Class Notes: Wealth taxation, US wage growth, and more

This week in Class Notes:

• • Both Senator Warren’s wealth tax and a popular alternative – a Swiss-style tax on household wealth – would have miniscule effects on income inequality.
  • The ACA Medicaid expansion substantially increased insurance coverage and improved access to health care among unemployed workers.
  • An increased tendency for men and women to remain single may have contributed to the rise in U.S. income inequality between 1973 and 2013.
  • Our top chart shows that annual nominal wage growth has been at or above 3 percent for 16 straight months, a level not reached since the Great Recession.
  • Mark Miller describes how, for most Americans’, the prospect of retirement security hasn’t improved. Among affluent households, however, the odds of a successful retirement have gotten much better.
  • Finally, look back at some of the best pieces of the last decade from Center on Children and Families.

Wealth taxation in the United States

The wide – and widening – wealth gap has given some urgency to a consideration of potential policy remedies. In this study, Wolff analyzes the effects of two possible solutions: a Swiss-type tax on household wealth – with a $120,000 exemption and marginal tax rates between 0.05 to 0.3 percent on $2.4 million or more of wealth – and Senator Elizabeth Warren’s wealth tax – with a $50 million exemption, a two percent tax on wealth above that, and a one percent surcharge on wealth above $1 billion. Based on the author’s calculations, the Swiss tax would yield approximately $189 billion and the Warren tax $303 billion. Less than 0.1 percent of households would pay the Warren tax, compared to 44 percent for the Swiss tax. Yet both taxes would have a miniscule effect on income inequality, reducing the Gini coefficient by less than 0.001 Gini points.

Medicaid expansion and the unemployed

In this paper, Buchmueller et al. examine how a key provision of the Affordable Care Act (ACA) – the expansion of Medicaid eligibility – affected health insurance coverage, access to care, and labor market transitions of unemployed workers. Comparing trends in states that implemented the Medicaid expansion to those that did not, the authors find that the ACA Medicaid expansion substantially increased insurance coverage and improved access to health care among unemployed workers. Additionally, Buchmueller et al. find no evidence that this strengthening of the safety net negatively affected job placement of labor force attachment.

Spouses’ income association and inequality: A non-linear perspective

In this study, Grossbard et al. document that assortative mating by income, the relationship between income and labor force participation, and the association between income and couple formation are non-linear. The authors then investigate how changes in these non-linear associations help account for increased inequality between 1973 and 2013. Results indicate that an increased tendency towards positive sorting contributed substantially to the rise in inequality among dual-earner couples, but contributed little to overall inequality across households. When considering all households, the factor accounting most for increased inequality during this period is an increased tendency for men and women to remain single.

Top chart

This week’s top chart shows that annual nominal wage growth has been at or above 3 percent for 16 straight months, a level not reached since the Great Recession. Importantly, the CEA reports that wage growth for many disadvantaged groups is now higher than that for those who are more advantaged.

Choice opinion

“The highest-income households have seen their odds of a successful retirement improve sharply during this decade, and now have very high odds of success. Middle-income households, meanwhile, have seen some gains, but still have only 50-50 odds of success. And the lowest-income households have seen their retirement prospects diminish sharply — among these boomers approaching retirement, their odds of success have fallen during the decade from 26 percent to 11 percent” writes Mark Miller in the New York Times.

Self-promotion

As we’re starting off a new decade, we here at the Future of the Middle Class Initiative are feeling a little nostalgic. So we’ve decided to go beyond simply looking at our work from the last year or two, and instead look back over the entire decade. After all, previous work from our home Center, the Center on Children and Families, and its scholars continues to provide context for our current work on everything from the income and wealth of the middle class, to paid leave, tax credits to make work pay, access to college, housing markets, gender gaps in the effects of automation, and much more. So get ready for the new decade with us by reviewing some of our best pieces from the 2010s. Happy New Decade, everyone!