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The Congressional Budget Office lobbed a small grenade into the debate over an increased minimum wage on Tuesday, releasing a report that found an increase to $10.10 an hour by 2016 would increase the wages of 25 million Americans, but also cost the economy around 500,000 jobs.
Here are the CBO’s key findings:
Seventeen million Americans would be directly affected by raising the minimum wage gradually to $10.10 by 2016, and 8 million workers who earn above $10.10 would also see indirect wage increases as a result, totalling 25 million Americans who would earn more.
A $10.10 wage hike would reduce employment by 0.3 percent, or 500,000 jobs. The CBO warns that “as with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of one million workers.”
Americans who make less than six times the poverty line (that is, $70,020 annual earnings for an individual) would see $19 billion in increased aggregate wages as a result of a minimum wage hike, with 90 percent of that going to people who make less than three times the poverty line ($35,010 in annual earnings for an individual). These are net numbers, meaning they account for the aforementioned job losses.
People making less than the poverty line ($11,060 for an individual) would see $5 billion in increased aggregate wages, which again is a net number. The CBO also says 900,000 Americans would be lifted above the poverty line.
A minimum wage hike would have no clear impact on the country’s budget deficits even in the long term.
Republicans naturally pounced on the job loss numbers. “This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working,” said Brendan Buck, a spokesman for House Speaker John Boehner. “With unemployment Americans’ top concern, our focus should be creating—not destroying—jobs for those who need them most.”
The progressive response has been twofold: one, that the CBO’s findings on job loss are out of step with a majority of the economic research, and two, that the big picture tradeoff still makes a minimum wage hike a good deal.
Several economists Tuesday, including Jason Furman and Betsy Stevenson at the White House, stressed that the CBO report doesn’t match the “consensus view” of economists.
It’s not that the CBO cooked the books or had serious methodological problems, they say. But what the CBO did was a meta-analysis of economic data: in other words, instead of running its own empirical study on the employment effect of minimum wage increases, the CBO simply looked at a bunch of existing studies and did an analysis of that body of work.
Past meta-analyses have found that, of the many studies that have been done, the conclusions cluster around zero for job loss estimates:
The CBO of course found a slightly higher number. Nobel Prize–winning economist Joseph Stiglitz told reporters on a Tuesday afternoon conference call held by the Economic Policy Institute that he would quibble with the heft CBO gave to some studies versus others. “When you do a meta-analysis, the question is how do you weight different studies. Some of the studies come closer to being controlled experiments, and therefore have more credibility with most economists,” he said. “The CBO analysis I think underestimated the benefits and overestimated the costs in several respects.”
Lawrence Katz, an economist at Harvard University, told reporters that he thinks perhaps the CBO used a slightly higher number for elasticity of labor market demand than was necessary. “At every stage they’re being a little higher than I would do, but I think they’re trying to be reasonable at reading the evidence, and as they stress, there’s a lot of uncertainty,” he said.
But in the bigger picture, many economists said the trade-off would still be worth it even if one accepted the job loss numbers.
“I’ve worked for longer than I care to remember on policies and programs to reduce poverty and to improve living conditions at the bottom,” said Robert Greenstein of the Center on Budget and Policy Priorities. “When you have a policy that adds $5 billion in income to people under the poverty line, and lifts nearly one million of them above the poverty line…and you get all of these net gains for no federal budgetary cost, that’s a pretty good endorsement of this as a positive policy to go forward.”
Democrats are planning a yearlong campaign against economic inequality as the midterm elections approach, and President Obama will kick it off in earnest Wednesday when he signs an executive order raising the contracting standards for workers on federal contracts. Over 300,000 future federal workers who would have made less than $10.10 an hour will now receive at least that.
The move is significant for a few reasons, the first being the obvious matter of fairness for these contract workers. The federal government, through contracting, employs millions of low-wage workers in a variety of large and small industries, as this chart from the think tank Demos shows:
That taxpayers are, in effect, underwriting low-wage jobs is problematic not only for these workers, but in a symbolic sense as well. The executive order Obama will sign Wednesday is hopefully a shift in thinking for Washington policymakers when it comes to substandard wages.
It also puts some muscle into Obama’s promise, repeated often during the 2014 State of the Union address, to use executive actions to get around a Congress that seems hopelessly gridlocked.
The order will unfortunately not affect workers on current federal contracts. White House officials believe changing their wages immediately would be impossible. The Procurement Act allows the president to modify contracting standards as long as the changes are both economic and efficient, and senior White House officials told The Nation that forcing changes to already signed contracts would likely violate that standard and provoke legal challenges.
But the good news is that federal contracts last only five years, so that’s the maximum amount of time it will take for all federal contract workers to be operating under the new standards.
There was some uproar last month among advocates for the disabled, because it appeared that Obama’s order would not apply to thousands of disabled workers on federal contracts. But Mike Elk of In These Times reports that the order will indeed include wage standards for those workers as well.
That victory underscores a larger victory for progressive activism here. The White House initially said it was unwilling to sign this order absent congressional action, but focused campaigns from think tanks, organizers and unions apparently changed the White House’s mind. That’s a lesson activists will take to heart as the year progresses.
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From the moment Congress passed the Ryan-Murray Bipartisan Budget Act of 2013—actually, even before it was passed—legislators from both parties were in an uproar about the legislation’s modest cut to military pensions. Contemporaneous news accounts immediately predicted the provision would be repealed, and indeed, the House passed a bill Tuesday, 326-90, repealing the military pension changes and offsetting the cost by extending sequestration. The Senate appears set to pass the House bill as early as Wednesday afternoon.
But virtually invisible from this debate have been the pension cuts to civilian federal workers. The Ryan-Murray bill didn’t just cut $6.3 billion from military pensions, but also found $6.3 billion in savings in the pensions of new federal civilian workers.
There has been nary a peep about these cuts in the Washington debate, and they aren’t likely to be reversed any time soon. In small part, this may be because the pension changes for civilian federal employees only affect new hires, while the military changes apply to current retirees and active duty troops soon to retire. In other words, there was more of an active, organized constituency of people that would be affected almost immediately.
But the repeal of only the military pension cuts violates the basic spirit of the Murray-Ryan agreement, which was to treat defense and non-defense spending equally. Paul Ryan specifically applied this principle to the pension changes during a December press conference announcing the legislation. “We also believe it’s important that military families as well as non-military families are treated equally and fair,” he said.
The most important context here, however, is the serious economic damage that has already been visited on federal workers by both Democrats and Republicans over the past several years. Federal civilian workers endured a multi-year wage freeze, initiated by President Obama, that began in 2010 and just ended earlier this year. They also were subjected to furloughs and work disruptions thanks to both sequestration and the government shutdown in October.
These disruptions were serious matters for federal employees—84 percent of them said the shutdown alone caused them to cut back spending on “necessities,” according to the National Treasury Employees Union, while 48 percent said they were delaying medical treatment to save money. Crucially, 67 percent said they would discourage others from working for the federal government, which could present serious challenges to future recruitment of talented people to the federal workforce.
In total, this means that federal workers—who represent less than one percent of the total population—have contributed close to $140 billion to deficit reduction. Advocates for these workers, both inside and outside Congress, are incensed. In fact, federal workers rallied outside the Capitol this week and demanded an end to their punching-bag status. “We’ve got to get Congress to understand that federal employees have given enough,” Everett Kelley, American Federation for Government Employees vice president for the Southeast region told the crowd, according to the Washington Post. AFGE's president, J. David Cox, put it a little more directly: "We ain't taking crap from nobody no more." The NTUE told The Nation it will work to overturn the pension cuts for new civilian employees.
But these voices are barely being heard in the broader deficit debate in Washington. The military pension cuts, and those cuts alone, are about to be swiftly and uncontroversially restored. And maybe they should be—to many people, it rightfully seems perverse for the country to launch two wars without paying for them, and then ask the people who served in those wars to help pick up the tab via their pensions. But why should a veteran’s pension be any more sacred than the pensions of federal workers who are helping to clean up pollution, prosecute criminals, predict tornadoes or research cancer?
This whole drama underscores, yet again, a truly problematic political trend. It’s long been obvious that deficit hawks are much less interested in deficit reduction per se, and much more interested in enacting their particular priorities with deficit reduction as the window dressing. (Think, for example, of the GOP bellowing about the deficit but refusing to raise a penny of new revenue.) Too often, “deficit reduction” simply becomes a meat axe that hacks away at government services for those with the least powerful voices in Washington.
The debate this year in Washington has underscored this problem again and again. The farm bill preserved rich subsidies for agribusiness while cutting food stamps. Now, Congress will restore the military pension cuts while ignoring the equally damaging cuts to civilian workers, who are much more easily maligned in the public debate.
And note: the extension of long-term jobless benefits for three months, which was repeatedly rejected in the Senate, coincidentally carried almost the exact same price tag as restoring the military pension cuts. But based on the way this Congress operates, don't expect three-to-one votes to help the jobless anytime soon.
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In a matter of months, or perhaps weeks, the United States and the government of Afghanistan could sign a security agreement that would dramatically extend what is already the longest war in US history. Leaked details reflect a plan that would keep around 10,000 US troops in Afghanistan through “2024 and beyond,” and they would still conduct combat operations against “terror” threats, which of course in Afghanistan, could be a very wide definition. In other words: indefinite war.
But a bipartisan group of senators launched a concerted effort on Thursday to slow the rush to further war. A resolution co-sponsored by Democratic Senators Jeff Merkley and Joe Manchin and Republican Senators Mike Lee and Rand Paul would demand a debate in Congress followed by a vote authorizing a US military presence in Afghanistan after 2014.
“The decision about whether to extend the military mission in Afghanistan until 2024 is too important to be made without public debate,” Merkley said during a press conference in the Capitol. “Automatic renewal is fine for Netflix and gym memberships. But it isn’t the right approach when it comes to war.”
This same group tried to attach a similar amendment to the defense authorization bill at the end of last year, but majority leader Harry Reid didn’t allow a vote. The resolution did, however, quickly gain twelve co-sponsors from both parties. Meanwhile, the House of Representatives actually passed a very similar amendment to the defense authorization bill last summer with a stunningly bipartisan 305-121 vote, though it failed to make the final bill.
The senators present Thursday expressed genuine optimism the effort could succeed this time around. Manchin spoke with The Nation after the press event, and said the public sentiment in West Virginia was overwhelming. “We have a state that’s very proud of defending, and going anywhere we’re asked to go. It’s just enough. That’s exactly what I hear. It’s time to leave,” he said.
Indeed, a recent CNN poll showed opposition to the war is at 82 percent nationwide, making it arguably the least popular war in US history.
Manchin told The Nation that it was time for Congress to consider the views of the public on fighting a longer war. “If the people of the respected states of this great country speak to their representatives, I think all the representatives are going to find out this is one thing that unites us all,” Manchin said. “It’s something that doesn’t escape, it doesn’t leave you, and there’s no explanation. I can’t explain why we’ve been there twelve years.”
He cited frustration with a lack of clear goals in the country, and said the terror threat has long since been ameliorated in Afghanistan, and the new government was too difficult to work with. “We do not have an ally in Karzai. Anybody that believes we do, I’ve got oceanfront property in the mountains of West Virginia,” he said.
If this effort doesn’t work out, more aggressive measures could be taken—like modifying the 2001 authorization for use of military force. Manchin said they would “look at everything available” but were first focused on at least having a debate in Congress.
While the 2001 authorization legally allows Obama to continue the war on his own, the Senators present on Thursday feel that the spirit of congressional input would still be violated if the war was extended another decade.
“The president has said repeatedly, including very recently in his State of the Union address, that the military will conclude operations in Afghanistan at the end of 2014. Therefore it only makes sense that any proposal to keep troops in Afghanistan past the end of the year would begin a new chapter in our relationship with Afghanistan,” Lee said. “The decision to sacrifice American blood and treasure in this conflict must not be made by the White House and Pentagon alone.”
“This is about rejecting military action on autopilot,” said Merkley.
Read Next: Bob Dreyfuss on what it might take to remove US forces from Aghanistan
The Senate is still trying to figure out a way to pass an extension of long-term unemployment insurance, which expired for 1.3 million people at the end of 2013. In case you’ve missed the debate, Republicans went from saying the extension wasn’t necessary to saying they would like to support it, but the benefits had to be offset by corresponding budget cuts. This has left the Senate twisting the Rubik’s Cube of deficit reduction measures for six weeks, trying to find an acceptable “pay for” so that Republicans can join Democrats in passing an extension. (While, of course, over a million Americans try to get by without badly needed benefit checks.)
The debate will come to a head once again this week: on Thursday, the Senate will vote on a three-month extension of the unemployment benefits. And the “pay for” attached to it deserves its own glass case in the Deficit Reduction Hysteria Hall of Fame.
This particular device is called “pension-smoothing,” a sleight of hand that Congress has used before. The Center on Budget and Policy Priorities has a lengthy rundown of the policy, but here are the basics. The federal government requires employers to fund a certain percentage of their pension plans so the plans remain solvent, and “pension-smoothing” tweaks the formula used to figure out the employer contributions to correspond more closely to historical trends. The practical effect is that for the next few years, employers will contribute less to their pension plans, and then will contribute more in later years.
When employers contribute less to their pension plans, it raises revenue for the federal government, since the contributions are tax-deductible. So voilå, the cost of the extension has been offset!
But, again—that only lasts few a few years. Pension-smoothing formulas require higher contributions in later years, which then of course means less federal revenue. That does worse than cancel out the early deficit reduction that pension-smoothing achieves: it actually overwhelms it. As each year with higher contributions passes, the whole pension-smoothing plan will at one point become revenue-neutral. Then every year past that, barring any changes, it actually increases the deficit.
In other words, it’s a deficit reduction device that does the opposite, unless you only look at it from a certain angle, or pretend that the world ends around 2019.
Now, we’ve been chronicling how badly the long-term unemployed need this extension, and also criticized deficit reduction efforts that actively harm people. Pension-smoothing doesn’t harm anyone. And if it gets the bill passed, then terrific.
But the lengths Congress will go to in order to kneel at the altar of deficit reduction are just getting ridiculous. It’s clear at this point, as if it wasn’t before, that many people who claim to be deficit hawks don’t actually care that much about the long-term deficit. Maybe it’s time to give up the charade?
Read Next: George Zornick on how Senators from the states with the highest unemployment hurt unemployment insurance benefits
During Tuesday’s State of the Union address, President Obama announced that his administration would exercise its executive power to create a new kind of savings account designed to get Americans who aren’t saving for retirement on the right path:
Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.
The MyRA accounts are essentially small Roth IRAs, which are individual retirement accounts with no tax impact—the money that goes in is from after-tax earnings, the account isn’t tax deductible and withdrawals generally aren’t taxed either. The money is invested in relatively safe stocks and bonds.
The MyRA accounts, unlike a normal Roth IRA, are backed by the Treasury Department and have safe investment vehicles that guarantee a return. It won’t be much, but slightly larger than a traditional Treasury bill. (The lack of tax impact is important here—the Treasury Department has the authority to offer certain financial instruments, but they can’t change the tax code without violating Article 1 of the Constitution.)
After Obama signs the order, employers will be able to offer these accounts to employees with minimal hassle—the company doesn’t have to pay into the account, or really do anything besides direct employees to sign up.
In the hours before Tuesday’s State of the Union address, senior White House officials described what they see as the benefits: namely, that Americans aren’t saving enough, and that there are many people who aren’t saving at all. Perhaps those people are put off or confused by complicated financial products, and so the MyRAs are designed to offer an easy starter option with a guaranteed payback that would habituate people to saving for retirement.
Once the funds hit $15,000, they would be rolled over into a traditional IRA, though MyRA holders could initiate that rollover any time they like.
The administration is right—savings have leveled off in recent years, except for top earners, and will likely provoke a severe retirement crisis in the coming years. The so-called retirement income deficit is at least $6.6 trillion. Here’s a chart from the Economic Policy Institute demonstrating the trends:
So the MyRA accounts will no doubt help many people start saving money for retirement, and can be done immediately without waiting for Congress. There are seventy-five million Americans with no access to a workplace retirement plan, and so, assuming they have a job, the MyRA is perfect for them. The cost to taxpayers should be relatively low, too.
But in the larger context of how to solve the country’s looming retirement crisis, some progressive policy experts see a problem here. Or rather, they see a route not taken.
In recent months, the idea of expanding Social Security has taken root among progressive activists and a growing number of liberal politicians. Senator Elizabeth Warren notably called for Social Security to be expanded late last year, and Senator Tom Harkin will unveil a plan this week for a new type of private, universal retirement plans that combine the benefits of both traditional pensions and 401(k) accounts.
Some experts, then, see the MyRA proposal as a retreat from that approach, even if on its face it’s a good idea. “Though it’s a very modest initiative, it would still encourage some people who are scared off of IRAs to save, and save more,” Monique Morrissey, an economist with EPI, told The Nation.
“[But] with Elizabeth Warren’s very strong endorsement that we need to expand Social Security, the most obvious thing that he should have done is reinforce the importance of Social Security, at a minimum. He didn’t do that,” she added.
Many progressives want to get Americans away from risky IRA-style investment accounts that divert savings into the stock market, which can naturally be quite volatile. But Morrissey sees this proposal working to prop up Wall Street retirement accounts by serving as a feeder to that system.
“This is clearly designed to not pose a threat to the industry,” she said. “And arguably to sort of grow accounts so they become attractive to the industry once they are rolled over.”
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President Barack Obama will dedicate a significant portion of his State of the Union address tonight to an increased minimum wage—he will not only announce an executive order raising the minimum wage for future federal contract workers, but will call also upon Congress to raise the wage nationally.
Art Laffer has some interesting thoughts on this idea. Last week, the right-wing economist made inflammatory and widely noted remarks on Fox News, in which he called increasing the minimum wage the “black teenage unemployment act.”
Laffer will also be attending the State of the Union tonight to hear Obama speak about the minimum wage, thanks to GOP Representative Darrell Issa, who posted this on Twitter late Tuesday afternoon:
Really, this can only be described as pure trolling of Obama’s minimum wage proposal by Issa. Laffer’s comments received extensive attention in the press and easily constitute his most visible entry into the public debate in recent months.
Incidentally, aside from injecting some ugly racial animus into the minimum wage debate, Laffer got his facts wrong. A whopping 84 percent of Americans who work for the minimum wage are over 20.
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Following a months-long campaign by progressives inside and outside of Washington, President Obama will sign an executive order designed to raise the minimum wage for federal contract workers to at least $10.10 an hour, The New York Times reported Tuesday morning.
Obama will announce and explain the order during his State of the Union address Tuesday, likely weaving it into larger themes about raising the national minimum wage and reducing income inequality. Progressive activists, striking federal workers and some members of Congress had been urging Obama for months to take this action.
More than 500,000 employees of federal contractors make less than $12 per hour, according to a study by Demos, and when the National Employment Law Project surveyed 500 federal contract workers, it found that more than 70 percent made less than $10 per hour. In short, taxpayer dollars are being used to pay a minimum wage that’s clearly too low, and that is accelerating the already problematic wage gap nationwide.
Obama’s executive order aims to change that—it would direct federal agencies to give contracting preference to contractors that pay at least $10.10 per hour. Naturally, this won’t affect workers currently on a government contract, since those papers have already been signed. But going forward, several hundred thousand new contract workers or those operating under revised agreements will get a raise.
Liberals who had been pushing for this change applauded the move, and expressed hope it would move the ball forward on increasing the minimum wage more broadly. “I think most Americans would agree that taxpayer dollars should not support companies that pay poverty wages,” said Senator Tom Harkin, who is the co-author of a bill to raise the minimum wage nationally to $10.10, in a statement. “This Executive Order is a strong step in the right direction, and I am grateful for President Obama’s leadership. But as I know the President would agree, it’s only a first step.”
Senator Bernie Sanders sounded similar notes. “The president has made it clear that employees working for government contractors should not be paid starvation wages. This executive order also gives us momentum for raising the minimum wage for every worker in this country to at least $10.10 an hour,” he said.
Aside from the obvious beneficial effect to future government contract workers, there is a political dimension to Obama’s move. He asked Congress to raise the federal minimum wage in last year’s State of the Union, and there was no progress.
By doing it himself without Congress for the workers he has power over, Obama is sending a message to members: if you don’t act, I will use my executive power to do as much as I can without you. This is reportedly going to be a broad theme of Obama’s speech, and one he hopes will spur Congress to act.
Watch Next: Katrina vanden Heuvel’s predictions for the State of the Union.
President Obama will deliver his fifth State of the Union address Tuesday night, and it’s arguably his last chance to make a real impact in that forum: a year from now the midterm elections will have concluded and his final Congress will be set, and in 2016 the press will care more about the primary elections underway than anything Obama says.
The White House seems to appreciate that fact, and Obama will reportedly try to “pump some vitality into a lackluster second term” by taking on income inequality and the lagging economy as a defining theme of his speech.
That’s certainly a weighty topic, so how should Obama approach it? What should he call for?
Obama should go big. Early reports of the president’s speech are already distressing some progressives. Apparently, Obama is going to avoid tackling economic inequality head on, and will instead speak in terms of “paths of opportunity” for lower- and middle-class Americans.
The policy proposals that have leaked out seem small-bore as well: Obama will reportedly announce, for example, some executive actions on things like job-training programs.
But the most effective State of the Union addresses—think Lyndon Johnson’s call for an “unending war on poverty,” or Bill Clinton’s declaration that “the era of big government is over”—go big on a bold new idea. That’s what many progressives want to see tomorrow night.
Economist Dean Baker told The Nation that Obama should come right out and say that the country should embrace large-scale deficit spending to boost demand in the economy, and thus maximize employment and reduce inequality. Obama should acknowledge that “Republicans will never go along with this,” but make the case for urgent action anyhow.
“I think it’s important to outline the case that we need to get back to full employment,” Baker said. (He and Jared Bernstein have a lengthy policy examination of this topic.) “This is what he should have done back in 2009. Explain to people why we are where we are.”
Granted that’s a dramatic “ask” from Obama—but for Baker, that’s the point. “The guy’s not running for re-election, so I don’t see the downside. Republicans will be running around saying he’s a big spender, but who gives a fuck?” Baker said. “Why doesn’t he say that? People are really suffering out there, because what, [Obama’s] opinion polls will go down a half a percent [if he takes this approach]?”
There are midterm elections looming just months away, but Baker noted that if Obama doesn’t call for aggressive action on reducing unemployment, he likely handcuffs down-ticket Democrats from doing so, lest they open themselves up to criticism for demanding something that “even President Obama isn’t calling for.”
Demand an end to “too big to fail.” Even though the Dodd-Frank Wall Street Reform and Consumer Protection Act took some steps to mitigate the damage from the collapse of a huge financial institution, the problem of “too big to fail” still remains. It’s a sword hanging over any progress on income inequality—data shows that recessions caused by banking crises are really hard to recover from. The crash and slow recovery often exacerbates inequality: between 2009 and 2012, income for the bottom 99 percent of Americans increased 0.4 percent while the top 0.1 percent saw income gains 45 percent.
At MSNBC, Timothy Noah convincingly argues Obama should address this problem during the speech:
A better solution would be to prevent US banks from becoming so big that their failure could take down the entire economy. This could be achieved in a variety of ways: raising capital requirements, for instance, or restoring the Glass-Steagall separation of commercial from investment banks, or directly limiting a bank’s size relative to gross domestic product.
In his State of the Union speech, Obama should say that Dodd-Frank was a good first pass at a problem that has evolved over several decades. Perhaps he could compare it to the Civil Rights Act of 1957, which achieved modest progress on voting rights but is remembered today for opening the door to more sweeping laws passed during the decade that followed. Ending too big to fail, he could say, is financial reform’s most urgent piece of unfinished business.
Noah notes that Obama might see some clapping on the other side of the aisle after those imagined remarks—Senators John McCain and David Vitter have co-sponsored Democratic legislation to end “too big to fail.”
Put weight behind the minimum-wage push. We do know that Obama will make an aggressive call for increasing the minimum wage, which many progressives are heartened by.
A minimum-wage hike is not only long overdue but would have a real effect on mitigating inequality. Between 1979 and 2009 the erosion of the minimum wage explained more than than half (57 percent) of expansion of the wage gap between median-wage workers and workers at the tenth percentile, according to the Economic Policy Institute.
But some progressives want Obama to show he’s serious by announcing an executive order designed to raise the pay of federal contractors. It would be a tangible step towards improving the lot of low-wage workers, and would fit perfectly with Obama’s theme of taking executive action to make a difference right now.
Lay off the TPP. Progressives will be particularly frustrated if Obama pushes hard for fast-track approval of the Trans-Pacific Partnership. There’s ample economic theory to show that trade deals increase inequality in developed countries, and so if Obama mentions the TPP in an address ostensibly tackling income inequality, many progressives inside and outside Congress will have a hard time swallowing it.
“You cannot credibly talk about addressing inequality, and say, ‘Oh, by the way, here’s another trade deal,’ ” Representative Keith Ellison told Politico this week. “He’s opening himself up for charges of hypocrisy.”
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Attorney General Eric Holder announced Thursday that the Obama administration will “very soon” issue some regulations that would make it easier for commercial banks to do business with legal marijuana operations—a seemingly small change, but one that could be seminal in launching legal marijuana into the mainstream.
Currently, state-sanctioned marijuana outfits essentially have no access to normal venues for banking and finance. Banks worry that accepting deposits from legal marijuana operations, or giving them loans, could expose the bank to legal or regulatory action, given the patchwork set of laws that make marijuana illegal on the federal level, even if certain states have legalized it.
This is, naturally, a huge problem for commercial marijuana retailers—how can you launch and run a business without any loans? They also often have to pay bills and employees in cash, which is difficult from a logistical perspective.
But the real trick is what to do with the all the money they make, since banks won’t take it. Some retailers pay armored trucks to ferry the money around to different locations, thought the Drug Enforcement Agency has reportedly been pressuring armored truck companies not to do so. Some merchants deposit the money in a bank without making explicit where it’s from, which puts the money at risk should the bank figure it out. (One merchant in Colorado told The New York Times he sprays his cash with Febreze before depositing it to disguise the odor of marijuana.)
At the University of Virginia on Thursday, Holder cited the problem of undeposited cash and suggested changes are on the way. “You don’t want just huge amounts of cash in these places. They want to be able to use the banking system,” he said. “There’s a public safety component to this. Huge amounts of cash, substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited, is something that would worry me, just from a law enforcement perspective.”
Holder added that “we will be issuing some regulations I think very soon to deal with that issue.” If indeed the government makes the right changes, operating recreational marijuana outlets in states that allow it could become a much more normal, and mainstream, venture. It would also be a milestone in the drug’s growing acceptance in the United States. (Recall that earlier this week The New Yorker released an interview with President Obama in which he called marijuana potentially less dangerous than alcohol “in terms of its impact on the individual consumer.” Regarding new laws in Colorado and Washington that allow recreational marijuana economies, Obama said, “It’s important for it to go forward.”)
But there are of course many potential complications. The New York Times reported that the looming changes may not actually allow banks to accept deposits or extend loans but would simply tell prosecutors not to “prioritize” those cases.
If true, that likely won’t be enough reassurance for banks. How do they know that once they have loans outstanding to marijuana retailers, Ted Cruz won’t be elected president in 2016 and simply change the prosecution directive? “Banks will need a lot of detail from regulators to get the satisfaction and comfort they are looking for,” Richard Riese, senior vice president for regulatory compliance at the American Bankers Association, told the Times.
Moreover, marijuana is still classified by the federal government as an illegal narcotic. That remains the central problem when trying to normalize its commercial usage—but one that some members of Congress are trying to change.
Representative Earl Blumenauer, a Democrat from Oregon, lauded potentially eased banking restrictions as “an important step toward fixing federal policy toward marijuana.” But, he continued, “the next step is removing marijuana from Schedule I of the Controlled Substances Act. I am circulating a letter with my Congressional colleagues to send to the President asking him to do just that.”
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