what went wrong blog

What we're reading - Oct. 14, 2011

Friday, October 14th, 2011 

Here's what Kat Aaron, What Went Wrong's project editor, was reading this week:

Portrait Kat Aaron

Last week, I mentioned an article from the Wall Street Journal about people cutting back on diapers. This week, American Public Media's Marketplace radio show focused on other off-beat indicators of how the economy is doing. The results are mixed: Calls reporting abandoned pets are "very high and very consistent" in Las Vegas, suggesting that people continue to give up their pets for economic reasons. But sales of men's underwear are up, suggesting that people are not cutting back on replacement boxers and briefs.

The segment also looked at military recruitment, and found that while the economy is still pushing people to enlist, it's also keeping current Marines from leaving the corps. As correspondent David Brancaccio notes, "The recession has changed the following for the Marines: their retention rate. Not as many people want to leave in a down economy. So there's a lot of competition for the spots that are left."

"COL. MICHAEL BOWERSOX: When young men and women come into our office and want to join, they're very disappointed to find out that they're going to have to wait anywhere from six to 10 months before they can go to recruit training."

In a much less-goofy indicator of the troubled times, Oregon has seen a rapid rise in suicides, according to a piece this week in the Portland Oregonian. There's no easy way to tell how many of the suicides are related to financial woes, but the economy is likely a factor in at least some cases, according to the piece. 

"The number of suicides in Oregon — which has a suicide rate 35 percent higher than the national average — keeps climbing. According to the state's violent death report, there were 566 suicides in 2008, 641 in 2009 and preliminary figures show 670 in 2010.  The number of calls to Oregon Partnership's Suicide Lifeline has risen from 11,303 in 2008 to 19,016 in 2010. 

"Oregon's rate has been consistently higher than the rest of the country," said Katrina Hedberg, state epidemiologist. "We do not have adequate resources to address the problem."

Depression is the largest risk factor. While people usually can manage depression or other mental illness, stress can overwhelm them, experts say. 

"Families are under increased financial, employment, housing or global stressors. Even while people may have access to treatment, there are stressors that are causing ongoing instability," said David Hidalgo, interim director for Multnomah County's Mental Health and Addiction Services Division.

Finally, at least 25 percent of millionaires have lower effective tax rates than middle-income taxpayers. That's according to a new Congressional Research Service report, cited by Bloomberg News.

Preferential treatment of investment income and the reduced impact of payroll taxes on high earners lets about 94,500 millionaires pay taxes at a lower rate than 10.4 million “moderate-income taxpayers,” representing about 10 percent of those making less than $100,000 a year, according to the report by the non-partisan Congressional Research Service dated Oct. 7.


The report says moderate-income taxpayers bear the brunt of the Social Security payroll tax because it applies only to the first $106,800 in wages.

The tax is set at 12.4 percent, split equally between workers and employers. The portion of the tax that employees pay was temporarily cut to 4.2 percent in last December’s tax bill. Obama’s jobs plan proposes another temporary measure that would reduce the employee share to 3.1 percent and cut an employer’s share to 3.1 percent on the first $5 million of payroll. An additional 2.9 percent tax for Medicare is levied on all wages.

In addition, the report says, a significant portion of millionaires derive income from dividends,capital gains or carried interest, all taxed at 15 percent. Ordinary income is taxed at rates ranging from 10 percent for low earners to a top marginal rate of 35 percent.

The report found that a relatively small proportion of business owners are millionaires and played down the impact of higher tax rates on job creation.

The report itself, based on 2006 IRS data, has not been made public. CRS studies are created for the research purposes of Congresspeople and their staff, and are not automatically released to the average reader. However, we'll be keeping an eye on the Open CRS site, where CRS reports often turn up, thanks to generous leakers. 

And these stories caught the eye of Michael Lawson, one of our reporters:

Portrait Michael Lawson

What if your paycheck was suddenly cut more than 30 percent? That's the predicament of Dominican Republic immigrant Marcos Vidal after new owners purchased the Resorts Casino Hotel, where he works in Atlantic City. 

He has not had a raise in seven years at his housekeeping job at Resorts Casino Hotel. And in December, when the casino changed hands, the new owners cut his pay from $14.55 an hour to $9.83.

"Now I can barely keep up with my bills and buy food," Vidal said. "I've gotten rid of cable TV, the Internet, long-distance phone calls. I can no longer send money to my mother back home. I'm a grown man and I can't even go to a movie with someone. Do I deserve a decent life like everyone else in the United States?"

This Wall Street Journal piece highlights Atlantic City casino workers who are fighting to hold on to the life they’ve acquired while their employers are fighting for survival.

Saying the survival of the nation's second-largest gambling market is at stake, the casinos want hourly cuts of $3 from a workforce that averages $12 an hour. They also want workers to contribute for the first time to their health insurance and retirement benefit costs.

The union, Local 54 of Unite-HERE, has offered givebacks from areas other than base salary and benefits that total 50 cents an hour, but both sides remain far apart. Bob McDevitt, the union president, said his workers understand the dire straits Atlantic City's casinos are in.

But he said the workers are in an equally perilous position, with nothing less than the American Dream at stake:

"This is more than a contract; it was a societal compact the state of New Jersey made with these workers when casino gambling was approved, that these would be good, middle-class jobs with decent benefits that you could make a living from. Now, is that promise going to be broken?"

More than 70 percent of the U.S. economy is based on consumer spending. While companies try to build their bottom lines, wage cuts continue to weigh on the economy. And as the economy has tried to gain stability, incomes keep falling, according to a piece in the New York Times.

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

Income data shows casino worker unions aren’t the only ones needing to be concerned about their way of life.

The full 9.8 percent drop in income from the start of the recession to this June — the most recent month in the study — appears to be the largest in several decades, according to other Census Bureau data. Gordon W. Green Jr., who wrote the report with John F. Coder, called the decline “a significant reduction in the American standard of living.”

That reduction occurred even though the unemployment rate fell slightly, to 9.2 percent in June compared with 9.5 percent two years earlier. Two main forces appear to have held down pay: The number of people outside the labor force — neither working nor looking for work — has risen; and the hourly pay of employed people has failed to keep pace with inflation, as the prices of oil products and many foods have jumped.

While workers are getting wage cuts, Congress is considering tax cuts for corporations. The idea of tax repatriation has resurfaced as a way to jumpstart the economy, according to a piece in Businessweek

A paper from the New America Foundation says reducing taxes on the return of money held abroad could create up to 2 million jobs from shareholder spending. The Center on Budget and Policy Priorities, however, says the tax holiday would increase deficits without a sizeable return for the economy. A Senate investigation (pdf) released Tuesday concluded a similar policy in 2004 was ineffective in creating jobs. In fact, the report notes: 

[The] top 15 repatriators did not increase their U.S. workforces or their research and development expenditures overall, even after bringing back over $150 billion in offshore dollars subject to an extraordinarily low tax rate. At the same time, at those same corporations, stock repurchases and executive compensation climbed. 

The investigation found repatriation provided a “$3.3 billion windfall for some of the largest multinational corporations.” The 2004 bill did not require companies to track how they spent the money, leaving Treasury with no way to ensure compliance. Whether the current proposals have more teeth remains to be seen; we'll keep an eye on it. 




What Went Wrong

Donald Barlett and James Steele are revisiting America: What Went Wrong, their landmark 1991 newspaper series, in a new project with the Investigative Reporting Workshop. Over the next year, the project team will examine how four decades of public policy has shaped America's ongoing economic crisis.


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