Minnesota starts budget year with good news

Minnesota is starting the current budget year stronger than expected, according to Minnesota Management & Budget (MMB).

MMB’s October Revenue and Economic Update finds that state revenues have come in above expectations. The state’s 2016 fiscal year began on July 1, and revenues from July to September came in $136 million, or 3.2 percent, higher than projected in the February Forecast. About 20 percent of these better than expected revenues are likely due to timing of income tax payments rather than an improved economy, so we shouldn’t expect revenues to consistently exceed projections by this wide margin.

The national economy continues to improve, but the Update highlights concerns. The good news is that unemployment continues to decline, and low gas prices are giving people extra spending money. However, wage growth has remained low, several factors have had a negative effect on U.S. manufacturing this summer, and U.S. job growth has unexpectedly declined in the past two months. National economic growth for 2015 is expected to be 2.5 percent, which is lower than projected in February. But looking ahead to 2016 and 2017, the economy is expected to pick up, growing annually by 2.9 and 3.0 percent, respectively.

The economic forecasters are fairly confident in their projections, and assign a 65 percent probability to their baseline economic forecast. They give a 20 percent chance for a more pessimistic scenario in which global markets decline; and a 15 percent chance that the economy will be stronger than the baseline prediction, due to better than anticipated productivity, household formation and foreign growth early next year.

The 2015 Legislative Session ended in June with $865 million of the state’s projected $1.9 billion FY 2016-17 surplus unspent. The next update on that available balance, taking into account both revenues and expenditures, will come out in the state’s November economic forecast. The current trend of higher than expected revenues indicates that the available balance will likely grow. However, predictions of slower economic growth could dampen the projected balance.

Up to one-third of any positive balance for FY 2016-17 measured in the November Forecast will go into the state’s budget reserve, further building up the state’s “rainy day fund” so that the state will be better prepared to meet the needs of Minnesotans during the next economic downturn.

Due to the late start to the 2016 Legislative Session, policymakers will also have the numbers from the February 2016 Forecast when they convene. At this point, it looks like policymakers will have a surplus to work with, and 2016 will present another opportunity to invest in the strong workforce and ladders into the middle class that are essential for more Minnesotans to participate in the economic recovery.

-Clark Biegler

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Economic recovery is not reaching all Minnesotans

Despite a rise in productivity in the U.S. economy, we aren’t seeing much growth in wages. In fact, many Minnesota workers don’t earn enough to support a family. We sort through the data in our latest report, For Many, Hard Work is Not Enough: The State of Working Minnesota 2015.

Even six years into the economic recovery, too many Minnesotans are struggling to support themselves and their families. Minnesota workers are earning about the same as they did 15 years ago, after adjusting for inflation. That’s despite economic growth that could have fueled wage gains, since national productivity has increased by 21.6 percent since 2000.SWM wage percentiles-01

Over a longer time span, the benefits of economic growth have gone largely to those with the highest incomes. High-wage workers saw their earnings grow by 21.3 percent since 1979, in inflation-adjusted terms, while low-wage workers’ wages only grew by 5.4 percent. This has contributed to worsening wage inequality in Minnesota.

Stagnant wages have not kept up with the cost of living, and many Minnesota workers are not earning enough to support a family. A typical Minnesota family of three needs to earn $16.34 an hour to meet their basic needs, but there aren’t enough good jobs that pay these wages. More than half of Minnesota workers without a college degree made less than this wage.

As we were reminded last week, people of color in Minnesota have not had access to the same opportunities as white Minnesotans. These Minnesotans are more likely to be unemployed or underemployed, and earn less. With Minnesota’s tightening labor market and a labor shortage on the horizon, we need to tap into the skills and abilities of this important and growing part of our workforce.

More workers will benefit from the economic growth they help create if we have public policies that strengthen job quality, ensure Minnesotans can get the education and training they need and can get good jobs, and help low-wage workers make ends meet and move into the middle class.

We can take specific steps, including:

Stagnant wages and growing income inequality threaten our state’s economic success. Making hard work pay off and broadly sharing the benefits of economic growth are critical to ensuring a strong future for all of us.

-Clark Biegler

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Let’s make sure successful tax credits reach all struggling workers

Only one group of American workers is pushed deeper into poverty by the federal tax code: 7 million childless workers, including noncustodial parents, with low-wage jobs. Fortunately, strengthening an existing policy would improve this situation. The federal Earned Income Tax Credit (EITC) is enormously successful at lifting millions of working families out of poverty, but it doesn’t do much for childless workers. It’s important to note that many of these workers are only “childless” when calculating their EITC. They may be partially responsible for children but can’t consider them dependents for the EITC. It’s time for policymakers to improve the EITC so that they reach these struggling workers.

The EITC for childless workers has three problems. First, workers become ineligible even while still earning very low wages. Second, the size of the credit for childless workers is too small, and not enough to keep these workers above the poverty line. Third, the credit is unavailable to childless workers under age 25.

For example, a personal care assistant working about 30 hours per week at Minnesota’s minimum wage will earn about $14,500, barely above the federal poverty line. They would owe about $1,500 in federal payroll and income taxes, but would only get a $23 tax credit through the EITC. If that worker is under 25, they would get nothing at all.

Both President Barack Obama and Representative Paul Ryan, the Republican Chair of the House Committee on Ways and Means, have proposals to improve the EITC for childless workers. Their plans raise the income at which workers can qualify, increase the credit amount, and lower the age limit to 21. The aforementioned personal care assistant earning $14,500 in 2015 would see their EITC increase from $23 to $544.

Boosting the federal EITC would mean more workers can put food in their fridges and gas in their cars. In Minnesota, a single working-age adult needs to earn $11.71 to meet their basic needs for food, housing, transportation, health care and other necessary expenses. That’s higher than our $9.00 state minimum wage. A stronger EITC could go a long way towards filling the hole between a worker’s low wages and what they need to make ends meet.

American workers living paycheck to paycheck shouldn’t be made worse off by the federal tax code. Improving the EITC would fix this glaring flaw and expand the benefits of a bipartisan, proven solution to some of those who need it the most.

You can show your organization’s support for a stronger EITC by joining a sign-on letter to Minnesota’s U.S. Senators. Visit our website to learn more, and sign on by September 28.

-Ben Horowitz

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Act now so critical, pro-work tax provisions don’t expire

Join us in calling on Congress to preserve federal tax credits that boost family income, support children’s development and lift millions of Americans out of poverty.

More than 240,000 Minnesota workers would lose out if Congress allows key parts of the federal Child Tax Credit and Earned Income Tax Credit (EITC) to expire.

In coming months, Congress is likely to consider extending several business tax provisions. They should make working families a top priority in any tax legislation by making key provisions of the EITC and Child Tax Credit permanent. Congress should also expand the EITC for childless workers and noncustodial parents working at low wages, the only groups who are taxed deeper into poverty by the federal tax code.

Demonstrate your organization’s support for these credits by signing on to a letter to Minnesota’s U.S. Senators Amy Klobuchar and Al Franken by Monday, September 28.

-Ben Horowitz

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More from the Census: Minnesota’s high income persists, but so does our unequal distribution of opportunity

Today’s Census update tells us a familiar story: Minnesota incomes are strong compared to much of the rest of the nation, but that isn’t the case for communities of color. The news is particularly troubling for black Minnesotans, whose incomes are more than 20 percent lower than before the Great Recession hit. The data are a clear call to action for policymakers, who should do more to ensure that the benefits of the economic recovery reaches all Minnesotans.

Minnesota’s poverty rate in 2014 was 11.5 percent, essentially unchanged from last year. The higher poverty rate for children also stayed flat at 14.9 percent. To put that in perspective, $24,250 is the current poverty line for a family of four.

The median household income in Minnesota was about $61,500 in 2014, showing no significant change from 2013. Minnesota’s median income puts us in 11th place among the 50 states and Washington, DC.

The most astonishing piece of data is that black Minnesotans’ incomes have decreased by an inflation-adjusted $7,700 since 2007, a drop of more than 20 percent. That includes a $4,500 drop from 2013 to 2014 alone.

In addition, the poverty rate for black Minnesotans has increased by nearly five percentage points. The poverty rate remains significantly higher for people of color in Minnesota. This is even true for Asian Minnesotans, who as a group have a relatively high median household income.

MN chart

As we discussed yesterday, policy choices can lift families out of poverty. And they are particularly important during a time of slow wage growth — especially when many current and recent policies have served as barriers for people of color.

Last year, state policymakers took a step toward all Minnesotans participating in the state’s economic success when they raised the minimum wage, a change that doesn’t show up in today’s data. Other data tell us that the states with minimum wage increases saw greater growth in pay for the lowest-wage workers, and people of color are one group that is highly likely to see a boost in income from a higher minimum wage.

There are other ways to make economic opportunity available to all Minnesota workers. More than a million Minnesota workers — and nearly half of black workers and 60 percent of Hispanic workers — do not have earned sick leave. Legislation could make Minnesota a place where working parents are not forced to choose between losing wages (or getting fired) when illness strikes their family.

The state should continue to invest in MinnesotaCare and Medical Assistance. These often represent a hard-working family’s only affordable option for health coverage, particularly in communities of color. Policymakers can also eliminate the barriers to driver’s licenses, helping Minnesotans get safely to work regardless of their immigration status.

Policies like these will more firmly plant the ladder to the middle class in every corner of Minnesota. They can take us to a future where Census updates will tell a different story — one where poverty is declining and incomes are rising for all Minnesotans.

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News from the Census: More people have health coverage, poverty rate unchanged and policy choices lift millions out of poverty

Census data released today gives us a bird’s eye view of America, allowing us to see a country where many families are still struggling despite the economic recovery. The new data demonstrate how federal policies knock down barriers to affordable health coverage and allow more families to make ends meet. From this vantage point, it’s clear we should strengthen these successful policies so that more Americans can share in the economic recovery.

Today’s data show that in 2014, 47 million Americans were still struggling to put food on the table and a roof over their heads. That’s reflected in an official poverty rate of 14.8 percent, which is unchanged from 2013. For a family of four, the official poverty line is currently $24,250. Nationally, the $53,700 median household income remained essentially unchanged for the third year in a row, further driving home that many families are still treading water.

This new information also shows that specific policies lifted millions of Americans out of poverty. These policies, such as federal food and housing assistance and the Earned Income Tax Credit (EITC), make the difference in whether or not a family is forced to choose between paying their rent or sending their kids to bed hungry.

For example, the EITC and the refundable Child Tax Credit boost the incomes of about 10 million families so that they can meet their basic needs. Legislation passed in 2008 and 2009 made sure the Child Tax Credit reaches parents working at low wages, and that the EITC works better for married couples and larger families. Those improvements are set to expire, and Congress should act to make them permanent.

Policymakers should also expand the EITC for low-wage workers without eligible children, who are the only group pushed deeper into poverty by the federal tax code. We can do more to help working families climb the economic ladder right here in Minnesota by expanding our own version of the EITC, the Working Family Credit.

This Census information is the first since the Affordable Care Act rolled out some major health coverage expansions in January 2014, and we now have evidence that these policy changes eliminated some of the barriers to health care coverage. Nationally, the percentage of people without health care coverage dropped from 14.5 percent in 2013 to 11.7 percent in 2014. That means 8.5 million more people had health insurance. Those states that saw the largest drops in uninsurance rates among non-elderly adults were those that expanded Medicaid, like Minnesota.

Minnesota continues to be a national leader on health coverage. The Census data show that 5.9 percent of Minnesotans lacked health insurance in 2014, down from 8.2 percent in 2013. That makes us fifth best in the nation in health care coverage. If we’re going to remain among the leaders, we must maintain MinnesotaCare, our innovative, homegrown approach to affordable health insurance for more than 100,000 working Minnesotans.

The Census data affirm what many of us see in our jobs and communities. While the economic news mostly brightened over the past year, many of our neighbors are still living from paycheck to paycheck.

Stay tuned for more Minnesota-specific information tomorrow when the Census releases state-level data on income and poverty, including important information about whether the economic recovery is reaching all Minnesotans.

-Ben Horowitz

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Policies play a big role in the nation’s racial wealth gap

A recent report measures the wide racial wealth gap in the United States, and points to public policy decisions that can play a big role in widening or shrinking this gap.

A report from Demos and the Institute for Assets & Social Policy, The Racial Wealth Gap: Why Policy Matters, shows that the median wealth of white households in the U.S. was over $110,000 in 2011, while the median wealth for black households was $7,113 and for Latino households was $8,348. The report shows that this gap is largely a result of policy choices made over time that have led to large disparities between whites and communities of color in educational achievement, incomes and homeownership rates, all of which are key elements for building wealth.
racial wealth gap-01

Wealth is more than just income: it’s the value of financial resources people have minus what they owe. Without adequate wealth, families can’t afford a college education and the opportunities for higher incomes and economic security that education offers, and they don’t have the financial cushion to weather job loss or a major illness without significant hardship.

This gap is bad for our economy, threatening economic stability and even future growth. With growing populations of color in Minnesota, our future economic success depends on everyone reaching their full potential in the state’s economy. Eliminating the racial wealth gap would substantially increase the wealth of black and Latino households. The report finds that if the nation:

  • Eliminated disparities in homeownership, median black wealth would grow by $32,113 and median Latino wealth would grow by $29,213, narrowing the wealth gap between white households and black and Latino households by one-third.
  • Eliminated disparities in income, median black wealth would grow by $11,488 and median Latino wealth would grow by $8,765.
  • Eliminated disparities in college graduation rates, median black wealth would increase by $1,313 and median Latino wealth would increase by $3,528.

So how do we get there? Demos and the Institute for Assets & Social Policy include a number of policy suggestions to narrow racial gaps in wealth, including:

  • Reducing gaps in K-12 education funding. Black and Latino students are more likely than white students to attend schools that are underfunded, have less experienced teachers and offer fewer advanced courses. That can leave these students without the tools they need to go to college and earn good wages, both important tools for building wealth.
  • Increasing the minimum wage. As we’ve reported before, black and Latino workers are much more likely to earn lower wages, and therefore they benefit from increases in the minimum wage. A boost in their incomes would give black and Latino workers a better chance to build wealth.
  • Limiting the mortgage interest deduction. Currently black and Latino households do not benefit as much as white households from the mortgage interest deduction. They typically own lower value homes, which generally means they do not receive as large of a mortgage interest deduction. Further limiting the mortgage interest deduction, which is currently available for interest paid on up to $1 million of mortgage debt, will help to narrow the difference between the value of the mortgage interest deductions that black and Latino households receive and what white households receive.

Policymakers and others will find many additional policies to close the racial wealth gap outlined in the report. In 2014, Minnesota policymakers passed a long overdue increase to the minimum wage, but more can be done so that all Minnesotans can build assets and wealth, no matter their race or ethnicity.

-Clark Biegler

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More than 240,000 Minnesota workers would lose out if federal tax provisions expire

More than 240,000 Minnesota workers will have a harder time supporting their families if Congress doesn’t act to prevent key provisions of two federal tax credits from expiring. The Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) were improved thanks to legislation passed in 2008 and 2009, but these improvements are set to expire.

The EITC and CTC are only available to working people. The EITC is specifically structured to make work pay, boosting incomes so that working families are better able to make ends meet. The CTC is intended to help families with the costs of raising children, but it originally failed to reach families with lower incomes. Legislation passed by Congress in 2008 and 2009 improved the CTC. As a result, some low-income parents were able to claim the CTC for the first time, while others saw their credit increase. The 2009 legislation also improved the EITC by reducing marriage penalties and increasing the credit for larger families.

If these improvements are allowed to expire, 19 million workers around the country — and 242,000 in Minnesota — would see their incomes drop. A married couple with three kids earning $35,000 would lose roughly $1,200 if Congress fails to act on the EITC provisions. A single mom with two kids earning $14,500 would lose her family’s entire $1,725 Child Tax Credit.

The Minnesotans who would be harmed if these tax provisions expire work in a diverse array of important jobs in emergency rooms, at factories and on construction sites across the state.

Jobs and the EITC

Source: Center for Budget and Policy Priorities

The expiration of the improvements would strike a major blow to two potent anti-poverty tools. If the EITC and CTC provisions expire, 16.4 million people around the nation, including 7.7 million children, would be pushed into or deeper into poverty.

The boost in families’ incomes from these tax credits has big benefits for children. Children in families that receive the EITC and the CTC do better and go further in school. Children who receive the EITC are healthier, and when they grow up, they earn more.

These credits have had a long history of bipartisan support. In the coming months, Congress will debate extending a number of tax benefits for businesses. When they do so, they should put working families at the top of their agenda and make sure that the improvements to the EITC and the CTC do not expire.

-Ben Horowitz

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This is your brain on tax credits

Minnesota policymakers can push back on one of poverty’s most pernicious impacts on children. New medical research shows that poverty can delay the development of cognitive abilities in children. Meanwhile, new economic research shows that the Earned Income Tax Credit (EITC) increases families’ income even more effectively than previously thought. The Working Family Tax Credit is Minnesota’s own take on the EITC. You don’t need to be a neurosurgeon to connect the dots — a stronger Working Family Credit won’t just help families economically, it will likely improve the brain development of Minnesota children.

In a new paper, researchers describe how a series of MRI scans revealed a gap in brain development between poor kids and their higher-income peers. This is the second study I’ve seen this year to suggest a relationship between poverty and brain development. The scientists behind these studies make two important observations that policymakers should note. First, the gaps in brain development are not irreversible; the brain can make up for these losses later in childhood. Second, we have tools at our disposal to make sure more families can escape poverty.

One such tool is the EITC, and another new study reveals that the EITC is an even more powerful poverty-fighting tool than previously thought. The EITC reduces poverty directly by increasing families’ income, and it is also structured to encourage work.

In the new paper, economists describe their model that captures the effect of all the ways that the EITC decreases the number of families living below the federal poverty line. We already knew that about 6.2 million people’s incomes rise above the poverty level due to the EITC’s direct impact on their income. This new research shows that even this high number likely underestimates the total number of people the EITC lifts above the poverty line by “as much as 50 percent.”

The Working Family Credit is Minnesota’s own version of the EITC. Governor Mark Dayton proposed an expansion of the credit last session that would have built on the Working Family Credit’s success. Dayton’s proposal would expand the credit to 30,000 more families and increase the credit for 280,000 households who currently receive it. That means more lower-income working families would see a boost in their incomes and more Minnesota children would get off to a strong start.

We now have even more evidence that poverty is harming Minnesota’s kids. Expanding the Working Family Credit in 2016 should be a no-brainer.

-Ben Horowitz

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Affordable housing is out of reach for many Minnesotans

A report from the National Low-Income Housing Coalition, Out of Reach 2015, shows that workers need to earn about twice the minimum wage to afford a fair market two-bedroom apartment in Minnesota.

The National Low-Income Housing Coalition calculates the “Housing Wage,” or the income a household needs to rent a fair market unit while not spending more than 30 percent of their income on housing. Minnesota’s Housing Wage for a two-bedroom unit is $17.20 an hour.

In some parts of Minnesota, the Housing Wage is even higher. In several counties, including Hennepin, Ramsey, Anoka and Chisago, a full-time worker needs to earn $19.15 an hour to afford a fair market two-bedroom apartment.

The Minnesota Housing Partnership provides a county-level look at how many hours a minimum-wage worker would need to work to afford housing. Even with the recent increase to $9.00 an hour for large employers, a minimum-wage worker needs to work 55 to 85 hours a week, depending on where they live, to afford a two-bedroom apartment.

When there is a wide gap between incomes and housing costs, families can’t afford other basic needs like transportation or child care, families may have to live in substandard or dangerous housing, or workers can’t move to where the jobs are.

Policy choices can play an important role in more Minnesotans having access to housing that meets their needs. This means that policymakers should enact policies that help Minnesota workers have good paying jobs and that increase access to affordable housing in the state.

In the 2014 Legislative Session, Minnesota policymakers gave minimum-wage workers in the state a long overdue raise. By August 2016, the minimum wage in Minnesota will be $9.50 an hour for large employers, and will be indexed to inflation after that so that working Minnesotans can better keep up with the cost of housing and other basic needs.

In 2015, policymakers took steps to increase access to affordable housing, including more funding for the Housing and Job Growth Initiative, which builds affordable housing in areas that are seeing high job growth but not enough housing is available for workers.

But there’s more that can be done. Policymakers should continue to make progress so that all Minnesotans can afford the basics, including stable housing.

-Clark Biegler

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