Tag: Brookings

The economic impact of the opioid epidemic

Mary Pat Campbell

Link: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2023/04/17/the-economic-impact-of-the-opioid-epidemic/

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While the opioid epidemic has had significant impacts across the labor market, its effects have been particularly pronounced in specific occupations and industries. A CDC analysis of mortality data from 21 states concluded that unintentional and undetermined overdose deaths accounted for a disproportionate share of all deaths in the following six occupational groups: construction, extraction (e.g., mining), food preparation and serving, health care practitioners, health care support, and personal care and service. These fatalities are particularly concentrated in construction and extraction: an analysis by the Massachusetts Department of Public Health found that individuals employed in construction and extraction accounted for over 24% of all overdose deaths in the state’s working population.

Notably, the jobs with the highest rates of opioid overdose fatalities generally have high occupational injury rates and low access to paid sick leave. Figure 1 demonstrates that the industries with the highest rates of overdose fatalities in the workplace have elevated occupational injury rates for fractures and musculoskeletal disorders, both of which are significant risk factors for long-term opioid use.

Author(s): Julia Paris, Caitlin Rowley, and Richard G. Frank

Publication Date: 17 April 2023

Publication Site: Brookings

The federal budget outlook

Mary Pat Campbell

Link: https://www.brookings.edu/research/the-federal-budget-outlook-2/

PDF of report: https://www.brookings.edu/wp-content/uploads/2023/03/20230313_TPC_Gale_FiscalOutlookFINAL.pdf

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The basic story is familiar. Low revenues coupled with rising outlays on health-related programs and Social Security drive permanent, rising primary deficits as a share of the economy. Net interest payments also rise substantially relative to GDP due to high pre-existing debt, rising primary deficits, and gradually increasing interest rates. Unified deficits and public debt rise accordingly.

Under current law for the next 10 years, the CBO’s projections imply that persistent primary deficits will average 3.0% of GDP. Net interest payments will rise from 2.4% of GDP currently to 3.6% in 2033, an all-time high. The unified deficit, and even the cyclically adjusted deficit, will exceed 7% of GDP at the end of decade. Debt will rise from 98% of GDP currently to 118% by 2033, another all-time high.

Over the following two decades, the projected trends are even less auspicious. Primary deficits rise further as spending on Social Security and health-related programs continue to grow faster than GDP and revenue growth remains anemic. The average nominal interest rate on government debt rises to exceed the nominal economic growth rate by 2046, setting off the possibility of explosive debt dynamics.  By 2053, relative to GDP, annual net interest payments exceed 7%, the unified deficit exceeds 11%, and the public debt stands at 195%. All these figures would be all-time highs (except for deficits during World War II and in the first two years of the COVID-19 pandemic) and would continue to grow after 2053.

Author(s): Alan J. Auerbach and William G. Gale

Publication Date: 14 Mar 2023

Publication Site: Brookings

Capital regulation and the Treasury market

Mary Pat Campbell

Link: https://www.brookings.edu/research/capital-regulation-and-the-treasury-market/

PDF: https://www.brookings.edu/wp-content/uploads/2023/03/Brookings-Tarullo-Capital-Regulation-and-Treasuries_3.17.23.pdf

Excerpt:

The dramatic, though short-lived, disruption of the market for U.S. Treasury debt in September 2019 and the more profound market dislocations at the onset of the COVID crisis in March 2020 have raised the issue of whether the treatment of central bank reserves and sovereign debt in bank capital requirements exacerbated the problems. Changes have been proposed to the Enhanced Supplementary Leverage Ratio (eSLR) and G-SIB (Global Systemically Important Bank) capital surcharge, both of which apply only to the eight U.S. banks designated as globally significant. Because these banks are some of the most important dealers in U.S. Treasuries, regulatory disincentives to hold and trade Treasuries can adversely affect the liquidity of the world’s most important debt market.

Disagreement over whether to adjust the eSLR, the surcharge or both is often just a version of the continuing debate over the right level of required capital. Some banking interests seize on episodes of Treasury market dysfunction to argue for reductions in the eSLR and surcharge. Some regulators, elected representatives, and commentators see any adjustments as weakening post-Global Financial Crisis (GFC) capital standards. Yet it is possible to reduce the current regulatory disincentive of banks, especially at the margin, to hold and trade Treasuries without diminishing the overall capital resiliency of large banks.

The concern with eSLR is that when it is effectively the binding regulatory capital constraint on a bank, that institution will limit its holding and trading of Treasuries. The eSLR can be modified to accommodate considerably more intermediation of Treasuries without significantly undercutting its regulatory rationale. As for the G-SIB surcharge, there are some unproblematic changes that could help.  But the chief complaints from banks about the G-SIB surcharge will be harder to satisfy without undermining the rationale of imposing higher capital requirements on systemically important banks.

Even with a change in the eSLR, banks’ holdings of Treasuries would continue to be subject to capital requirements for market risk. Moreover, as the failure of Silicon Valley Bank has demonstrated, the exclusion of unrealized gains and losses on banks’ available-for-sale portfolio of debt securities, including Treasuries, can give a misleading picture of a bank’s capital position. Following the Federal Reserve’s 2019 regulatory changes, only banks with more than $700 billion in assets or more than $75 billion in cross-jurisdictional activity are required to reflect unrecognized gains and losses in their capital calculations. The banking agencies should consider a significant reduction in these thresholds.

Far-reaching deregulatory changes would not remedy all that is worrisome in Treasury markets today. As the studies cited in the full paper emphasize, a multi-pronged program is needed. In any case, it would be misguided to seek greater bank capacity for Treasury intermediation at the cost of undermining the increased resiliency of the most important U.S. banking organizations or international bank regulatory arrangements. At the same time, it would be ill-advised not to recognize the changes in Treasury markets, beginning with their increased size because of fiscal policy. The modifications of capital regulation, especially the eSLR, outlined in the paper should ease (though not eliminate) constraints on banks holding and trading Treasuries without endangering the foundations of the post-GFC reforms.

Author(s): Daniel K. Tarullo

Publication Date: 17 Mar 2023

Publication Site: Brookings

The EEOC wants to make AI hiring fairer for people with disabilities

Mary Pat Campbell

Link: https://www.brookings.edu/blog/techtank/2022/05/26/the-eeoc-wants-to-make-ai-hiring-fairer-for-people-with-disabilities/

Excerpt:

That hiring algorithms can disadvantage people with disabilities is not exactly new information. In 2019, for my first piece at the Brookings Institution, I wrote about how automated interview software is definitionally discriminatory against people with disabilities. In a broader 2018 review of hiring algorithms, the technology advocacy nonprofit Upturn concluded that “without active measures to mitigate them, bias will arise in predictive hiring tools by default” and later notes this is especially true for those with disabilities. In their own report on this topic, the Center for Democracy and Technology found that these algorithms have “risk of discrimination written invisibly into their codes” and for “people with disabilities, those risks can be profound.” This is to say that there has long been broad consensus among experts that algorithmic hiring technologies are often harmful to people with disabilities, and that given that as many as 80% of businesses now use these tools, this problem warrants government intervention.

….

The EEOC’s concerns are largely focused on two problematic outcomes: (1) algorithmic hiring tools inappropriately punish people with disabilities; and (2) people with disabilities are dissuaded from an application process due to inaccessible digital assessments.

Illegally “screening out” people with disabilities

First, the guidance clarifies what constitutes illegally “screening out” a person with a disability from the hiring process. The new EEOC guidance presents any disadvantaging effect of an algorithmic decision against a person with a disability as a violation of the ADA, assuming the person can perform the job with legally required reasonable accommodations. In this interpretation, the EEOC is saying it is not enough to hire candidates with disabilities in the same proportion as people without disabilities. This differs from EEOC criteria for race, religion, sex, and national origin, which says that selecting candidates at a significantly lower rate from a selected group (say, less than 80% as many women as men) constitutes illegal discrimination.

Author(s): Alex Engler

Publication Date: 26 May 2022

Publication Site: Brookings

Searching for Supply-Side Effects of The Tax Cuts and Jobs Act

Mary Pat Campbell

Link: https://www.taxpolicycenter.org/taxvox/searching-supply-side-effects-tax-cuts-and-jobs-act

Excerpt:

Did it work? In a new paper with my Tax Policy Center colleague Claire Haldeman, we conclude that, consistent with these goals, TCJA reduced marginal effective tax rates (METRs) on new investment and reduced the differences in METRs across asset types, financing methods, and organizational forms.

But it had little impact on business investment through 2019 (where we stopped the analysis, to avoid confounding TCJA effects with those of the COVID-related shutdowns that ensued). Investment growth increased after 2017, but several factors suggest that this was not a reaction to the TCJA’s changes in effective tax rates.

Author(s): William G. Gale

Publication Date: 6 July 2021

Publication Site: TaxVox at Tax Policy Center

Note to Bernie: The 8 arguments for restoring the SALT deduction, and why they’re all wrong

Mary Pat Campbell
Note to Bernie: The 8 arguments for restoring the SALT deduction, and why they’re all wrong

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We have argued against lifting the $10,000 cap in the New York Times, the Washington Post, and in a short analysis for Brookings. Our case is quite straightforward: the benefits of repeal would flow to the rich and affluent, who now have a disproportionate influence on the Democratic Party. To be specific, the top 1 percent would get an average tax cut of over $35,000. The middle class would get an average tax cut of about $37 (note that our analyses here relate to full repeal, since we do not know yet what alternative Sen. Sanders has in mind):

Author(s): Richard V. Reeves, Christopher Pulliam

Publication Date: 24 June 2021

Publication Site: Brookings

Discussion of “The Sustainability of State and Local Government Pensions: A Public Finance Approach” by Lenney, Lutz, Scheule, and Sheiner (LLSS)

Mary Pat Campbell

Link: https://www.brookings.edu/wp-content/uploads/2021/03/1c_Rauh.pdf

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Main Comments
• Stabilization goal is reasonable to consider
• However, public sector’s approach to funding with risk assets creates
additional issues for this type of debt (unfunded pension liabilities)
relative to government bonds
• Instability due to market risk isn’t in the model, because the model is
deterministic: no distribution of possible outcomes
➢ Higher expected return you target, the greater the distribution of outcomes
• Only meaningful scenario is r=d=0% → fiscal adjustment is 14.9% of
payroll vs. current 29%. So a 51% increase.
➢ I will provide some reasons I think this might still be too low

Author(s): Joshua Rauh

Publication Date: 25 March 2021

Publication Site: Brookings

The sustainability of state and local government pensions: A public finance approach

Mary Pat Campbell

Link: https://www.brookings.edu/bpea-articles/the-sustainability-of-state-and-local-government-pensions-a-public-finance-approach/

Conference draft: https://www.brookings.edu/wp-content/uploads/2021/03/BPEASP21_Lenney-et-al_conf-draft_updated_3.24.21.pdf

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“Given other demands, fully funding their pension plans might not be the right thing for state and local governments,” Sheiner said in an interview with The Brookings Institution. “They should compare the benefits of upping their pension investments with the benefits of investing in their people.”

Most research evaluates state and local pension plans on the assumption they should be fully funded—that is, their assets are sufficient to meet all anticipated obligations to current and future retirees. State and local pension plans, benefiting more than 11 million retirees, hold nearly $5 trillion in assets and, according to a recent estimate cited in the paper, would require an additional $4 trillion to meet all of their obligations.

However, in The sustainability of state and local government pensions: A public finance approach, the authors observe that, using the types of calculations that economists recommend, state and local pension plans have never been fully funded—meaning that they have always been implicitly in debt. Furthermore, they show that being able to pay benefits in perpetuity doesn’t require full funding. If plans contribute enough to stabilize their pension debt, that is enough to enable them to make benefit payments over the long run.

Author(s): Jamie Lenney, Byron Lutz, Finn Schüle, Louise Sheiner

Publication Date: 24 March 2021

Publication Site: Brookings

Public pensions don’t have to be fully funded to be sustainable, paper finds

Mary Pat Campbell

Link: https://www.marketwatch.com/story/public-pensions-dont-have-to-be-fully-funded-to-be-sustainable-paper-finds-11622210967

Excerpt:

Governments “don’t have to pay off their debt like a household does,” said Louise Sheiner, policy director for the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. “They can just keep rolling it over. They’re never going to go out of business and have to pay all at once.”

Sheiner is co-author, along with Jamie Lenney of the Bank of England, Byron Lutz of the Federal Reserve Board of Governors, and Brown University’s Finn Schüle, of Sustainability of State and Local Government Pensions: A Public Finance Approach, which was presented at a Brookings conference in March.

State and local liabilities can also be likened to the federal government’s deficit and debt, Sheiner said in an interview with MarketWatch. Most economists think that as long as those numbers stay constant as a share of the economy, it’s not problematic.

Author(s): Andrea Riquier

Publication Date: 2 June 2021

Publication Site: Marketwatch

WHY TRUTH IN ACCOUNTING’S RECENT CLAIMS ABOUT PENSIONS ARE INACCURATE

Mary Pat Campbell
Why Truth in Accounting’s Recent Claims About Pensions Are Inaccurate

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As routine as the changing of the seasons, every year, Truth in Accounting (TIA) produces a new report which declares that taxpayers across the country will somehow have to foot a huge tax bill immediately to pay for their state’s unfunded pension liabilities. However, a recent working paper from the Brookings Institution shows this is not a truthful depiction of how public pension funding works. 

TIA often argues that taxpayers are responsible for paying their city and/or state’s unfunded liabilities in a few ways. First, if a pension isn’t at 100% funded status in the course of a given year, they state that the pension is somehow in grave jeopardy and that its unfunded liabilities need to be paid immediately to ensure the pension is “debt-free.” They then calculate a supposed “taxpayer burden,” or an amount each taxpayer will have to pay to meet their state or local pension’s unfunded liabilities. 

These tactics, which are often amplified by news outlets critical of public pensions such as the Center Square, are designed to elicit fear that taxpayers will have to fork over a large bill at some point in the future for their area’s pensions. 

Author(s): Tristan Fitzpatrick

Publication Date: 2 June 2021

Publication Site: National Public Pension Coalition

Will births in the US rebound? Probably not.

Mary Pat Campbell
Will births in the US rebound? Probably not.

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Figure 2 translates these childbearing age profiles into total number of children ever born by a certain age. The figure clearly shows that successively younger cohorts of women are having fewer children by specific ages. For instance, by age 24, the 1995 birth cohort of women had 38 percent fewer children than the 1975 and 1980 birth cohorts had at that age (0.5 compared to 0.8). This younger cohort would need to have 21 percent more children at each age from 25 through 44 to “catch up” to the earlier cohorts in terms of total lifetime childbearing. As another example, the 1990 birth cohort has had 21 percent fewer births through age 29 compared to the 1975 and 1980 cohorts; they would need to have 38 percent more births in their remaining childbearing years to catch up in terms of lifetime fertility.

Author(s): Melissa S. Kearney, Phillip Levine

Publication Date: 24 May 2021

Publication Site: Brookings

The Sustainability of State and Local Government Pensions: A Public Finance Approach

Mary Pat Campbell

Link: https://www.brookings.edu/wp-content/uploads/2021/03/BPEASP21_Lenney-et-al_conf-draft_updated_3.24.21.pdf

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In this paper we explore the fiscal sustainability of U.S. state and local government pensions plans.
Specifically, we examine if under current benefit and funding policies state and local pension plans
will ever become insolvent, and, if so, when. We then examine the fiscal cost of stabilizing pension
debt as a share of the economy and examine the cost associated with delaying such stabilization
into the future. We find that, despite the projected increase in the ratio of beneficiaries to workers
as a result of population aging, state and local government pension benefit payments as a share of
the economy are currently near their peak and will eventually decline significantly. This previously
undocumented pattern reflects the significant reforms enacted by many plans which lower benefits
for new hires and cost-of-living adjustments often set beneath the expected pace of inflation.
Under low or moderate asset return assumptions, we find that few plans are likely to exhaust their
assets over the next few decades. Nonetheless, under these asset returns plans are currently not
sustainable as pension debt is set to rise indefinitely; plans will therefore need to take action to
reach sustainability. But the required fiscal adjustments are generally moderate in size and in all
cases are substantially lower than the adjustments required under the typical full prefunding
benchmark. We also find generally modest returns, if any, to starting this stabilization process
now versus a decade in the future. Of course, there is significant heterogeneity with some plans
requiring very large increases to stabilize their pension debt.

Author(s): Jamie Lenney, Bank of England
Byron Lutz, Federal Reserve Board of Governors
Finn Schüle, Brown University
Louise Sheiner, Brookings Institution

Publication Date: 25 March 2021

Publication Site: Brookings