Wouldn’t it be great if the federal government paid for your next vacation?

Check out this special report and interactive map that shows the trips, many at taxpayer expense, member of Congress took during the 2012 calendar year. Limited explanations were given for the trips, which cost more than $1.5 million in 2012.

Top Destinations: France, Ireland, and Spain

Read the report HERE

Connecticut is an early implementer, meaning that the Department of Health and Human Services will aide in setting up its exchange. States that choose not to participate will be enrolled in a federal exchange.

See where your state stands with the exchanges.

It is estimated that in Connecticut Medicaid expansion will increase coverage from 89 percent to 95 percent, while the number of uninsured residents will drop by 170,000. The Urban Institute and Kaiser Family Foundation estimate that Connecticut will save $1.3 billion in state Medicaid spending.

See where your state stands on Medicaid expansion.

See how Medicaid expansion will affect your state.

Connecticut must address its crumbling infrastructure, as the state often ranks low in infrastructure compared to other states. This stems in part from low investment. Connecticut invested only 7 percent of its expenditures in infrastructure compared with the average 9 percent that comparators (states with a similar population near Connecticut) invested. Connecticut ranked third lowest in the nation in investment as a percentage of GDP. You can find out how your state ranks in infrastructure investment by using the chart below.

Graphic Source

Infrastructure spending, like education, is an important investment in the future. Much of the post-war economic growth came from a combined investment in infrastructure (Interstate Highway System) and education (the G.I. Bill). Sometimes funding for these investments can be hard to come by, which is when public-private partnerships (PPPs) should be considered. Investors finance public investments for a return, but the assets still remain in the public’s stewardship. The Brookings Institution finds that the U.S. is sorely behind the rest of the world in adopting PPPs.

No matter how infrastructure spending is financed it is an important investment in the future and a stimulus in the present. A University of Massachusetts-Amherst Political Economy Research Institute study found that in 2009, every $1 billion spent on infrastructure created 18,000 jobs. PPPs are a possible way to increase infrastructure investment and create jobs. Find out if your state has PPP enabling legislation.

You can find out more about the challenges facing the state of Connecticut HERE.

]]> http://keepingamericagreat.org/connecticut-at-risk-infrastructure/feed/ 1 http://keepingamericagreat.org/why-are-high-debt-levels-bad/ http://keepingamericagreat.org/why-are-high-debt-levels-bad/#comments Thu, 09 May 2013 15:42:56 +0000 Sean McElwee http://keepingamericagreat.org/?p=6536

Research shows that high levels of debt correlate with slower economic growth.

There are four main reasons for this.

1. High government debt crowds out private investment by taking up resources that could be used by the private sector. High deficits reduce the amount of money available, which drives up interest rates and increases the cost of borrowing money. This makes it more difficult for some private businesses and individuals to borrow money.
2. High debt prevents the government from taking up the slack in demand and paying its entitlements during a crisis.
3. Money spent servicing the debt is money that is not being spent on critical investments in the future.
4. When governments decide to pay down debts they often resort to distortionary taxation or inflation, which threatens investments by creating uncertainty.

Our joint report, “Connecticut at Risk: Will the State Navigate to Prosperity?” discusses many financial and economic challenges facing the state. One of the problems Connecticut must grapple with is inequality. The Gini coefficient is the most common standard measure of inequality and Connecticut has the second highest Gini coefficient of any state (third highest if including D.C.). Additionally, Census Bureau data show the ratio between the poorest fifth and the richest fifth in Connecticut is 14.1, ranking Connecticut eighth highest. A report by the Center for Budget and Policy Priorities found that inequality in Connecticut has increased faster in all but two states and D.C.

http://chartsbin.com/view/13354

What are the implications of rising inequality? Data show that there is a strong correlation between inequality and educational outcomes.

Connecticut’s educational disparities are due partly to funding disparities since education is funded at the local level. Between 1984 and 2001 housing prices for those with one or more children increased at three times the rate of those without children. As families crowd into towns with good schools the price of housing is driven up, making it difficult for poor families to access good schools. It is more difficult for poor students to attend college, so fewer do, which increases inequality. Education and inequality create a self-perpetuating cycle.

Other negative trends highly correlated with inequality include crime, health and wellbeing, teenage pregnancy and even anxiety. The direction of the correlation is still unknown, but it is clear inequality exacerbates social ills. Those who drop out of school earn less money, are more likely to be unemployed, commit more crimes and rely more on government resources.

 Connecticut is already taking steps to ameliorate the vicious cycle. The Governor recently passed an education bill that raises standards for teachers, improves capabilities to address failing schools and increases accountability. More, however, needs to be done. Education is an important investment in the future and a better-educated populace drives innovation. You can see where your state ranks on education by looking at the chart below.

Http://chartsbin.com/view/13356

Wonky Wednesday: What is the Chained Consumer Price Index?

Politicians and economists often talk about inflation (a general rise in prices) and deflation (a general fall in prices), but how on earth do they know if prices are changing? The answer is the consumer price index, or CPI-U*1. The consumer price index is a basket of goods and services that are purchased by households (not producers). The basket is updated every two years to take into account new products and services (smartphones, computers, etc.) and thus estimate the cost of living. Each month, the basket is measured to see how the prices have changed.

It would be hard to overstate the importance of the consumer price index. The consumer price index determines pensions, salary increases, monetary policy and Social Security payments *2. The problem with the consumer price index is that it’s sometimes out of touch with how people actually react to price changes. One particular problem is substitute goods – products that are interchangeable.

Substitution occurs when consumers substitute between categories, rather than individual goods. If, for instance, the price of Coke increases, a consumer may choose to substitute with Arizona iced tea. This substitution is not measured by the current consumer price index.

To solve this problem the President is suggesting a move to a “chained CPI.” The “chained” consumer price index, or C-CPI-U, is so-called because it “chains” two monthly baskets together, thus solving the upper-level substitution problem*3. The chained consumer price index would affect benefits received (they would likely be lower if current trends continue) and taxes paid by beneficiaries (many people would be pushed into a higher bracket).

What is the difference between the consumer price index and the chained consumer price index? Since 2000, the chained consumer price index has been about .25 to .3 percentage points lower each year than consumer price index (See Figure 1). According to one recent study, shifting to a chained consumer price index would save $390 billion over the next decade if the policy began in 2014.

There are three objections to the shift. This first is made by Paul Krugman in the New York Times. Krugman argues that while the substitution effect tends to overstate inflation, seniors tend to consume more medical care and therefore the consumer price index understates inflation for them. This means that the policy change, rather than helping to bring payments in line with reality would actually hurt seniors. Is it true? The BLS maintains an experimental basket of goods (the BLS warns that the basket is not fully calibrated) called CPI –E, which focuses more on healthcare and housing costs. The consumer price index elderly did increase faster than the consumer price index between 1982 and 2011. The consumer price index elderly increased slower between 2006 and 2011 because the inexorable rise of healthcare costs abated during the recession, but that slowdown is unlikely to continue.

A second objection is that the two measures, the consumer price index and the chained consumer price index, are coming closer, so the gains will be deceptive. Peter Orszag argues in favor of this view in Bloomberg, writing that the two measures have been coming closer together in recent years. That means the savings won’t be as large. Orszag suggests pushing the estimate down to $150 billion over 10 years, rather than the $340 to $390 billion that others have discussed.

A final objection is that the increase will be regressive, mainly falling upon the poor. The benefit reduction will primarily fall on the wealthiest Americans. However, the change will also affect what tax bracket and individual is in, a de facto tax increase that will hit the middle class.

This problem can be mitigated. The Bowles-Simpson commission suggests that increasing the amount of income that is taxable will restore progressivity.

The chained consumer price index would certainly be a step in the right direction, but it’s unlikely to seriously reduce debt-to-GDP ratios. It needs to be combined with other measures in order to ensure progressivity and long-term sustainability.

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Notes:

Wonk Note 1: The BLS actually has three different CPIs. CPI – W measures the prices for Urban Wage Earners and Clerical Workers (measures clerical workers, sales workers, craft workers, service workers and laborers – about 37% of the population). CPI-U measures prices for all Urban Consumers (all households in localities with 2,500 inhabitants or more – about 87% of the population). Core CPI excludes goods that fluctuate often and do not show a general trend. The BLS also maintains an experimental CPI called CPI-E which measures prices for elderly people.

Wonk Note 2:

Federal programs indexed to CPI:
Social Security COLAs
• Civilian Pension COLAs
• Military Pension COLAs
• Veterans’ Benefits
• SSI Benefits
• Maximum Award for Pell Grants
• Eligibility for Various Programs
• IPAB Savings Targets (Medicare)
• Affordable Care Act Subsidy Thresholds
Parameters of the tax code indexed to CPI:
• Tax Bracket Thresholds
• Personal Exemption Size
• Standard Deduction Size
• AMT Exemptions Thresholds
• Limitations on Retirement Accounts
• Phase out Levels for Tax Credits
• Thresholds for PEP and Pease
• Estate and Gift Tax Exemptions
• Health Care Excise Tax

Wonk Note 3: The “chaining” solves a nasty bind. If the BLS measured the basket after the period when prices changed and consumers had substituted goods, then inflation would be too low. If the BLS measured the basket before the prices changed and consumers substituted goods then inflation would be too high. The chained-CPI uses both baskets to get a fair estimation of the substitution effect.

Connecticut has had abysmal job growth over the last three decades, far below the national average. Many companies, including UPS, Sikorski and Pfizer have cut jobs in Connecticut and many highly educated citizens have left. Our composite competitiveness ranking integrates five well-known competitiveness rankings, including CNBC, Forbes, Beacon Hill, Small Business & Entrepreneurship Council and the University of Nebraska State Entrepreneurship Index.

Click on chart for interactive map.

Texas, North Dakota, Utah, Virginia and Colorado top off the composite ranking, while Kentucky, Louisiana, Maine, Mississippi, West Virginia and Hawaii languish. The various rankings include numerous factors, and there are some clear trends. Connecticut is often noted as positive in quality of life, numbers of patents and educated workforce. Yet, such measures hide enormous disparities within the state. Connecticut underperforms on numerous metrics, including onerous taxes, high cost of labor, poor infrastructure and exorbitant energy costs.

Here’s a breakdown of the rankings for Connecticut (1 – best; 50 – worst):

These rankings are subjective, and while no index is perfect, some clearly do not come close to accounting for the many factors affecting a state’s competitiveness. For example, the Nebraska Index measures only five criteria and gives each equal weight. Among these is the average income of business owners, which does not indicate how well the poorest fare.

Regardless of the inherent weaknesses in these indices, the composite ranking of all the studies ranks Connecticut 40th. This means Connecticut has the perception of being uncompetitive (reflected by low rankings from prominent business voices such as CNBC and Forbes), which certainly reflects some fundamental problems since companies are fleeing the state.

Over the next few posts we will look into how Connecticut can improve its competitiveness. While future posts will highlight Connecticut, each state faces its own fiscal challenges, and the competitiveness rankings map above can give you an idea of where your state stands. Increasing competitiveness not only creates jobs, but also increases tax revenues and puts states in a better position to tackle their tough fiscal challenges. This is especially important because the federal government will restructure itself eventually, and states must be ready to confront their fiscal challenges with less federal assistance.

Read the coverage and let us know what you think.

Report: State economy headed for crisis

“Connecticut’s massive long-term debt, deep pockets of poverty and more than 20 years of stagnant job growth threaten to sink the state’s economy for decades unless major reforms are enacted….”

State Retiree Health Benefits As Both Symbol and Reality of Fiscal Threat

“Connecticut must cap state employee retiree health benefits and sharply raise fees for all sorts of state services in order to halt a long-term fiscal slide that is, in some ways, the worst in the nation…”

Report: Connecticut is in a Fiscal Hole

“A new report on Connecticut’s economy paints a bleak picture of the state’s financial health…”

Report Details CT’s Fiscal Challenges

“An accountant and an economist tossed cold water on Connecticut’s financial outlook this week when they released a report details the “deep fiscal hole” policymakers have dug the state into over the past decade…”