Friends,
Experts have accumulated a large and growing body of evidence proving that discrimination by race and gender actively harms economic growth. Earlier this year, a McKinsey report co-authored by JP Julien found that "eliminating disparities in wealth between Black and white households and Hispanic and white households could result in the addition of $2 trillion to $3 trillion of incremental annual GDP to the US economy." The same report found that "unlocking women’s economic potential in the workforce over the coming years could add $2.1 trillion in GDP by 2025."
A nonpartisan global consulting firm actually putting a price tag on the cost of American racism and sexism is a big deal. And last week, those findings have been corroborated by a report from the nonprofit Brookings institution (PDF) that estimates the economic prosperity available to everyone if we were to eliminate discrimination based on race and ethnicity.
It's hard to wrap your arms around all the many economic costs of racism and other discrimination. The Brookings authors tabulated disparities in employment, education, hours worked, and earnings in order to work up a total, concluding "that ensuring all Americans have an equitable opportunity to participate in the economy is an economically significant way to increase aggregate prosperity...We find significant economic gains, measured in trillions of dollars of GDP," the authors write.
And the authors are very clear that the trillions of dollars in economic growth wouldn't just go to those people currently experiencing discrimination—it's shared prosperity that we all, from the top one percent of the economy to the bottom one percent, are missing out on.
You and I are already aware that racism and discrimination are morally abhorrent. So why do these kinds of reports matter? They create a profit motive for shareholder-driven companies to do their best to eliminate systemic discrimination within their own organizations and those of their partners. Corporations don't land on the Fortune 500 by leaving money on the table, and so an economic inducement to do the right thing—especially from two globally respected brands like McKinsey and Brookings—gives corporations a quantifiable reason to invest in eliminating discrimination.
The Latest Economic News and Updates
This week Congressional Democrats on the House Ways and Means Committee released their revenue proposal to fund about $2.9 trillion of President Biden’s sweeping $3.5 trillion middle-out economic agenda. While the plan proposes tax increases on wealthy corporations as well as individuals, including reverting the top income tax rate to what it was before the Trump tax cuts, it peels off from Biden’s initial proposal in key ways, largely in an attempt to win over the support of conservative Democrats. As Jonathan Weisman and Jim Tankersley wrote on Monday, “But the proposal, while substantial in scope, stopped well short of changes needed to dent the vast fortunes of tycoons like Jeff Bezos and Elon Musk, or to thoroughly close the most egregious loopholes exploited by high-flying captains of finance. It aimed to go after the merely rich more than the fabulously rich.”
U.S. Secretary of Agriculture Tom Vilsack is stumping for President Biden’s proposed changes to the federal capital gains tax, publishing an op-ed in Wall Street Journal last week that the capital gains changes won’t hurt family farmers. Currently, if someone passes a property on to a family member upon their death, capital gains policy treats the heirs as if they purchased it on that date, only taxing the appreciated value upon a sale based on the time in which they held that property. It’s called “step-up in basis,” and it sounds great on paper. But for years, zillionaire tycoons have exploited this loophole to pass vast fortunes on to their heirs, who can in turn immediately sell them and pay little to no capital gains tax while making a mint. Biden’s proposal would close this loophole, but as Vilsack explains, contains key protections for family-owned businesses, including family farmers. First, no taxes are due if a farmer passes their farm onto children until the children decide to stop farming or sell the farm. Second, it would exempt a whopping $2.5 million in gains, only taxing any value above that. Vilsack says that more than 95 percent of families won’t face any new tax, but the step-up in basis “is one of the most popular ways the rich avoid taxation, and it must end.”
New Census Bureau data show that amid a year consumed by a pandemic and ensuing economic crisis, the U.S. poverty rate actually fell in 2020 to 9.1 percent after accounting for government aid—the lowest rate on record and a decline from pre-pandemic levels. The data represents nearly 8.5 million Americans who were lifted out of poverty last year, thanks entirely to swift and sizable government aid, including stimulus checks and enhanced unemployment benefits. The new data corroborate the principle that poverty is an economic choice. And as it turns out, increasing aid to struggling workers and families, strengthening our social safety net, and putting more cash in people’s pockets are the best ways to lift families out of poverty and boost our economy. “This really highlights the importance of our social safety net,” said Liana Fox, chief of the Census Bureau’s Poverty Statistics Branch.
But there are still deep inequities in our economy—as Washington Post reports, Black and Hispanic women continue to be left behind in our recovery, and there are warnings our overall recovery could stall as strong jobs gains lose ground to surging COVID cases and the same critical benefits that lowered our poverty rate for the first time in decades phase out. “This is a really phenomenal result,” said Elaine Waxman, a senior fellow at the Urban Institute. “But a lot of the aid that made a difference, including for families with children, won’t be extended.”
The White House is urging Congressional Democrats to get behind President Biden’s $3.5 trillion middle-out economic package, which would make major investments in more programs to help working Americans a la the success of pandemic aid and the extended Child Tax Credit.
Not only did government aid literally lift millions of Americans out of poverty, it also saved millions of Americans who otherwise would have slipped into poverty during 2020. Following up on the remarkable new census data, our friends at the Economic Policy Institute released a new report showing that without both new and existing safety net services, tens of millions more Americans would be in poverty today. According to EPI’s analysis, Social Security remained the largest anti-poverty program in 2020, but stimulus checks alone prevented an estimated 11.7 million people from entering poverty, and unemployment insurance saved another 5.5 million. As Asha Banerjee and Ben Zipperer write in the report, “As a result of the increased federal funding and extensions, 10 times as many people were kept out of poverty by UI in 2020 than was the case in 2019 … Congress should reinstate the extensions and reform UI systems immediately, as the spread of COVID-19 continues to sharply limit growth and job opportunities for millions of workers.”
Again, poverty is a policy choice, so if we know these enhanced aid programs work at lifting millions of Americans out of poverty, why not make them permanent? House Ways and Means chair Richard Neal (D-MA) introduced a bill over the weekend to do just that—at least with the wildly popular Child Tax Credit expansion passed in Biden’s American Rescue Plan. The bill would extend the increased CTC amount through 2025, while making it permanent for children in families with the lowest incomes. It would also make the expanded EITC permanent, as well, which would help 17 million low-income Americans without children. It’s a great start, but Democrats should make the expanded CTC permanently available for middle-class families, too. As we’ve said before in this newsletter, doing popular things is popular.
Google is at the center of a new whistleblower complaint with the Securities and Exchange Commission alleging the tech giant—which reported Q2 earnings of $18.5 billion in profit—has underpaid temp workers in 16 countries by $100 million over the last nine years. If you recall from The Pitch update two weeks ago, conservative estimates suggest that wage theft in the U.S. alone amounts to over $15 billion every year—equal to the amount the FBI estimates for all property crimes committed in the U.S. in 2019. It’s the single greatest crime in America and, if the whistleblower complaint is corroborated, around the world.
Real-Time Economic Analysis
Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunkworks; and follow us on Twitter and Facebook.
On the Pitchfork Economics podcast, Nick and Goldy talk with Stanford Professor Margaret Levi on her research into how people can be persuaded to act in the interest of others if they don’t already want to. What does it take for someone to act in the interest of others? What constitutes trust in general, and trust in government in particular? The conversation covers vaccines, unions, citizen confidence in government, and a lot more.
In his Business Insider column, Paul writes about the pandemic’s long-term economic impact from the analysis of historian Adam Tooze, and why ending pandemic benefits too soon could both slow recovery and stoke further economic inequality.
Closing Thoughts
Last Thursday, right after we sent last week's newsletter, President Biden announced that his administration was adopting a strict new set of rules requiring workers at companies with more than 100 employees to be either vaccinated or tested at least once a week. Additionally, the AP's Zeke Miller notes, "the roughly 17 million workers at health facilities that receive federal Medicare or Medicaid also will have to be fully vaccinated," along with several million other employees of the executive branch and federal contractors.
This isn't just a public health policy—it's also an economic one. Biden sent a strong message last week: America is getting back to work, and the first step to that is ensuring that our workforce is healthy. It's a bold, decisive move, and probably the biggest action toward ending the pandemic that the federal government has taken since the vaccines became widely available.
The naysayers, as anyone could have predicted, loudly protested. But the fact is that there is still no mass mandate. If people don't want to get vaccinated or follow the basic testing protocols that ensure everyone stays safe from Covid outbreaks, they can work for themselves, or find a small business owner who shares their views. But Biden's pronouncement sets the standard: America is ready to get back to work, and it's going to do so safely and intelligently.
Be kind. Be brave. Mask up. Get vaccinated.
Zach