three compelling public policy purposes that result from estate taxes:

Providing revenue for investments that promote a strong economy. Estate tax revenue supports services that make a state an attractive place to do business and live.
Reducing inequality. The vast majority of taxpayers would never owe estate taxes. These taxes are paid by a small share of very wealthy families — those most able to afford them.
Taxing income that would otherwise escape state taxation. Without an estate tax, many unrealized capital gains go untaxed at the state level. This happens when an asset that has increased in value is not sold during the owner’s lifetime, leaving the heirs to gain the profit.

Report author, Elizabeth McNichol, emphasizes the price we pay when we erode state revenues:

You can’t get something for nothing. States that have reduced or eliminated their estate taxes have less money for public investments, so they are seeing higher tuition at public colleges; cutbacks in teachers at K-12 schools; and deteriorating roads, bridges, water treatment facilities, and other public infrastructure.”

Important investments in tens of thousands of Rhode Island’s low- and middle-income working families – such as increasing the state earned income tax credit to 20 percent of the federal credit, and helping families pay for child care–should take priority over tax breaks for a few dozen of our wealthiest families. These investments are particularly important given Rhode Island’s overall tax system, which is “upside down”. The more money you make the smaller share of your income you pay in state and local taxes. A robust estate tax helps to reverse that upside-down tax system, as do changes at the lower end, such as increasing the state EITC.

Douglas Hall, Director of Economic and Fiscal Policy at the Economic Progress Institute notes that “Preserving the estate tax at its current levels gives us revenues needed to give Rhode Island working families a boost, strengthen our economy, and invest in education and infrastructure, while making our tax structure more fair, and preventing those most able to pay from avoiding taxes on their accumulated assets.”

[1] Based on the most recently available data, after reducing by more than half the number of estates subject to the estate tax via changes adopted in 2014, only about 86 filers would remain, 39 of which would see their estate tax completely disappear if we were to raise the exemption to $2.0 million

[2] Revenue projections from the estate tax, seen in Figure 1, incorporate the revenue impact from changing the exemption level, but also reflect the number of estate tax filings, which vary from year to year.

May 9, 2016May 9, 2016

Rhode Island’s economy needs a workers’ agenda

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This is a really important video.

The Economic Progress Institute‘s Douglas Hall does four things in the video below. First he gives us a basic, overall big picture economic context, then he “drills down further” into the economy of Rhode Island. Then we’ll see, in big pieces, what a “workers’ agenda” might look like before finally recapping some of the good things done in our state towards advancing a workers’ agenda.

Hall gave the talk as an introduction to The State of Working Rhode Island: Workers of Color, that “highlights the many challenges facing Rhode Island workers, showing the many areas where workers of color fare less well than others.” For more info see here.

Douglas Hall, Ph.D, is the Director of Economic and Fiscal Policy at the Economic Progress Institute. The video was prepared from the talk Hall gave at the 8th Annual Policy and Budget Conference on April 26, 2016, and the Powerpoint slides he prepared.

May 4, 2016

Legislators should prioritize Rhode Island workers

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On Friday it was reported in the Providence Journal that Speaker Mattiello’s budget priorities include reducing the estate tax by increasing the threshold for paying the tax from $1.5 to $2 million at an estimated cost of $4.3 million, as well reducing the corporate minimum tax from $450 to $400 at an estimated cost of $3.2 million. Reducing the estate tax and corporate minimum tax will provide little benefit to the overwhelming majority of Rhode Islanders and are not a good use of public funds.

“We hope that lawmakers will not reduce state revenues by over $7 million for tax changes that would benefit a handful of Rhode Islanders and businesses,” said Rachel Flum, Executive Director. “There are many wiser ways to use $6 million to support thousands of working Rhode Islander and to ensure that businesses have the workforce they need to succeed.”

The state increased the estate tax threshold in 2014 effective January 2015, essentially increasing estates exempt from paying the tax from $1 million to $1.5 million and reducing the tax on higher income estates. The estimated revenue from the estate tax in 2014 was $43.6 million, dropping to $34.2 million in 2015, a 20% loss of revenue after the change.

Further increasing the exemption to $2 million would benefit approximately 100 estates, of which 35 would not have to pay any tax at all.

In stark contrast, increasing the EITC to 15% of the federal credit, as proposed in the governor’s budget would put $4.4 million into the pockets of 83,000 working Rhode Islanders. Increasing it to 20% as proposed by bills pending in the house and senate would provide an additional economic boost of $8 million to the direct care workers, servers, salespeople and other Rhode Islanders who earn low to moderate wages. These state investments are then recycled directly into local economies.

“The estate tax is a vital tool for broadly shared prosperity,” added Douglas Hall, Director of Economic and Fiscal Policy at the Institute. “Our analysis shows there is no good public policy reason to reduce state revenue by reducing the tax that is paid by only a small number of heirs of large estates. The state’s priority should be to help struggling working families.”

One such priority is to help working families pay for child care assistance so they can enroll their young children in quality early learning programs and know that their older children are in a safe place after school. A pilot program allowing working families who are receiving child care assistance (income below 180% FPL) to remain eligible as their income rises to over twice the poverty level is set to expire in September, 2016.

As of March 2016, just over 400 children are enrolled in the pilot. Trend data since the onset of the program in October 2013 shows that the pilot has allowed parents to have a glide path to earning higher wages since around half of the families have income between 200 and 225% FPL and half have income between 180 and 200% FPL. It is estimated that making this “exit income” permanent would cost $1.6 million for FY 2016, an investment that not only helps working families but supports the child care sector. And with the lowest eligibility limit for child care assistance in New England, policymakers should also consider increasing the “entry income limit” from 180% FPL to at least 200%.

Just as there are far wiser ways to invest in our workforce, there are wiser ways to help businesses. The Statistics of Income for 2014 shows that 91% of Rhode Island businesses paid the minimum corporate tax, including 8,000 companies with gross receipts that total more than $10 million. Last year companies were given a break – a reduction of the minimum corporate tax by $50, from $500 to $450, taking revenue the state needed to pay for the public services and infrastructure that businesses use and rely on. Another $50 reduction is unlikely to significantly impact individual businesses, while a $3 million investment in workforce training for the 83,000 Rhode Islanders who lack a high school diploma and/or are in need of English language services would benefit all businesses who are looking for workers with basic skills.

January 26, 2016February 29, 2016

Energize RI brings carbon pricing bill to the House

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New carbon pricing legislation, backed by the Energize RI coalition, was introduced by Representative Aaron Regunberg (D District 4 Providence) in the House chamber on Tuesday. The legislation “is designed to provide incentives for renewable energy use, encourage the development of cleaner renewable energy projects, and create local jobs.”

“The legislation would establish a new Clean Energy and Jobs Fund that will invest in renewables and efficiency and help Rhode Islanders lower their energy costs,” said Energize RI in a press release, “The Fund will be financed by a fee on carbon pollution, beginning at $15 per ton of greenhouse gas emissions, paid by the companies that sell fossil fuels in the state.”

Traditionally, user fees hit members of low income communities hardest, but Douglas Hall, Director of Economic and Fiscal Policy at the Economic Progress Institute, said that this bill addresses that problem head on and to good effect. “This bill does a few things that we at the Economic Progress Institute think are important. A portion of the carbon tax will be passed onto consumers, including lower-income families, in the form of higher prices. The Energize Rhode Island Act addresses this concern, by providing rebates to Rhode Island families and businesses, ensuring they come out ahead. We have seen the incidence analysis of this bill and are confident that lower income Rhode Islanders will be more than protected from additional costs.”

Introducing the bill, Regunberg spoke about the economic, legal and moral responsibility Rhode Island has to take on such an “ambitious legislative proposal.”

“Economically, this is where the world is moving… Rhode Island can either be a follower, and get the least economic benefit from these trends, or we can be a leader for this country.

“Legally, in 2014 we passed the Resilient Rhode Island Act, which obligated our state to reach certain emission reduction goals. Right now we are not on track to reach those goals…

“And morally, we have a responsibility to Rhode Island’s young people, to my generation and to the generations that come after mine… by failing to enact significant climate legislation, we are condemning the babies who are born today at Women and Infants to a dangerous future.”

Small business owner Joseph Fernandes saw the issue from an economic point of view. “If you were to attempt to open a business today in many parts of our state, you would find yourself facing a whole new set of barriers that didn’t exist for my parents. You would be faced with the burden of having to pay for costly flood insurance premiums that will only grow higher. Climate change means your business is always vulnerable to an extreme weather event that could permanently close you down.”

The Energize RI Coalition sees their efforts as complementary to other state programs dealing with climate and energy. Ken Filarski of Filarski Architecture said the the clean energy sector of our economy is one of the fastest growing in the state. “This sector is already growing at a rate that is stronger than the rest of Rhode Island’s economy, supporting over 10,000 jobs and adding 1,600 more by the end of the year. Passing this legislation means more funds to install solar panels, insulate houses, and implement other energy efficiency measures. It means more Rhode Islanders working in a field that has proven itself to be both profitable and sustainable.”

More details from the press release:

2016-01-26 Energize RI 01 — Douglas Hall

“An economic impact study by Regional Economic Models, Inc. (REMI) estimated that the legislation would create a net growth of 1,000 to 2,000 new jobs in just the first two years of the program. It also noted that Rhode Island spends more than $3.1 billion annually on fossil fuels, nearly all of which flows out of the state, since Rhode Island does not produce these fuels itself. Incentivizing Rhode Islanders to switch from out-of-state fossil fuel sources to local renewables and efficiency will help keep more of that money in Rhode Island and protect the state from the volatile market swings that often affect these fuel prices.

“The legislation establishes that 25 percent of the fees collected for the Clean Energy and Jobs Fund would be used for climate resilience, energy efficiency, energy conservation, and renewable energy programs, to be administered by the state infrastructure bank created through legislation last year. Thirty percent would be used to provide direct dividends to employers in the state per full-time employee, and 40 percent would be used to provide direct dividends for every single state resident. Employees and residents would receive their funds via tax credits, or direct checks for those not required to file taxes.

“According to the coalition’s research based on average energy use data, the program will not increase energy costs for the average Rhode Island family and businesses In fact, by paving the way for a transition to an energy independent economy, the policy will reduce costs for all Rhode Islanders in the long term. In the short term, the average Rhode Island household receives a net gain from the rebate. Even higher-income households will have an average net cost of only $25 per year toward the Clean Energy and Jobs Fund.”

Energize RI is a coalition of advocates from business, environmental and faith communities. Speaking from a faith perspective was Beth Miham, a member of Channing Memorial Church in Newport and a former board member of Interfaith Power and Light for a number of years.