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116th CONGRESS
1st Session

}

SENATE

{

REPORT

116-58

THE 2019 JOINT ECONOMIC REPORT
_______
REPORT
OF THE

JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ON THE

2019 ECONOMIC REPORT
OF THE PRESIDENT

JULY 18, 2019.—Ordered to be printed
U.S. GOVERNMENT PUBLISHING OFFICE
WASHINGTON: 2019

II
JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5 (a) of Public Law 304, 79th Congress]
SENATE
MIKE LEE, Utah, Chairman
TOM COTTON, Arkansas
BEN SASSE, Nebraska
ROB PORTMAN, Ohio
BILL CASSIDY, M.D., Louisiana
TED CRUZ, Texas
MARTIN HEINRICH, New Mexico
AMY KLOBUCHAR, Minnesota
GARY C. PETERS, Michigan
MARGARET WOOD HASSAN, New Hampshire

HOUSE OF REPRESENTATIVES
CAROLYN B. MALONEY, New York, Vice Chair
DONALD S. BEYER, JR., Virginia
DENNY HECK, Washington
DAVID TRONE, Maryland
JOYCE BEATTY, Ohio
LOIS FRANKEL, Florida
DAVID SCHWEIKERT, Arizona
DARIN LAHOOD, Illinois
KENNY MARCHANT, Texas
JAIME HERRERA BEUTLER, Washington

Scott Winship, Ph.D., Executive Director
Harry Gural, Democratic Staff Director

116th CONGRESS
1st Session

}

SENATE

{

REPORT

116-58

THE 2019 JOINT ECONOMIC REPORT
_______
REPORT
OF THE

JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ON THE

2019 ECONOMIC REPORT
OF THE PRESIDENT

JULY 18, 2019.—Ordered to be printed
U.S. GOVERNMENT PUBLISHING OFFICE
WASHINGTON: 2019

II
JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5 (a) of Public Law 304, 79th Congress]
SENATE
MIKE LEE, Utah, Chairman
TOM COTTON, Arkansas
BEN SASSE, Nebraska
ROB PORTMAN, Ohio
BILL CASSIDY, M.D., Louisiana
TED CRUZ, Texas
MARTIN HEINRICH, New Mexico
AMY KLOBUCHAR, Minnesota
GARY C. PETERS, Michigan
MARGARET WOOD HASSAN, New Hampshire

HOUSE OF REPRESENTATIVES
CAROLYN B. MALONEY, New York, Vice Chair
DONALD S. BEYER, JR., Virginia
DENNY HECK, Washington
DAVID TRONE, Maryland
JOYCE BEATTY, Ohio
LOIS FRANKEL, Florida
DAVID SCHWEIKERT, Arizona
DARIN LAHOOD, Illinois
KENNY MARCHANT, Texas
JAIME HERRERA BEUTLER, Washington

Scott Winship, Ph.D., Executive Director
Harry Gural, Democratic Staff Director

LETTER OF TRANSMITTAL
__________________
July 18, 2019
HON. MITCH MCCONNELL
Majority Leader, U.S. Senate
Washington, DC
DEAR MR. LEADER:
Pursuant to the requirements of the Employment Act of 1946, as
amended, I hereby transmit the 2019 Joint Economic Report. The
analyses and conclusions of this Report are to assist the several
Committees of the Congress and its Members as they deal with
economic issues and legislation pertaining thereto.
Sincerely,
Mike Lee
Chairman

IV

V

CONTENTS
CHAIRMAN’S VIEWS ................................................................ ....1
CHAPTER 1: THE ECONOMIC OUTLOOK................................. ....4
OVERVIEW ................................................................................. 4
THE “NEW NORMAL” ................................................................. 5
FROM THE “NEW NORMAL” TO JUST NORMAL ........................... 6
PROSPECTS AND CHALLENGES AHEAD ..................................... 14
CHAPTER 2: MONETARY POLICY ............................................ ..16
OVERVIEW ............................................................................... 16
INSTRUMENTS VS. OUTCOMES .................................................. 16
Interest Rates Are Not a Good Indicator of the Stance of
Monetary Policy .................................................................. 16
NGDP Is a Good Indicator of the Stance of Monetary
Policy .................................................................................. 18
WHY WAS MONETARY POLICY TIGHT? ................................... 19
The Monetary Policy Transmission Mechanism ................. 19
Reasoning from a Price Change ......................................... 20
Interest on Excess Reserves (IOER).................................... 21
Quantitative Easing (QE).................................................... 22
“NORMALIZING” MONETARY POLICY ...................................... 23
A More “Normal” Level of Interest Rates .......................... 24
Balance Sheet “Normalization” ......................................... 24
“Normalization” without Normalizing ............................... 25
OPERATING SYSTEM CONCERNS.............................................. 26
Diminished Monetary Policy Effectiveness......................... 26
Smaller Margin for Error ................................................... 27
Unintended Supply Side Consequences of a Large Balance
Sheet .................................................................................... 27
Regulatory Concerns........................................................... 28
No Interbank Lending Market ............................................. 29
Legal Concerns ................................................................... 30
Potential Impairment of Federal Reserve Independence .... 31
CONCLUSION ........................................................................... 32
Recommendations ............................................................... 33

VI
CHAPTER 3: HOW FAMILIES, WORKERS, AND THE ECONOMY
BENEFIT FROM THE TAX CUTS AND JOBS ACT ....................... ..34
INTRODUCTION ......................................................................... 34
HOW TAX POLICY AFFECTS ECONOMIC GROWTH .................... 34
HOW ECONOMY-WIDE EFFECTS OF TAX POLICY ARE
MODELED ................................................................................. 37
PRO-GROWTH PROVISIONS IN TCJA ........................................ 39
Lower Individual Rates and Other Tax Relief .................... 39
The Myth of “Tax Cuts Only Benefit the Wealthy” ............ 41
Lower Small Business Rates and the Pass-Through
Deduction ............................................................................ 43
Faster Cost Recovery Through Expensing.......................... 46
Lower Corporate Tax Rates and a Territorial Tax System . 48
PRO-FAMILY PROVISIONS IN TCJA .......................................... 51
Expanded Marriage Penalty Relief ..................................... 52
Expanded Child Tax Credit................................................. 54
Other Family-Based Tax Provisions ................................... 56
Additional Progress Needed on the Alternative Minimum
Tax....................................................................................... 56
“ARE WE THERE YET?” ........................................................... 57
CONCLUSION ............................................................................ 60
Recommendations ............................................................... 61
CHAPTER 4: DEREGULATION .................................................. ..62
INTRODUCTION ......................................................................... 62
THE LINK BETWEEN INNOVATION AND ECONOMIC GROWTH ... 62
REGULATION REDUCES INNOVATION ....................................... 64
Financial Regulation Limits Capital Access ....................... 65
Dodd-Frank Act .................................................................. 66
Volcker Rule ........................................................................ 67
Sarbanes-Oxley Act ............................................................. 68
DEREGULATION GROWS THE ECONOMY................................... 69
CONCLUSION ............................................................................ 71
Recommendations ............................................................... 71
ENDNOTES ................................................................................ ..73

VII
STATEMENT OF VICE CHAIR CAROLYN B. MALONEY ........... ..83
CHAPTER 1: MACROECONOMIC OVERVIEW .......................... ..88
OVERVIEW ............................................................................... 88
STATE OF THE ECONOMY.......................................................... 88
Economic Growth ............................................................... 89
The Labor Market ............................................................... 91
Wage Growth ...................................................................... 93
Economic Disparities .......................................................... 95
ASSESSMENT OF THE TAX CUTS ............................................... 95
Economic Effects of the TCJA............................................. 95
THE ECONOMIC EFFECTS OF AGGRESSIVE DEREGULATION .... 103
Research Fails to Find a Link Between Broad Deregulation
and Economic Growth ...................................................... 103
Deregulation Results in Winners and Losers .................... 104
THE COST OF TRADE WARS.................................................... 105
Uncertainty Weakens Investment ...................................... 107
THE GOVERNMENT SHUTDOWN ............................................. 108
LONG-TERM CHALLENGES ..................................................... 108
Declining Labor Force Growth ........................................ 109
Low Productivity Growth .................................................. 110
Income Inequality .............................................................. 111
The Climate Crisis ............................................................ 111
CONCLUSION .......................................................................... 111
CHAPTER 2: ECONOMIC INEQUALITY ..................................... 113
OVERVIEW ............................................................................. 113
AGGREGATE ECONOMIC INDICATORS DO NOT TELL THE WHOLE
STORY .................................................................................... 113
Decades of Wage Stagnation ............................................ 114
Rising Income Inequality .................................................. 115
Wage Growth Varies by Education Level ......................... 116
Growing Wealth Inequality ............................................... 117
Decreased Economic Mobility .......................................... 117
Family Economic Security ................................................ 118
Improving Measurement ................................................... 118
PERSISTENT DISPARITIES ........................................................ 119
Employment ....................................................................... 119
Wage and Income .............................................................. 119

VIII
Wealth ............................................................................... 120
Poverty .............................................................................. 121
Economic Mobility ............................................................ 121
GENDER DISPARITIES ............................................................. 122
The Gender Pay Gap Persists ........................................... 122
Female Labor Force Participation Still Lags Male
Participation ..................................................................... 124
Gender Disparities Result in Retirement Insecurity ......... 125
Improving the Economic Outlook for Women and
Families ............................................................................. 125
GEOGRAPHIC DISPARITIES ...................................................... 126
Economic Growth is Increasingly Geographically
Concentrated ..................................................................... 126
The Rural-Urban Divide ................................................... 127
Economic Opportunity Varies by Location ....................... 128
THE IMPORTANCE OF ANTI-POVERTY PROGRAMS .................. 129
CONCLUSION .......................................................................... 132
CHAPTER 3: MILLENNIALS ...................................................... 133
OVERVIEW ............................................................................. 133
THE HISTORICAL CONTEXT .................................................... 134
Coming of Age in a Changing America ............................ 135
Growing Diversity and Economic Inequality.................... 136
Long-Lasting Impacts of Economic Instability ................. 138
THE SHIFTING OUTCOMES AND COSTS OF EDUCATION .......... 139
Changing Benefits of Education and Gender Shifts in
Educational Attainment..................................................... 139
Skyrocketing Tuition Costs and the Student Debt Crisis .. 140
Trump Administration Moves to Deregulate Higher
Education Despite Scandals.............................................. 142
RISING MARKET UNCERTAINTIES ........................................... 143
Harsher Labor Market Realities ....................................... 143
Many are Overqualified and Underemployed .................. 144
The Housing Crisis, Barriers to Asset Building and the
Rental Trap ....................................................................... 145
MODERN HOUSEHOLD ECONOMICS ........................................ 147
Delaying Marriage and Children ..................................... 148
Family Income and Dual-Earner Households .................. 151
CONCLUSION .......................................................................... 152

IX

CHAPTER 4: CONSUMER FINANCIAL PROTECTION ................ 154
OVERVIEW ............................................................................. 154
REGULATORY REFORMS RESTORED CONFIDENCE AND
CONSUMER SPENDING ............................................................ 155
The Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 ...................................................... 155
The Consumer Financial Protection Bureau (CFPB) ...... 157
The Credit Card Accountability Responsibility and
Disclosure (CARD) Act of 2009 ........................................ 160
FINANCIAL SERVICES VITAL TO ECONOMIC WELL-BEING ..... 161
Expanding Financial Services .......................................... 162
The “Unbanked” and the “Credit Invisible” ................... 163
Lack of Sufficient Savings ................................................. 164
Credit Card Gap and Debt Share by Age ......................... 165
THE NEED FOR STRONGER CONSUMER PROTECTIONS ............ 168
Financial Insecurity in Retirement ................................... 169
Reverse Redlining ............................................................. 170
Modernization of the Community Reinvestment Act ......... 171
SECURING FAIR AND AFFORDABLE CREDIT FOR ALL ............. 172
Payday Lending................................................................. 172
Overdraft Protection Fees ................................................ 173
Emerging Threats to Consumer Protections and Financial
Stability ............................................................................. 174
CONCLUSION .......................................................................... 175
CHAPTER 5: PRESCRIPTION DRUG PRICES ............................. 177
OVERVIEW ............................................................................. 177
IMPACT ON CONSUMERS......................................................... 177
COST DRIVERS ....................................................................... 179
The Most Expensive Drugs Drive Total Costs .................. 179
MARKET FAILURES................................................................. 182
Challenges of a Patent System .......................................... 182
The Role of Federally Funded Research........................... 183
Non-Transparent Pricing .................................................. 184
Perverse Incentives in Supply Chains ............................... 185
Anti-Competitive Practices ............................................... 186
Abuse of the Patent System ............................................... 187
Pay-for-Delay.................................................................... 187

X
Slowing the Development of Generics .............................. 187
“Gag Clauses”.................................................................. 188
Price Fixing....................................................................... 188
Market Concentration ....................................................... 188
Medicare Part D ............................................................... 189
CONCLUSION .......................................................................... 190
CHAPTER 6: CLIMATE CRISIS ................................................. 192
OVERVIEW ............................................................................. 192
MACROECONOMIC ESTIMATES OF CLIMATE CRISIS COSTS .... 193
THE INCREASING FREQUENCY AND COST OF EXTREME WEATHER
DISASTERS.............................................................................. 195
Threats to Household Wealth and Property ..................... 196
Extreme Weather Creates Increased Risk ......................... 198
CLIMATE CHANGE WILL HAVE DISPARATE IMPACTS .............. 200
Climate Change Will Cause Mass Migration ................... 201
INNOVATION IS DRIVING RENEWABLE COSTS DOWN ............. 202
Renewable Prices Are Competitive with Fossil Fuels ...... 203
More Innovation Is on the Horizon ................................... 204
International Competition Over Renewable Jobs is Fierce
and Growing ..................................................................... 205
THE CLIMATE CRISIS REQUIRES IMMEDIATE AND BOLD
ACTION................................................................................... 206
Supercharging Clean Energy Growth............................... 206
Committing to International Efforts and Goals ................ 207
Investing in Resiliency ...................................................... 207
Equipping Workers with Training for Clean-Energy Jobs 208
CONCLUSION .......................................................................... 209
ENDNOTES ................................................................................ 210

116th CONGRESS
1st Session

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SENATE

{

REPORT

116-58

THE 2019 JOINT ECONOMIC REPORT

_____________
JULY 18, 2019. Ordered to be printed
________________
_____________

MR. LEE, from the Joint Economic Committee,
submitted the following

REPORT

Report of the Joint Economic Committee on the 2019 Economic Report of the
President

CHAIRMAN’S VIEWS
The recovery from the Great Recession turns ten years old this
month. Earlier this year, we marked 100 straight months of job
growth. More working-age Americans are looking for jobs, and
more of them are finding work. The unemployment rate has fallen
to 3.6 percent, a low not seen in almost half a century. Wage
growth has strengthened, particularly for lower-wage workers and
in industries employing more of them. This summer the current
expansion will become the longest on record.
This good news is covered in detail in the Economic Report of the
President and the Annual Report of the Council of Economic
Advisers (Report), issued by President Trump’s administration in

2
March, and here in the 2019 Joint Economic Report (Response),
my first as Chairman of the Joint Economic Committee. As these
reports make clear, credit for our economic prosperity is owed to
the policies enacted into law over the past two years.
Nevertheless, now is no time for complacency. For one thing,
economic challenges persist. Labor force participation rates for
working-age men and women were higher a decade ago than they
are today. The unemployment rate for African Americans—while
lower than at any point in at least half a century—remains well
above the national average. Robust as the nation’s economic
growth has been, it has also spread unevenly, concentrated in a
relatively small number of metropolises. Millions reside in
distressed communities—pockets of rural, urban, and suburban
poverty scattered across the country.
And economic considerations should not blind us to other aspects
of the good life. Connecting more people to work would bring
obvious economic benefits to those who are currently struggling.
But just as importantly, work provides non-material benefits:
meaning, identity, a sense of value, friendship, and information
about opportunities, to name a few. That is to say, connections to
coworkers, colleagues, customers, and clients are sources of social
capital—the many valuable aspects of our relationships with other
people.
For over two years, my staff in the Joint Economic Committee has
conducted research on social capital, exploring trends in
associational life, the geographic distribution of social capital
indicators across the country, and related topics. The Social
Capital Project recently entered the next phase of its research. This
Congress, the Project is developing a policy agenda to expand
opportunity by strengthening families, communities, and civil
society.
Lowering the unemployment rate, increasing productivity,
accelerating wage growth, spurring innovation, promoting capital

3
investment, and containing inflation—all of these are important
policy goals. But fewer than half of children today will make it to
adulthood having continuously lived with both of their biological
parents. Millions of men and women will find themselves in
middle-age wishing they had raised children (or more children
than they did). Group membership, cooperation with neighbors,
and church attendance have been declining for decades. And the
strength and richness of associational life varies dramatically
across regions of the country, with family stability, institutional
strength, levels of trust, philanthropic generosity, voluntarism,
neighborliness, and social support tending to be either high or low
in the same places.
And so the focus of this Committee will shift beyond the attention
traditionally given to narrower economic problems. Americans
care about more than dollars and cents. Our associational life has
withered across the board even though economic indicators tell us
it is the best of times. We are an almost unprecedentedly affluent
nation, but we are becoming ever more socially impoverished by
the year.

4

CHAPTER 1: THE ECONOMIC OUTLOOK

OVERVIEW
Regulatory and tax reform such as the Tax Cuts and Jobs Act
(TCJA) fostered the U.S. economy’s strongest period of the
recovery from the 2008-09 recession:
•

•
•
•

•

•
•

Calendar-year real (inflation-adjusted) GDP grew 3.0
percent, the highest growth rate during a recovery that
began in 2009, and the highest growth rate since 2005.
Inflation remained at or below the Federal Reserve’s 2
percent inflation target.
Wage and salary indicators show that worker pay is
growing at the fastest rate in a decade.
At 82.6 percent, workforce participation rates among the
prime working-age (25-54) population rose to a recovery
high as of January 2019.
Actual average monthly job creation in 2018 was 223,000
jobs per month. Based on laws and other conditions in
effect just before the November 2016 election, the
Congressional Budget Office (CBO) forecast 1 an average
of only 24,000 jobs per month would be created in 2018.
In January 2019, 312,000 jobs were created.
The unemployment rate and jobless claims reached lows
last seen in 1969.
Growth in nonresidential fixed investment—business
investment in capital—accelerated to a 7.0 percent rate in
2018 after growing 6.3 percent in 2017. This compares
with 1.8 percent (2016) and -0.6 percent (2015) in the two
preceding years.

This chapter discusses the U.S. economy’s shift into a higher gear
and the prospects and challenges that lie ahead.

5

THE “NEW NORMAL”
Research has consistently shown that the more severe a recession,
the stronger the ensuing recovery tends to be. 2 The previous
Administration continually forecast its policies would produce the
same result following the 2008-09 recession, but through 2015, its
short-term projections always fell short, even with repeated
downward revisions, as Figure 1-1 shows. While its 2016
projections lined up well with actual subsequent 2017 and 2018
growth, prior to the 2016 election, as will be shown, the trajectory
of the economy was decidedly off-track. During the previous
Administration, calendar-year real GDP growth never once
attained 3 percent or greater.
Figure 1-1

The previous Administration, unwilling to concede that its topdown economic policy interventions did not perform well, cited
factors beyond the control of policy. These included the severity
of the 2008 financial crisis, demographics, and weak productivity
growth as the cause of the “new normal” of slow growth. For

6

example, in an interview, the former Obama Administration’s
CEA Chairman, Jason Furman noted:
So I think that it was a recovery from the financial
crisis that caused some of the initial weakness. I
think if you are looking at a longer time period and
asking why growth has been slow, it’s primarily
because of demographic change, which there’s
relatively little we can do about, and the
productivity change, which there may or may not
be something we can do about. 3
As argued in last year’s Majority Response, misguided policies
created these poor outcomes. This view has been confirmed by
recent economic progress. Regulatory reform and TCJA
jumpstarted capital investment, which raised labor productivity,
led to higher wages, and encouraged more workforce
participation. The overall effect has been to increase economic
growth without creating inflation.
FROM THE “NEW NORMAL” TO JUST NORMAL
Policy changes can affect the economy even before they are
enacted or implemented. When business leaders and other
investors see an increased probability of growth-enhancing
policies, they expect a higher future stream of income from
investment, which raises the present value of business capital
immediately. They are, in turn, motivated to increase capital
investment and hiring even before new policies are actually
implemented. Indeed, the 1995 Nobel Prize in economics was
awarded to economist Robert Lucas for his research on “rational
expectations.” 4
In the twelve months preceding the November 2016 election,
small business optimism and consumer sentiment indices had
declined and the stock market had barely moved. The yield on 10-

7

year Treasury notes had declined 31 basis points, signaling
financial markets’ aversion to new business investment. The
election portended pro-growth tax and regulatory policies, such
that by year-end 2016, small business optimism, consumer
sentiment, and the stock market surged, as Figure 1-2 shows.
Likewise, the 10-year Treasury note yield rose 61 basis points.
Figure 1-2

Soon after the November 2016 election, consumer sentiment,
business optimism, and financial market values all increased,
resulting in tangible economic improvements. By January 2017
monthly domestic business capital expenditures had increased
markedly as Figure 1-3 shows. Before then, domestic capital
expenditures had stagnated after returning to pre-recession levels
only in 2012.

8

Figure 1-3

The stronger economic outlook also propelled stronger-thanexpected job creation in both 2017 and 2018, as Figures 1-4 and
1-5 show.

9

Figure 1-4

Figure 1-5

Strong job creation, coupled with capital accumulation that had
been dampened for most of the recovery, helped fuel steady labor

10

productivity growth. In contrast, labor productivity growth during
the 2009-16 recovery period had been erratic (see Figure 1-6).
Figure 1-6

Capital enables workers to become more productive, which raises
their value and translates into higher inflation-adjusted wage
growth. Since 2017, inflation-adjusted wages and salaries of
private sector workers have risen with labor productivity and
continued to grow at a steady pace, without wild fluctuations, as
Figure 1-7 5 shows.

11

Figure 1-7

The improved economic outlook also led to increased workforce
participation, especially among the prime working-age (25 to 54)
population. This result implies that the slow recovery of the 200916 period was primarily attributable to economic policy rather
than structural factors. CBO’s reference to cyclical factors
supports this:
[CBO] raised its estimate of the historical and
projected potential participation rate for primeage workers (ages 25 to 54) because the
participation rate of that group has rebounded
more strongly in the past year than previously
expected. That development suggests that its
decline after the last recession was driven more by
cyclical factors and less by structural factors than
previously estimated. 6
“Structural factors” tend to be more reflective of long-term trends
such as in demography.

12

Figure 1-8 shows that during the previous Administration’s tenure
(June 2009 to December 2016) the labor force participation rates
among men and women declined almost across the board.
However, in the first two years since pro-growth policies began,
these participation rates have started rising across the board, which
signifies that the economy had much latent potential, i.e., room for
higher, sustainable economic growth. If the workforce
participation rate among the prime working-age population
returned to its pre-2008-09 recession level of 83 percent, this
would amount to nearly one million additional prime-age workers
in the workforce today.
Figure 1-8

Several new labor market milestones were achieved in 2018. The
headline unemployment rate 7 fell to the lowest rate since 1969.
The U-3 measure for black Americans fell to a low of 5.9 percent,
the lowest in the series history that dates back to 1972. Likewise,
the Hispanic unemployment rate, fell to a low of 4.4 percent, the
lowest in the series history that began in 1973.

13

Also in 2018, the unemployment rate of those without a high
school diploma fell to the lowest in the series history, which began
1992. The unemployment rate for those with a high school
diploma but no college fell to a low last seen in 2000.
Even with the improved job market and wage growth, inflation has
remained subdued. Critics have attempted to equate TCJA with a
Keynesian-style demand-side stimulus that might have led to
unsustainable growth and higher inflation, but just the opposite has
occurred. As the Committee Majority anticipated in the 2018
Response (p. 86), inflation did rise temporarily only to fall again
toward the year’s end, as is consistent with a positive supply-side
development.
Figure 1-9 shows that inflation continues to remain at or below the
Fed’s symmetric 2 percent inflation target (symmetric means that
the target is not a ceiling but an average to be maintained over
time), while measures of expected inflation 8 continue to suggest
inflation will undershoot the Fed’s target over the coming years.
Figure 1-9

14

The success of pro-growth policies has removed pressure on the
Federal Reserve to keep its primary monetary policy interest
rate—the interest on excess reserves (IOER) rate—near zero.
Before 2016, the 0.25 percent IOER rate that had prevailed since
the end of 2008 was increased only once to 0.50 percent in
December 2015. Though the Federal Reserve anticipated four rate
hikes in 2016, 9 it held off as the recovery proved too fragile at that
time. Since the November 2016 election, resurgent economic
growth has enabled the Fed to raise the IOER rate eight times to
2.40 percent.
PROSPECTS AND CHALLENGES AHEAD
Economists in the previous Administration had predicted year
after year that their policies would result in a strong growth rate
like that of 2018. Yet, such prosperity was only realized as those
policies were reversed. While it is possible that the initial effects
of reversing those policies had the strongest impact, and that
economic growth may not continue quite as fast in subsequent
years, two things are important to note:
1) The gains in 2018 will remain built into future U.S.
economic production, resetting the trajectory of the
economy. Thus, the gain to the economy will not be
reversed, and
2) The relevant benchmark for evaluating current policy and
future economic growth is the tepid “new normal” growth
rate Americans had been led to expect under the Obama
Administration’s tenure, not the boost in the rate realized
last year.
An aging workforce does indeed constitute a headwind for U.S.
economic growth, but better policies can improve the structure of
the economy to raise performance on average going forward. In
particular, low tax rates encourage people to remain in the

15

workforce longer, attract more working-age individuals to join the
workforce, incentivize businesses to invest in more capital, and
enable entrepreneurs to increase productivity through innovation.
Less government spending could free up resources that the private
sector can use more efficiently. Better infrastructure, health care,
and trade policies also promote faster economic growth. Last but
not least, a sound monetary policy (discussed in Chapter 2) will be
essential for keeping the U.S. economy on the higher growth
trajectory created by pro-growth policies.

16

CHAPTER 2: MONETARY POLICY

OVERVIEW
The conventional wisdom associates high interest rates with a tight
monetary policy and low interest rates with an easy monetary
policy. Along with low interest rates, unconventional monetary
policies, such as quantitative easing (QE) and forward guidance,
have led to the impression that monetary policy has been
extraordinarily accommodative since 2008. However, outcomes
suggest otherwise. Inflation has not only remained low, but has
persistently undershot the Fed’s 2 percent target; aggregate
demand, 10 as measured by nominal GDP, averaged only 3.8
percent annual growth over the 2009-16 recovery period,
compared with a 5.4 percent average from 1990 to 2007. This
incongruity between presumptions about monetary policy
instruments and actual outcomes has been described as a
“mystery” and a “puzzle.”
INSTRUMENTS VS. OUTCOMES
Interest Rates Are Not a Good Indicator of the Stance of Monetary
Policy
The federal funds rate—generally seen as being the Federal
Reserve’s primary monetary policy instrument—is the interest
rate at which banks once traded scarce reserves (federal funds)
among one another. In this interbank lending market, banks with
excess reserves, which did not earn interest at the time, would lend
to banks with reserve shortages at the federal funds rate.
Until late 2008, the Federal Reserve actively managed the supply
of reserves to keep the effective federal funds rate trading near the
Federal Reserve’s desired level. To lower the federal funds rate,

17

the Federal Reserve would increase the supply of bank reserves.
An increased supply of bank reserves would lead to more bank
lending, which finances greater spending on goods and services.
This is likely the source of the conventional view that associates
lower interest rates with an easier monetary policy.
In their seminal study, A Monetary History of the United States,
1865-1960, Nobel Prize winning economist Milton Friedman and
economist Anna Jacobson Schwartz convinced the economics
profession that an extraordinarily tight Federal Reserve monetary
policy was responsible for the Great Depression of the 1930s,
despite unusually low interest rates at that time. This was also a
fact that Ben Bernanke, then a Federal Reserve Governor,
acknowledged in 2002. 11 Japan’s economic distress during the
1990s despite low interest rates, led Friedman to comment:
After the U.S. experience during the Great
Depression, and after inflation and rising interest
rates in the 1970s and disinflation and falling
interest rates in the 1980s, I thought the fallacy of
identifying tight money with high interest rates and
easy money with low interest rates was dead.
Apparently, old fallacies never die. 12
Nominal interest rates, such as the federal funds rate, consist of a
real interest rate component and an expected inflation rate
component. The former is the additional increment of inflationadjusted goods and services that a lender can purchase when
repaid, while the expected inflation component accounts for the
anticipated loss of money’s purchasing power.
A monetary policy expected to be tight lowers inflation
expectations, reducing nominal interest rates. A deteriorating
economic outlook—possibly brought about by expectations of a
contractionary monetary policy—reduces the demand for loanable

18

funds, causing real interest rates, and nominal interest rates by
extension, to fall.
Scott Sumner, the Ralph G. Hawtrey Chair of Monetary Policy at
the Mercatus Center at George Mason University, warns against
“reasoning from a price change.” 13 Prices, and interest rates, may
decline because of an increase in supply or a decrease in demand.
As the proximate source can be difficult to recognize, then-Federal
Reserve Governor Bernanke, suggested the following in 2003:
[N]ominal interest rates are not good indicators of
the stance of monetary policy…The real short-term
interest rate, another candidate measure of policy
stance, is also imperfect, because it mixes
monetary and real influences… Ultimately, it
appears, one can check to see if an economy has a
stable monetary background only by looking at
macroeconomic indicators such as nominal GDP
growth and inflation. 14
NGDP Is a Good Indicator of the Stance of Monetary Policy
While using the inflation rate to determine the stance of monetary
policy is better than using interest rates, the risk of “reasoning
from a price change” remains. The inflation rate is determined by
aggregate demand and aggregate supply. A higher inflation rate
might arise from an aggregate supply contraction even though the
stance of monetary policy, as reflected in aggregate demand, is
unchanged.
It is therefore important to watch nominal GDP (NGDP), which
measures aggregate demand. It is the quantity of goods and
services sold (reflected in real GDP) multiplied by their prices
(reflected in the GDP deflator, a measure of inflation) across the
entire economy. An “easy” or “accommodative” monetary policy

19

raises NGDP growth, a “tight” or “restrictive” monetary policy
slows it down.
Figure 2-1 shows that NGDP fell considerably during the 2008-09
recession and grew slowly thereafter, clearly indicating that
monetary policy in fact has not been extraordinarily
accommodative.
Figure 2-1

WHY WAS MONETARY POLICY TIGHT?
The Monetary Policy Transmission Mechanism
Because total spending on goods and services—as measured by
NGDP—is purchased with money, NGDP is equal to the supply
of money multiplied by the rate at which it is spent and turns over,
i.e., its “velocity.” NGDP represents the velocity-adjusted money
supply. The Federal Reserve influences the velocity-adjusted
money supply through its control over “base money,” which
consists of the Federal Reserve’s balance sheet liabilities, currency
(paper money) and bank reserves. Banks lend funds deposited by

20

savers, keeping only a portion in reserve. This creates a sort of
“money multiplier,” such that every $1 of base money supported
nearly $18 of spending as measured by NGDP up until late 2008.
However, this process breaks down if banks rather than creating
loans from new reserves hold them as excess reserves. 15 Figure 22 suggests this is what happened in late 2008.
Figure 2-2

Reasoning from a Price Change
A negative aggregate supply “shock” emanating from a sharp rise
in oil prices led to elevated headline inflation in late 2007 and early
2008. This was misdiagnosed as arising from strong aggregate
demand growth induced by overly easy monetary policy. 16
However, Figure 2-3 shows that core inflation (excludes food and
energy prices) and inflation expectations 17 remained near the
Federal Reserve’s then-implicit target—charted as 2.4 percent, as
the consumer price index (CPI) tends to exceed the Federal
Reserve’s primary inflation measure, the personal consumption
expenditures price index (PCE), by 0.4 percentage points). This

21

suggests that monetary policy was not overly accommodative.
Nonetheless, from April 2008 to September 2008, the Federal
Reserve opted to keep the federal funds rate unchanged even as
the economy deteriorated and investment bank Lehman Brothers
failed. 18
Figure 2-3

Interest on Excess Reserves (IOER)
The week Lehman Brothers failed, Federal Reserve emergency
lending programs provided a major source of funds for financial
markets. 19 This created a correspondingly large increase in the
supply of bank reserves, which would have coincidentally lowered
the federal funds rate, and led to an easing of monetary policy.
However, reluctant to ease monetary policy, the Federal Reserve
started paying interest on excess reserves (IOER), to induce banks
to hold more excess reserves rather than lend them. 20
Though the IOER rate was lowered to 0.25 percent by December
2008, it remained high relative to market interest rates, which

22

encouraged banks to hoard reserves. According to George Selgin,
director of the Center for Monetary and Financial Alternatives at
the Cato Institute, the payment of IOER at market-competitive
rates:
…severs the link between reserve creation and
monetary expansion[;] it makes achieving
monetary stimulus, even by means of extraordinary
asset purchases [i.e., QE], extremely difficult; and
because it has the Fed borrowing heavily from
private intermediaries [the Fed borrows private
bank funds at the IOER rate], it replaces privatesector lending with lending to the U.S. Treasury
and other government agencies. 21
Quantitative Easing (QE)
Unwilling to lower the IOER rate to zero, the Federal Reserve then
resorted to three rounds of QE between 2009 and 2014 to aid the
recovery. QE vastly expanded the monetary base; however, as
David Beckworth, a senior research fellow at the Mercatus Center
of George Mason University, notes, it failed to generate a strong
recovery because:
…the Fed could not credibly commit to a
permanent expansion of the monetary base…[A]
permanent expansion of the monetary base creates
the expectation of a permanent rise in the future
price level. That in turn, reduces money demand
[e.g., banks lend rather than hold excess reserves]
and raises current nominal spending [i.e.,
aggregate demand].22

23

The Federal Reserve’s transitory design of QE therefore
dampened the expectation that the sharp contraction of aggregate
demand that occurred in 2008 would be recovered by the policy.
Therefore, although the Federal Reserve’s instruments suggested
extraordinary monetary policy accommodation—low interest
rates and QE quintupling the Federal Reserve’s balance sheet
size—a market-competitive IOER rate and the transitory design of
QE programs short-circuited the transmission mechanism of
monetary policy from increased bank reserves to faster aggregate
demand growth. This explains inflation persistently undershooting
the Federal Reserve’s 2 percent inflation target and leaves no
“mystery.”
“NORMALIZING” MONETARY POLICY
As documented in Chapter 1, the November 2016 election
portended considerably brighter prospects for the economic
outlook, raising the demand for loanable funds (greater business
investment), and leading market interest rates to rise relative to the
Federal Reserve’s IOER rate. This in turn encouraged banks to
convert some excess reserves into credit, stimulating aggregate
demand growth as Figure 2-4 indicates.

24

Figure 2-4

A More “Normal” Level of Interest Rates
As banks currently sit on $1.5 trillion of excess reserves 23 (prior
to the 2008 financial crisis the banking system collectively held
less than $2 billion of excess reserves), the Federal Reserve must
keep the IOER rate near rising market interest rates to prevent an
inflationary burst of spending. The improved economic outlook
has enabled the Federal Reserve to raise the IOER rate eight times
since the November 2016 election to 2.4 percent. (In contrast, it
was raised only once to 0.50 percent in December 2015 after being
held at 0.25 percent since December 2008).
Balance Sheet “Normalization”
In October 2017, the Federal Reserve was also able to begin
allowing its holdings of Treasury securities and Government
Sponsored Enterprise (GSE)-issued mortgage-backed securities
(MBS) to runoff its balance sheet. 24 (Previously, after the third and
final QE program ended in October 2014, whenever the Federal

25

Reserve’s holdings of Treasuries or MBS matured, the Federal
Reserve would reinvest the proceeds to keep its balance sheet size
near $4.5 trillion.) As of December 2018, the Federal Reserve’s
balance sheet size was just over $4 trillion. Nonetheless, the size
of the Federal Reserve’s balance sheet as a share of NGDP remains
much enlarged at nearly 20 percent, compared with about 6
percent before 2008.
“Normalization” without Normalizing
On January 30, 2019, the Federal Reserve announced that it will
keep a relatively enlarged balance sheet:
[The Fed] intends to continue to implement
monetary policy in a regime in which an ample
supply of reserves [large Fed balance sheet]
ensures that control over the level of the federal
funds rate and other short-term interest rates is
exercised primarily through the setting of the
Federal Reserve's administered rates [IOER rate],
and in which active management of the supply of
reserves [open market operations] is not
required…[The Fed] continues to view changes in
the target range for the federal funds rate as its
primary means of adjusting the stance of monetary
policy. 25
The Federal Reserve reinforced the notion that monetary policy is
eased or tightened by changing the level of the federal funds rate
target range, presumably because a lower level of interest rates
encourages greater business and household spending by reducing
the cost of borrowing. This notion is problematic because it may
be “reasoning from a price change,” and if this simple
transmission mechanism worked, then inflation would not have
persistently undershot the Federal Reserve’s 2 percent target.

26

Moreover, the statement regarding an “ample supply of reserves”
signifies that the Federal Reserve intends to stop shrinking its
balance sheet well short of the point at which banks’ reserves
would become scarce enough that interbank lending would resume
in the federal funds market. As Norbert Michel, the director of the
Heritage Foundation’s Center for Data Analysis, noted in 2017:
So the standard process of managing interest rates
through reserve management—the one that the Fed
had been using for decades—simply cannot happen
right now. The federal funds rate cannot possibly
convey the type of information it used to, and there
is no comparable short-term rate. 26
Thus, the normal pre-2008 operating system has now officially
been abandoned for an operating system requiring a large quantity
of excess reserves kept in check by an IOER rate competitive with
market rates.
OPERATING SYSTEM CONCERNS
Diminished Monetary Policy Effectiveness
As shown in Figure 2-2, every $1 of the Federal Reserve’s
monetary base supported $18 of aggregate demand until late 2008.
If aggregate demand contracted by $180 billion, the Federal
Reserve would only have to purchase $10 billion worth of
Treasury securities to offset this. In contrast, under the current
operating system, $1 of base money supports only $6 of aggregate
demand. A $180 billion aggregate demand contraction would
require a much larger Federal Reserve market intervention of $30
billion of Treasury securities to offset this.

27

Smaller Margin for Error
Given the $1.5 trillion of excess reserves that now exist (compared
to about only $2 billion before 2008), the Federal Reserve must
keep the IOER rate near market interest rates to prevent sudden
and sharp aggregate demand expansions and contractions. This
gives the Federal Reserve little room for error, and “the Fed
becomes an interest rate follower and not an interest rate leader,”
according to former Senate Banking Committee Chairman, Phil
Gramm and Thomas Saving, former Director of the Private
Enterprise Research Center at Texas A&M University. 27
Unintended Supply Side Consequences of a Large Balance Sheet
Research by David Beckworth of the Mercatus Center shows that
as the IOER rate rises relative to market-determined interest rates,
banks reallocate their assets from loans to reserves. 28 This
amounts to the intermediation of credit between borrowers and
lenders by the private banking system being rerouted to the
Federal Reserve. Before 2008, every $1 of deposits in the banking
system were used to finance nearly $1 worth of loans. Since 2008,
however, only 80 cents become a loan (see Figure 2-5). Banks
deposit the other roughly 20 cents with the Federal Reserve as
reserves. The Federal Reserve correspondingly invests these in
longer-term Treasury securities and GSE-issued MBS. Thus, the
Federal Reserve’s enlarged “credit market footprint” may be
hindering capital accumulation, labor productivity growth, and the
U.S. economy’s longer-run growth prospects. 29

28

Figure 2-5

Regulatory Concerns
It might be argued that the reserves that appear to be displacing
lending, as shown in Figure 2-5, are the result of regulatory
requirements brought on by the Dodd-Frank Act, and not the
Federal Reserve’s payment of a market-competitive IOER rate. 30
However, Thomas Hogan, a fellow in the Baker Institute Center
for Public Finance and former chief economist for the Senate
Banking Committee, finds that the gap between loans and deposits
precedes the regulations that were mostly implemented between
2012 and 2014. After controlling for other factors, he isolates a
market-competitive IOER rate as the cause of the lending-deposit
gap. 31
David Beckworth’s aforementioned research also controls for the
introduction of the Dodd-Frank liquidity coverage ratio (LCR),
which requires banks maintain a higher level of liquidity (i.e. more
safe assets that either are cash or can easily be converted into
cash). He finds that it does explain an increase in cash reserve

29

holdings (though only for large banks), but it does not explain the
decline in loan holdings. (This suggests that banks only substituted
holding Treasury securities to satisfy the LCR in favor of IOERearning reserves, and did not contract lending because of it.) He
concludes:
In short, the [difference between the IOER rate and
market interest rates] is found to be an important
causal determinant of cash share and loan share
held by commercial banks in the United
States…Specifically, [these results] strongly
suggest that it was the Fed’s [post-2008 operating
system] that radically changed the portfolios of
banks, starting in early 2009. 32
Notably, Canada is subject to the same Basel III regulatory
requirements as are embodied within the Dodd-Frank Act, but the
Bank of Canada’s supply of reserves to the Canadian banking
system increased only 50 percent between year-end 2007 and
2018. In comparison, the Federal Reserve’s supply of reserves was
over 11,200 percent higher. 33 This research and data suggest that
regulatory concerns are not binding the Federal Reserve to
maintaining its post-2008 operating system. 34
No Interbank Lending Market
Since the Federal Reserve’s current operating system began in late
2008, interbank lending has collapsed as Figure 2-6 illustrates.
(Indeed the Federal Reserve even discontinued publishing this
data series as of December 2017.) This is unfortunate because it
closes an avenue for market discipline. In particular, with
interbank loans, banks had an incentive to monitor one another’s
riskiness, and this was accounted for in the rates they would
negotiate to exchange funds. 35

30

Figure 2-6

Legal Concerns
The law stipulates that IOER be paid at “rates not to exceed the
general level of short-term interest rates.” 36 As Figure 2-7 shows,
this has not been the case during the 2010-2016 period, though this
situation was ameliorated somewhat with the better economic
outlook following the November 2016 election.

31

Figure 2-7

Additionally, in the January 30, 2019 statement cited above, the
Federal Reserve suggests its inclination to use changes in the
“composition” of its balance sheet should conditions warrant,
implying the Federal Reserve’s intent to use credit policy. 37 As
this involves the diversion of funds from the market at-large to
particular financial market segments, it is within Congress’s
purview.
Potential Impairment of Federal Reserve Independence
Before 2008, when changes in the Federal Reserve’s balance sheet
size had a powerful effect on aggregate demand (see Figure 2-2),
the Federal Reserve could resist political pressures to buy assets
because doing so would hinder its ability to achieve its statutory
mandate to maintain maximum employment and stable prices.
Now, with a market-competitive IOER rate, the Federal Reserve
can increase its balance sheet size without having an impact on
aggregate demand. This may open the Federal Reserve up to

32

demands for financing all manner of programs that would be
impossible to fund through taxation.
CONCLUSION
This chapter presented evidence that:
(1) Interest rates—considered a monetary policy instrument—
are unreliable for judging the stance of monetary policy.
(2) An alternative indicator that deserves more attention is
NGDP, which measures aggregate demand.
(3) Monetary policy was misdiagnosed as accommodative in
2008, when monetary conditions were becoming
extremely tight.
(4) IOER exacerbated the tightness of monetary conditions.
(5) The effectiveness of QE to influence aggregate demand
was blunted by IOER and the transitory design of the
programs.
In the 2011 Financial Crisis Inquiry Commission’s 662-page
report, none of these factors were considered. 38 Instead, the key
takeaway was that maintaining financial stability was an essential
prerequisite for economic stability. The 2010 Dodd-Frank Act,
though enacted before the Commission’s report was published,
also rests on this assumption.
A critical question is whether the Federal government is relying
too much on financial regulation to prevent the next crisis when
tight monetary conditions may have been an underappreciated
factor in the last one.
Congress mandates that the Federal Reserve maintain price
stability and maximum employment. How it implements monetary
policy to attain this “dual mandate” should be more clearly
communicated. To this end, the Federal Reserve System, under
Chairman Powell’s leadership, has scheduled a conference in June
2019 to enable stakeholders from outside the Federal Reserve to

33

offer comments and assessments of the Federal Reserve’s
monetary policy framework. 39
Scott Sumner (2018) 40 offers a proposal that involves the Federal
Reserve setting “specific quantifiable goals” for price stability and
maximum employment, or a metric that simultaneously embodies
both, over the upcoming year. After the year has elapsed and the
data becomes available, if the relevant metric(s) varied from the
pre-specified goal, the Federal Reserve would report to Congress
that monetary policy had been either too easy or too tight, and
would propose how it will rectify the deviation. This would make
it easier for the Federal Reserve to explain and justify corrective
measures. An enhanced public understanding and acceptance of
Federal Reserve corrective measures would enable less invasive
Federal Reserve interventions as markets would adjust their
behavior in advance.
For example, if NGDP growth were used as the metric, and if it
fell below the goal, then banks, anticipating corrective Federal
Reserve measures, would be less inclined to curtail lending to
hoard reserves, leading monetary conditions to ease and reducing
the need for more drastic Federal Reserve interventions.
Recommendations
 It is important for the Federal Reserve to explain how its
operating system (market-competitive IOER rate and large
balance sheet) enables it to achieve the “dual mandate.”
 The Federal Reserve considers the fact that inflation has
remained below the target rate a “mystery.” It is important
for the Federal Reserve to consider whether its operating
system may be the cause.

34

CHAPTER 3: HOW FAMILIES, WORKERS, AND THE
ECONOMY BENEFIT FROM THE TAX CUTS AND JOBS
ACT
INTRODUCTION
Will the Tax Cuts and Jobs Act (TCJA) foster long-term
sustainable growth or is it merely a “sugar rush” to the economy
that will dissipate quickly? Will economic gains translate into
higher wages for workers or will the benefits be concentrated
among a privileged few?
These were key questions explored by the Joint Economic
Committee (JEC) at a September 2018 hearing titled “The Positive
Economic Growth Effects of the Tax Cuts and Jobs Act.”41
Finding the answers requires a look at how tax policy in general
and TCJA in particular affect the building blocks of the economy,
as well as early evidence and long-term projections of the law’s
success.
HOW TAX POLICY AFFECTS ECONOMIC GROWTH
To operate at full potential, an economy needs its working-age
population in the workforce (labor supply); businesses willing and
able to equip workers with high-quality facilities, equipment,
technology, and know-how (capital investment); and all of these
employed in ways that empower workers to produce more per hour
(labor productivity). Tax policy can affect each of these factors
either positively or negatively.
The Joint Committee on Taxation (JCT) has noted that lower tax
rates paid by individuals allow them to keep more of the money
they earn, thus increasing their incentive to work. Similarly, lower
tax rates paid by businesses decrease the cost of capital, which

35

encourages companies to invest more in their business and
workers by purchasing equipment, upgrading technology or
facilities, or providing skills training, all of which make
employees more productive. 42 Higher productivity generally leads
to higher wages for workers. 43 Higher wages, in turn, may entice
more potential workers into the workforce, creating a virtuous
cycle of greater prosperity, opportunity, and growth.
Scott Hodge, President of the Tax Foundation, provided a useful
graphic in his JEC hearing testimony that shows the relationship
between lower business taxes and worker pay (Figure 3-1): 44
Figure 3-1

Tax policy can also hinder economic and wage growth. High
marginal tax rates on individuals discourage them from working
and increasing their earnings. High tax rates on businesses raise
the cost of capital, making it less feasible for companies to invest
in their business and workers. Additionally, tax rules for
equipment purchases that require businesses to deduct the
purchase price over many years under complicated depreciation
schedules—rather than allowing an immediate tax deduction for
the cost, known as expensing—discourage companies from
making the kind of investments that raise productivity, wages, and
economic growth.

36

As Mr. Hodge explained in his testimony:
Delaying deductions means the present value of the
write-offs (adjusted for inflation and the time value
of money) is worth less than the original cost,
sometimes worth much less. Delayed deductions
increase the cost of making an investment, which
results in less capital formation, lower productivity
and wages, and less output. 45
In addition, tax policy can have a direct impact on the location of
investments. If the domestic tax climate makes it less profitable to
invest in the United States, businesses have a powerful incentive
to invest in and even relocate to other countries with more
favorable tax systems. This diverts both capital and workforce
opportunities from the United States, further lowering our
Nation’s growth potential.
Mr. Hodge described how high corporate taxes can damage
growth due to the mobility of capital:
Evidence shows that of the different types of taxes,
the corporate income tax is the most harmful for
economic growth. One key reason that capital is so
sensitive to taxation is because capital is highly
mobile. For example, it is relatively easy for a
company to move its operations or choose to locate
its next investment in a lower-tax jurisdiction, but
it is more difficult for a worker to move his or her
family to get a lower tax bill. Capital is, therefore,
more responsive to tax changes; lowering the
corporate income tax rate reduces the amount of
economic harm it causes. 46
Mr. Hodge also explained why workers bear a substantial burden
of corporate taxes by earning lower wages:

37

A common misunderstanding is that corporations
bear the cost of the corporate income tax.
However, a growing body of economic literature
indicates that the true burden of the corporate
income is split between workers through lower
wages and owners of the corporation. As capital
moves away in response to high statutory
corporate income tax rates, productivity and wages
for the relatively immobile workers fall. Empirical
studies show that labor bears about half of the
burden of the corporate income tax. 47
In summary, a tax code that helps make America a more attractive
place to work, invest, and start or grow a business is a key
ingredient for stronger economic and wage growth.
HOW ECONOMY-WIDE EFFECTS OF TAX POLICY ARE
MODELED
Most economists who model major tax changes agree on the
general direction a particular tax policy will send the building
blocks of the economy in the short run—in other words, whether
a change will be pro-growth or anti-growth, and even whether one
change is more or less pro-growth than another. Where they differ
is on the degree to which the change will influence the economy,
and on whether other factors will temper or even reverse the
growth effects over time.
Several organizations have developed macroeconomic tax models
that attempt to predict future economic outcomes, each with
different assumptions and each with various strengths and
weaknesses. Some assume that the United States has a closed
economy, while others assume an open one where capital flows
easily across international borders. The models differ on factors
such as the degree to which individual or business taxpayers will

38

respond to changes, whether the Federal Reserve will act
aggressively to temper growth with interest rate hikes, or whether
higher interest costs for servicing Federal debt will “crowd out”
private investment. As such, each model can result in very
different predictions about a law’s precise impact on long-term
growth in GDP, employment, capital investment, and wages, as
well as how much additional Federal revenue might be generated
from extra growth in the economy.
JCT, the official tax scorekeeper of Congress, uses three different
models that it blends together to develop a single growth
projection.
The Taxes and Growth model developed by the Tax Foundation
focuses on how tax changes influence the supply of workers and
capital. The model places a greater emphasis on capital effects
because—as outlined earlier—capital is highly mobile and more
responsive to tax policy changes, and capital investment drives the
productivity gains that lead to long-term wage and economic
growth.
The models that project low growth effects from TCJA rely on
Keynesian assumptions that aggregate demand drives economic
activity, rather than the strength of the supply of economic
building blocks such as labor and capital. These assumptions
predict a short-term spurt in growth from the demand side of the
economy as consumers and businesses spend more due to the extra
dollars they have from tax relief. But over time, the story goes,
other factors such as accelerated inflation can act to offset the
additional spending. Such models also tend to downplay the
mobility of capital across borders, which limits the formation of
capital even when there are strong incentives to invest.
Mr. Hodge was skeptical of models that show a crowd-out of
private investment:

39

There is $20 trillion a year worth of savings
globally every year, and a little bit of deficit in the
United States is not going to crowd out and raise
interest rates on a global basis. 48
He also cautioned against raising taxes in order to reduce deficits,
citing a recent International Monetary Fund (IMF) study:
[The IMF study] looked across the globe at all of
the different countries that have cut their deficits at
one time or another through tax or spending
policies, and which ones did the most harm and
which ones did the most good. [The study] found
that cutting spending was the most beneficial for
both reducing the deficit and for economic growth;
whereas raising taxes did the most harm for
economic growth, which ended up being
counterproductive for trying to reduce the deficit. 49
In summary, economic modeling is not an exact science, and no
model can predict economic outcomes with absolute certainty.
The first thing to remember is that nearly every model finds TCJA
to be pro-growth. But most importantly, the takeaway is that TCJA
was not designed to be a short-term Keynesian stimulus. It was
designed to improve long-term incentives to work and invest so
that more Americans will be employed and have access to the tools
that will enable them to be more productive, leading to long-term
growth in their wages and the economy as a whole.
PRO-GROWTH PROVISIONS IN TCJA
Lower Individual Rates and Other Tax Relief
TCJA lowered individual tax rates; applied the lower rates to
broader swaths of income; nearly doubled the standard deduction
(essentially creating an expanded 0 percent tax bracket); and

40

doubled the child credit to $2,000 per child, while making more of
the credit refundable for low-income Americans without federal
income tax liability.
In its macroeconomic analysis of TCJA, JCT described how these
tax provisions combine to encourage potential workers on the
sidelines to join the workforce:
The significant reduction in marginal tax rates on
labor (resulting primarily from the additional tax
rate bracket, lower statutory rates for most
brackets, and the increase in the child credit)
provide strong incentives for an increase in labor
supply. 50
By allowing Americans to keep more of what they earn, TCJA
increases incentives to work. This is especially important because
workforce participation languished during the Obama-era portion
of the recovery, and though improving, it still remains below what
the Bureau of Labor Statistics (BLS) had projected before the
recession, even for workers in their prime working years (Figure
3-2).

41

Figure 3-2

Due to a lack of support from Democrats in Congress, TCJA could
only be enacted under complex budget reconciliation procedures,
which led to the expiration of TCJA provisions affecting
individuals after 2025. Essentially, JCT provided an economic
argument for extending the individual tax relief by noting:
After the sunset of the individual tax provisions, the
increase in employment is expected to decline. 51
The Myth of “Tax Cuts Only Benefit the Wealthy”
TCJA also increased the progressiveness of the tax code. While
TCJA is evenhanded by lowering taxes for all income groups,
during the time that TCJA provisions affecting individuals are in
effect, the new and lower overall tax burden will be borne more
heavily by taxpayers with incomes greater than $1 million. For
example, JCT estimated that in 2019, taxpayers with incomes over
$1 million will pay 19.8 percent of all Federal taxes, compared to
19.3 percent without TCJA. Conversely, under TCJA, taxpayers
with less than $50,000 in income will see their share of Federal

42

taxes in 2019 fall from 4.4 percent to 4.1 percent. 52 JCT also noted
that in 2019, Americans with incomes less than $50,000 will enjoy
the largest percentage cut in their taxes.
JCT indicated that this increased progressiveness of the tax code
under TCJA would eventually disappear, should a future Congress
decide not to renew the individual tax provisions, providing yet
another argument for extending them beyond 2025.
In addition to the tax relief that low- and middle-income
Americans will enjoy through 2025, data on falling unemployment
rates defy the critics who claim the current strong economy (made
possible by TCJA and regulatory reforms) is only benefiting a
privileged few. Employment opportunities have improved greatly
for Americans who tend to be most at risk in a weak economy. As
described in Chapter 1 of this Response, the unemployment rates
of minority populations hit milestone lows following enactment of
TCJA. Additionally, under the past two years and four months
since President Trump took office, the headline unemployment
rate fell faster for workers with limited education than it did during
the preceding two years and four months of the Obama
Administration. (Figure 3-3).

43

Figure 3-3

Lower Small Business Rates and the Pass-Through Deduction
Approximately 95 percent of companies are structured to pay taxes
at the individual level rather than corporate level; these are known
as pass-through businesses. 53 The vast majority of small
businesses are organized as pass-throughs, and are therefore very
sensitive to individual tax rates.
TCJA reversed part of the Obama-era tax increase on pass-through
businesses by lowering the top individual rate from 39.6 percent
to 37 percent. Additionally, TCJA provided a new deduction equal
to 20 percent of pass-through business income, with safeguards to
prevent abuse.
The combination of the lower statutory rate and the pass-through
deduction creates a top effective rate of 29.6 percent for most
small businesses, very near the top 28 percent rate (represented by

44

the top bar in Figure 3-4) established by the bipartisan Tax Reform
Act of 1986. 54
Figure 3-4

William Dunkelberg, the Chief Economist of the National
Federation of Independent Business (NFIB), was also a witness at
the September 2018 JEC hearing. NFIB is the largest trade
association representing small business owners and regularly
surveys its members to gauge the economic well-being, future
plans, and top concerns of the small business community. Dr.
Dunkelberg described the positive response of small business
owners to TCJA, with small business optimism at record highs:
The TCJA has made a significant contribution to
the growth of the economy, in terms of improving
the bottom lines of small firms but also changing
the metrics about the future value of investments. 55
Dr. Dunkelberg noted that three-fourths of small business owners
expected their business would benefit from tax reform, and this

45

was translating into plans to increase investment, worker pay, and
hiring:
Almost half (47 percent) of small business owners
who expect to pay less in taxes next year plan to
increase business investments with their tax
savings, and 44 percent plan to increase employee
compensation… Twenty-seven percent plan to hire
an additional employee… 56
Dr. Dunkelberg also noted that these plans of small business
owners do not simply reflect their belief in a short-term burst of
economic growth that will fade, but indicate expectations of longterm benefits:
All the decisions that small business owners make
are always about the future… So decisions they
are making now to spend and to hire are
commitments to the future, not just six months or a
year, but much longer than that, especially when
you look at the fact that we have a record high
number now saying it is a good time to expand their
business…
So we think they are very optimistic about the
future, not just the immediate future but long term.
They see a different set of policies that are
conducive to growth in the economy, and that are
encouraging them to do the kinds of things that will
raise worker productivity. And to go along with
that we have a record-high percentage who are
now
already
reporting
raising
worker
compensation. So as our workers become more
productive, we do pay them more. 57

46

Unfortunately, the pass-through deduction is scheduled to expire
after 2025, along with the other provisions in TCJA affecting the
individual side of the tax code. Dr. Dunkelberg warned against
allowing these provisions to expire:
The new tax law is a significant step forward in
easing one of the main concerns of small business
owners: the impact of federal taxes on business
income. For long term growth in the small business
sector, NFIB strongly urges Congress to make
these provisions permanent so that increasing
uncertainty over future changes to the tax code do
not erode the law’s benefits. 58
Indeed, the Tax Foundation estimated that making the individual
provisions (which include the pass-through deduction) permanent
would have a long-run impact of 2.2 percent higher GDP, a 0.9
percent increase in wages, and the equivalent of 1.5 million more
full-time jobs.
Faster Cost Recovery Through Expensing
As noted earlier, instead of allowing an immediate tax deduction
for the full cost of purchasing an asset (expensing), tax rules
generally required businesses to use complicated depreciation
schedules to deduct the cost gradually over many years, 59 which
discourages investment and dampens long-term wage growth.
In order to boost business investments and economic growth,
Congress has passed temporary extensions of bonus depreciation,
under which companies can deduct a large portion of the purchase
price in the first tax year. However, before TCJA, the extra portion
of investments that could be deducted immediately was scheduled
to decline from 50 percent in 2017, to 40 percent in 2018, and to
30 percent in 2019, after which it would disappear completely.

47

TCJA provides 100 percent bonus depreciation—which is
essentially expensing—for purchases made after Sept. 27, 2017,
through the end of 2022, after which it will phase down and
eventually disappear by 2027 (Figure 3-5). (Congressional and
Administration leaders had announced earlier that expensing
would be made retroactive to September so that businesses could
begin anticipating that change and make investment decisions at
the end of 2017 accordingly, even before TCJA became law.)
Figure 3-5

Because expensing is a powerful tool for encouraging new capital
investment, the Tax Foundation estimates that making expensing
permanent would generate a 0.9 percent increase in long-run GDP
over the decade, along with a 0.8 percent increase in wages and
the equivalent of 172,300 more full-time jobs. 60

48

Lower Corporate Tax Rates and a Territorial Tax System
Before TCJA, the tax code imposed substantial burdens on
American corporations competing in global markets on two fronts.
First, among the 34 advanced economies in the Organization for
Economic Co-operation and Development (OECD), the U.S.
corporate rate topped all others in 2017 at nearly 39 percent,
including both the 35 percent federal rate and average state taxes. 61
In addition, U.S. businesses were faced with an uncompetitive
worldwide tax system rather than a territorial system. Territorial
systems allow active business income earned overseas to be
brought back to the home country with little or no tax. In contrast,
America’s worldwide system subjected all income to U.S.
taxation, regardless of where it was earned. The tax was triggered
when profits were brought back to the United States, giving
companies a strong incentive to leave earnings overseas. This
created a lock-out effect, which resulted in reduced levels of
investment by American companies in the United States.
Figure 3-6 illustrates that as the corporate tax rates declined in 10
large economies in the OECD—all of which adopted territorial tax
systems—a larger share of the international income of U.S.
businesses was left offshore. 62 Unsurprisingly, the dip in earnings
that were left overseas in 2005 occurred due to a temporary tax
holiday that allowed businesses to repatriate their profits to the
United States at a much lower tax rate. 63

49

Figure 3-6

In order to prevent the loss of headquarters, jobs, and investment
to nations with more attractive tax systems, TCJA lowered
America’s federal corporate rate from 35 percent to 21 percent and
moved to a more territorial system. Figure 3-7, which incorporates
both national and average sub-national taxes in OECD countries,
illustrates how these two changes put America on a much more
competitive footing with other developed economies.

50

Figure 3-7

Additionally, TCJA included several provisions to limit the
artificial shift of U.S. profit to overseas locations. After analyzing
the full effect of these anti-abuse provisions, the corporate and
pass-through rate cuts, and new territorial system, JCT concluded
(bold emphasis added):
The provisions affecting taxation of foreign activity
are expected to reduce the incentive for this
“profit-shifting” activity… The macroeconomic
estimate projects an increase in investment in the
United States, both as a result of the proposals
directly affecting taxation of foreign source income
of U.S. multinational corporations, and from the
reduction in the after-tax cost of capital in the
United States due to more general reductions in
taxes on business income. 64
“Capital deepening” is a measure of the value of capital available
to workers per hour worked. As noted earlier, more capital raises
workers’ productivity, which in turn enables wage growth. During

51

the Obama-era recovery, capital deepening experienced a dramatic
deceleration (Figure 3-8).
Figure 3-8

Critics of TCJA claim that using the proceeds from lower
corporate tax rates for stock buybacks fails to help the economy or
workers. However, buybacks free up investment funds that can
then be redirected to companies that are expanding and making
investments that ultimately increase workers’ wages. 65 Also, more
than half of households own stock, and nearly 40 percent of U.S.
corporate stock is held in retirement accounts; consequently,
workers benefit from stock buybacks through higher stock prices
that boost their retirement savings. 66
PRO-FAMILY PROVISIONS IN TCJA
The JEC’s Social Capital Project has documented that
communities with strong families, a strong attachment to work,
and a strong associational life tend to experience better economic
outcomes. 67 TCJA included provisions addressing biases in the tax
code that discourage marriage and childbearing.

52

Expanded Marriage Penalty Relief
A “marriage penalty” occurs when tax rules result in higher tax
liability for a married couple than for two unmarried cohabitating
adults with the same economic profile.
In a simplified example, consider a tax system in which the first
$10,000 of a taxpayer’s income is taxed at a 10 percent rate, while
all income above $10,000 is taxed at a 20 percent rate. If two
unmarried adults each earned $8,000, each adult would pay $800
in taxes, or a total of $1,600 between the two of them. But if each
spouse of a married couple earned $8,000 and filed a joint tax
return, this would result in combined income of $16,000. The first
$10,000 of this would be taxed at a 10 percent rate ($1,000 in tax
liability), but the remaining $6,000 would be taxed at a 20 percent
rate ($1,200 in additional tax liability), for a combined total tax
liability of $2,200, which is $600 more than the amount owed by
the two unmarried adults in this example. This would act as a
financial disincentive to marry, and also a disincentive to work if
both spouses would otherwise choose to earn a paycheck.
In recent years, Congress has ameliorated the marriage penalty by
doubling the amount of taxable income that a married couple can
earn within a tax bracket compared to the amount allowed for a
single taxpayer, while making similar adjustments to other tax
provisions. However, before TCJA most tax brackets still
contained at least a partial marriage penalty (Table 3-1):

53

Table 3-1
Income
Range
(single)

Income
Range
(married
filing jointly)

10%

$0-$9,325

$0-$18,650

No

15%

$9,325$37.950

$18,651$75,900

No

25%

$37,951$91,900

$75,901$153,100

Yes

28%

$91,901$191,650

$153,101$233,350

Yes

33%

$191,651$416,700

$233,351$416,700

Yes

35%

$416,701$418,400

$416,701$470,700

Yes

$418,401 or
more

$470,701 or
more

Yes

2017 Tax
Rate
(before
TJCA)

39.6%

Marriage
penalty?

Source: IRS

Table 3-1 shows that under 2017 law, full marriage penalty relief
was only available within the 10 percent and 15 percent tax
brackets. Additionally, in a strange quirk, the starting point for the
income range of the 35 percent tax bracket was identical for single
taxpayers and married couples filing joint returns, while the
starting point of the 39.6 percent tax bracket was slightly more
generous for married taxpayers, indicating that the very highest
earners had greater access to at least partial marriage penalty relief
than those with less income.
Along with lowering individual tax rates, TCJA expanded the
range of income within tax brackets so that more married couples
would be eligible for full marriage penalty relief:

54

Table 3-2
Income
Range
(single)

Income
Range
(married
filing jointly)

10%

$0-$9,525

$0-$19,050

No

12%

$9,526$38,700

$19,051$77,400

No

22%

$38,701$82,500

$77,401$165,000

No

24%

$82,501$157,500

$165,001$315,000

No

32%

$157,501$200,000

$315,001$400,000

No

35%

$200,001$500,000

$400,001$600,000

Yes

37%

$500,001 or
more

$600,001 or
more

Yes

2018 Tax
Rate (after
TCJA)

Marriage
penalty?

Source: IRS

After TCJA, taxpayers with household incomes less than $400,000
are eligible for full marriage penalty relief, while those with higher
incomes are eligible for at least partial relief from the marriage
penalty (Table 3-2). Like other provisions in TCJA affecting the
individual side of the tax code, this treatment will expire after 2025
unless Congress and the Administration act to extend or make the
provisions permanent.
Expanded Child Tax Credit
As mentioned earlier, TCJA doubled the value of the child tax
credit from $1,000 to $2,000 per child. In addition, TCJA
increased the refundable portion of the child credit to $1,400 and

55

indexed this amount to inflation, so that the refundable portion will
eventually grow to match the full value of the underlying $2,000
credit. (“Refundable” means that it is not necessary to have federal
income tax liability against which to take the credit; this tends to
provide low-income taxpayers who have less tax liability greater
access to the credit.)
The refundable portion of the child credit, known as the Additional
Child Tax Credit (ACTC), contains a work incentive because
taxpayers must earn a certain amount of income from work in
order to claim the ACTC. First, taxpayers must have earned at least
$3,000 in order to be eligible for the ACTC; second, taxpayers can
only claim 15 percent of their earned income above $3,000 as
refundable. Thus, a taxpayer with one child who earned just
$2,000 from work would not qualify for the ACTC (though
taxpayers still qualify for the underlying child credit to the extent
they have tax liability); a taxpayer with $4,000 in earned income
could qualify for a $150 ACTC ($4,000 - $3,000 = $1,000; $1,000
x 15% = $150), while a taxpayer who earned $12,334 or more
from work would be eligible for the full $1,400 ACTC amount.
In addition to increasing the underlying amount of the child credit
and ACTC, TCJA expanded eligibility for the child credit to more
families and eliminated a marriage penalty within the credit.
Under previous law, single taxpayers with adjusted gross income
above $75,000 would begin losing the credit in $50 increments for
each $1,000 in income above that threshold. For married couples
filing joint returns, the phase-out threshold was $115,000, which
was not double the amount available for single taxpayers and
therefore constituted a partial marriage penalty.
TCJA raised the phase-out threshold to $200,000 for single
taxpayers and $400,000 for married couples, which not only
increased access to the credit and ended the marriage penalty, but
also provided greater simplicity by eliminating the need for most

56

middle-income households to make complex calculations of the
credit amount.
Other Family-Based Tax Provisions
In addition to expanding the child tax credit, TCJA also created a
non-refundable tax credit of $500 for dependents who do not
qualify for the child credit, which could include family members
with disabilities or older children (the child credit is only available
for children under the age of 17). Additionally, TJCA retained tax
credits for expenses related to adoption and child care. TCJA also
instituted the first-ever tax credit for employers who provide paid
family and medical leave to low- and middle-income workers.
Additional Progress Needed on the Alternative Minimum Tax
The Alternative Minimum Tax (AMT) operates as a parallel tax
system that requires Americans to calculate their tax burden under
two separate structures. The AMT tended to ensnare taxpayers
with many children, a second mortgage, high State taxes, or who
otherwise claim various tax benefits. AMT taxpayers must then
recalculate their taxes under a different set of rules, usually
resulting in paying much higher taxes. 68
The AMT was originally inspired by 1969 testimony of the thenTreasury Secretary to the Joint Economic Committee that 155
affluent individuals paid no income tax. 69 Yet, instead of targeting
the ultra-wealthy the AMT hit over 4.6 million taxpayers during
the 2017 tax filing season, including thousands of Americans with
incomes of less than $15,000. 70 Over 10 million taxpayers in the
same year had to use complicated calculations on a separate form
to determine whether AMT might apply, and millions more had to
do other calculations to see whether they were required to fill out
that form. 71

57

Earlier versions of TCJA had proposed fully eliminating the AMT
for individuals, but the final version simply increased the amount
of income that is exempt from AMT. Under 2017 law, the first
$54,300 in income calculated under the AMT rules was exempt
from AMT for single taxpayers, while the exemption was $84,500
for married taxpayers filing a joint return. (Again, because the
exemption for married taxpayers was not double the amount
available for single taxpayers, the exemption contained a marriage
penalty.) Taxpayers would begin losing the exemption once their
income (calculated under the AMT rules) reached $120,700 for
single taxpayers and $160,900 for married couples filing jointly,
which also resulted in a marriage penalty.
TCJA increased the exemption amounts to $70,300 for single
taxpayers and $109,400 for married couples. Further, it increased
the levels of income at which the exemption begins to phase out
to $500,000 for single taxpayers and $1 million for married
couples. Thus, while it eliminated the marriage penalty in the
income thresholds at which the exemption begins to phase out,
TCJA did not completely eliminate the marriage penalty within
the exemption amount itself.
Although increasing the exemption amounts for both single and
married taxpayers provided additional monetary relief from the
AMT, this did not lift the complexity burden for taxpayers who
will still have to determine whether they owe AMT, nor did it fully
eliminate the AMT marriage penalty.
“ARE WE THERE YET?”
Since TCJA was signed into law on December 22, 2017, real GDP
grew 3.0 percent in 2018—a rate that critics previously believed
was no longer possible. Unemployment is near historic lows,
almost 2.7 million new jobs were created in 2018, and job
openings are near historic highs.

58

Workers are seeing higher paychecks with fewer taxes withheld,
and there are also encouraging signs of rising wages, salaries, and
benefits. In January, private-sector pay and benefits grew at the
fastest rate since 2008. And importantly, inflation has remained
low.
Figure 3-10

But for those still impatient with the rate of progress, Mr. Hodge
offered these words at the JEC hearing:
Politics demand results now and spectators are
eager to pass an early judgment of the new law, but
unfortunately, tax reform and economic growth do
not do their work within a news cycle. In fact, the
current debate resembles a long car ride with your
kids. An hour into the ride they kick the back of
your seat and demand to know, “Are we there
yet?” But these things take time and patience. 72

59

And for those who expect only a short burst of growth from the
demand side of the economy, Mr. Hodge explained:
The Tax Cuts and Jobs Act was designed to do
more; to improve incentives in the economy,
encouraging taxpayers to work more, save more,
and invest more over the long term. Lowering taxes
on capital and labor is expected to boost
productivity, wages, and the size of the economy. 73
The Tax Foundation model finds that over the long run, TCJA will
result in GDP that is 1.7 percent larger, 1.5 percent higher wages,
a 4.8 percent larger supply of capital, the equivalent of 339,000
additional jobs, and—as noted earlier—far more growth in all of
these if the individual and expensing provisions of TCJA are made
permanent. 74
CBO also validated the pro-growth aspects of TCJA in several
passages of its August 2018 economic outlook for 2018-2028
(bold emphasis added):
The lower marginal income tax rates that will be in
place for much of the projection period will
encourage workers to work more hours and
businesses to increase investment in productive
capital, thereby raising potential output over the
entire projection period. 75
Although the growth of potential output is
determined primarily by long-run forces (such as
trends in population growth, the labor force
participation rate, and productivity), the
acceleration of that growth over the next few
years in CBO’s forecast is also driven by the
2017 tax act, which according to the agency’s
estimates, boosts investment (and therefore labor

60

productivity) and labor supply and thus increases
the economy’s underlying productive capacity. 76
In later years, as many temporary provisions of the
2017 tax act phase out or expire, growth of actual
GDP falls below the growth of potential output in
CBO’s projections, but the law’s total effect on the
levels of investment, employment, and output
remains positive through 2028. 77
CONCLUSION
TCJA made important improvements in incentives to work and
invest, which lead to higher productivity and ultimately higher
long-term wage growth, employment, and economic growth.
TCJA also made progress in eliminating the marriage penalty in
several areas of the tax code and making the cost of raising
children more affordable.
While the short-term economic indicators are very encouraging,
they only provide early signs that the long-term incentives are
starting to work. It will take time for TCJA to have its full effect.
It is also important to remember that while tax policy is an
important factor, it is not the only factor influencing the economy.
Trade and other fiscal policy, monetary policy, and numerous
factors beyond the control of policy-makers can affect the
economy. However, the incentives in TCJA lay a solid foundation
for the levers that drive wage and economic growth, which should
help the economy better withstand any challenges ahead.
Congress should continue to improve the tax code to meet the
ever-changing challenges of a global economy and produce even
stronger growth and expanded opportunities for American
workers and families.

61

Recommendations
The JEC Chairman’s staff recommends that Congress and the
Administration:
 Make permanent TCJA reforms to the individual side of
the tax code that would otherwise expire in 2025, including
individual tax relief and the pass-through deduction;
 Make the expensing provisions in TCJA permanent;
 Repeal the individual AMT, or at the very least, eliminate
the marriage penalty in the AMT exemption amount;
 Examine and reform other provisions in the tax code that
penalize marriage or discourage work; and
 Continue to evaluate the provisions in TCJA affecting
taxation of activity in foreign markets to ensure the
reforms are having their intended effect of increasing
investment in the United States.

62

CHAPTER 4: DEREGULATION
INTRODUCTION
As discussed in Chapter 2 of the Report, the current
Administration has made deregulation a priority, with the explicit
intent of promoting innovation and economic growth. Last year’s
Report noted that in the Administration’s first eight months, 67
deregulatory actions and only 3 regulatory actions were issued. 78
This deregulatory agenda can also be seen in the data collected by
RegData, 79 a project that attempts to quantify regulation by
counting the number of restrictive words used in regulatory text.
From 2016 to 2017, the year-to-year increase in the number of
restrictive words used was 2,239 words, while from 2009 to 2016,
the average annual increase in the number of restrictive words
used was nearly 14,957 words. 80
More recently, the Administration developed a “regulatory
budget,” under which agencies were directed to achieve certain
levels of savings. According to the American Action Forum, the
total regulatory savings achieved in Fiscal Year 2018 was over
$1.65 billion, exceeding the Administration’s target by roughly $1
billion.81
One of the reasons a deregulation agenda is an important national
priority is that it could remove unnecessary barriers to innovation,
a topic the Committee studied intensively in 2018.
THE LINK BETWEEN INNOVATION AND ECONOMIC GROWTH
Economists have long recognized that innovation is a key driver
of economic growth. 82 Although innovation is not a sufficient
condition for economic progress, it is a necessary one. The

63

economy can grow with more labor and capital inputs but is
confined by the ways in which these inputs are put to use, and
eventually runs into diminishing returns. Paul Romer, the 2018
Nobel laureate in economics, argues that technological progress is
an integral driver of economic growth by demonstrating that it
increases the efficiency of inputs used to produce output, and by
showing that technological progress simultaneously increases the
marginal productivity of workers in the labor force, leading to
higher economic growth. 83
Productivity growth in the United States has slowed and the
reasons are not entirely clear. Given the importance of innovation
for productivity and economic growth, the Joint Economic
Committee held three hearings in 2018 on the subject, one of
which explored the effect of regulation on innovation.
In the first Committee hearing on the link between innovation and
economic growth 84, Dr. Michael Strain, Director of Economic
Policy Studies at the American Enterprise Institute, confirmed the
strong relationship between innovation and growth in his
testimony:
Economic output is a function of economic inputs.
The growth rate of output, therefore, is determined
by how quickly capital and labor grow, along with
technology and the skill and knowledge with which
factors of production are employed. Especially
over longer time horizons, the most important
driver of growth is innovation. And fundamentally,
innovation is driven by letting loose the creative
power of individuals to invent new and better ways
of producing goods and services and, of course,
new goods and services themselves. 85

64

Dr. Strain’s point of view was echoed by another witness, Mr.
Mark Mills, Senior Fellow at the Manhattan Institute, who stated
that, “the closest economists get to having a law of physics is in
the truism that increasing productivity is the primary force driving
economic growth.” 86
REGULATION REDUCES INNOVATION
Recent empirical work conducted by Bailey and Thomas 87 found
that regulation reduces economic growth by reducing incentives
to innovate. The authors showed that regulation has a direct
negative effect on entrepreneurship and employment. Using data
on U.S. federal regulations and on firm births and employment
from 1998 to 2011, the authors concluded that more heavily
regulated industries had fewer firm births and less employment
growth over the time period examined.
Furthermore, Joel Mokyr wrote about the intimate link between
regulation and innovation, explaining that because of an innate
distaste for and fear of change, societies may err on the side of
overregulation and may stifle possible progress. In spite of this
tendency, Mokyr insisted that greater economic freedom is needed
for progress, emphasizing that, “[w]hat is needed for technological
change is a system in which people are free to experiment and reap
the fruits of their success if their experiment works.” He also
stressed that while some regulation is necessary to avoid total
chaos, “systems…that are too conservative will end up in stasis.”88
The second 89 and third 90 hearings held by the JEC further affirmed
that while innovation is key to economic progress, regulation is
inimical to it. Mr. Christopher Koopman, Senior Director of Utah
State University’s Center for Growth and Opportunity, testifying
at the JEC’s hearing on “Breaking through the Regulatory Barrier:
What Red Tape Means for the Innovation Economy,” reported that
the local, State, and Federal regulations that have accumulated are

65

not just stifling innovation in the U.S. but driving innovation
overseas where the regulatory climate may be less oppressive. 91
Corroborating this statement, Bloomberg reported that the U.S.
dropped out of the top ten in its 2018 Innovation Index, suggesting
that other countries are becoming more innovative and that the
U.S. may be lagging behind. 92
During the same hearing, Mr. Scott Brinkman, Secretary of
Kentucky Governor Bevin’s Executive Cabinet, described how
efforts to reform regulation in Kentucky have helped revitalize the
State’s economy. Mr. Brinkman explained how the Governor’s
“Red Tape Reduction Initiative” repealed irrelevant regulations,
while amending and modernizing others to make them simpler and
less strict. According to Mr. Brinkman, the purpose of the
initiative was to foster technological and engineering innovation,
and the positive results indicate that regulations that had been in
place were indeed holding back innovation; since the Red Tape
Reduction Initiative began, unemployment has decreased, labor
force participation has increased, and private investments in
upgrading technology have increased. 93
Financial Regulation Limits Capital Access
In the Committee’s third innovation hearing, “The Innovation
Economy, Entrepreneurship, and Barriers to Capital Access,”
witnesses pinpointed how financial regulation in particular can
impede innovation by making it more difficult for innovators to
gain access to capital. As Mr. Phil Mackintosh, Global Head of
Economic Research at Nasdaq, and Ms. Rachel King, CEO of
GlycoMimetics, discussed in their testimonies before the
Committee, financial regulations can be particularly harmful by
creating barriers to capital access that can reduce innovation. Mr.
Mackintosh focused on how financial regulations such as the
Sarbanes-Oxley Act have played a significant role in the decline

66

in public listings. As Mr. Mackintosh noted, this is harmful to the
U.S. because public companies are important to investors who
represent millions of everyday Americans. 94 In her testimony, Ms.
King focused on the obstacles faced by biotech companies that
often go public as emerging growth companies (EGCs). She
advocated extending the current smaller-company exemptions
from Sarbanes-Oxley Section 404b, explaining that for biotech
companies in particular, it takes years to develop a product and
during that time companies are not earning revenue. Ms. King
argued that forcing companies to bear the full cost of compliance
while still at the product-development stage may be
counterproductive. 95
Dodd-Frank Act
After the Great Recession of 2008, a Democrat-controlled
Congress passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, which imposed stringent
regulations on financial institutions. Unsurprisingly, the law had
some unintended and harmful consequences. For example, not
distinguishing appropriately between large and small banks
ensnared small local banks in constraints that were much more
damaging because of their relative size. 96 Large banks became
even larger, with greater consolidation in the banking industry,
and community banks that may have been more likely to lend to
entrepreneurs in their area found it more difficult to do so. In this
way, Dodd-Frank may have reduced innovation and economic
growth.
Legislation enacted in 2018, the Economic Growth, Regulatory
Relief, and Consumer Protection Act (EGRRCPA), 97 eased
regulations and reduced oversight for smaller banks with assets
less than $250 billion (up from $50 billion). The law also exempts
banks with assets less than $10 billion from the Volcker Rule

67

(discussed below). The new law requires the Federal Reserve to
abandon the “one-size-fits-all” approach of regulating financial
institutions and to take into account the size of the banks being
regulated. These changes are likely to increase the availability of
capital for new tech companies.
Volcker Rule
The Volcker Rule, an element of Dodd-Frank, restricts U.S. banks
from making speculative investments, which extends to venture
capital investments. Thus, a bank cannot invest in a venture fund.
Since venture funds are becoming an increasingly important
source of capital for tech startups, 98 the Volcker Rule has had a
negative impact on both venture capital investment and startups.
While EGRRCPA relaxed requirements for banks subject to this
rule, its negative effects are still felt by many banking institutions.
As Bobby Franklin, CEO of the National Venture Capital
Association (NVCA), wrote in a letter to Congress in March 2017:
Without modifications, the Volcker Rule will stand
in the way of interested investors deploying capital
to venture capital funds across the country who can
use that capital to support growth of the next
generation of innovative American companies. 99
The Volcker Rule was put in place to protect depositors’ money.
However, as the U.S. Chamber of Commerce has noted, 100 a costbenefit analysis was not conducted at the time it became law,
which suggests the negative consequences were not properly
considered and weighed against the potential benefits. The
Treasury Department has also advocated major changes to the
law. 101 For example, Treasury recommends completely exempting
banks with less than $10 billion in assets because these banks are
too small to pose a significant risk to the financial system. 102

68

Sarbanes-Oxley Act
In 2002, Congress passed the Public Company Accounting Reform
and Investor Protection Act (Sarbanes-Oxley Act). This law was
enacted in response to an increase in corporate and accounting
fraud in the early 2000s. Major companies such as Enron, Tyco,
and Worldcom were embroiled in scandals that shook public
confidence and resulted in a call for strict measures to ensure that
public companies are conducting reliable financial accounting and
complying with the law. To achieve this goal, the Sarbanes-Oxley
Act imposed a number of stringent regulations on public
companies. The law’s two most “radical, ongoing, and potentially
onerous compliance obligations” 103 are contained in sections 302
and 404.
•

•

Section 302 established corporate responsibility for the
accuracy of financial reporting. Hence, the law holds the
CEO and CFO of a company responsible, which means
that they are held accountable for any irregularities. 104
Section 404 mandates that a public company’s
management and auditors provide an “internal control
report” each year. This process involves much time and
paperwork, and it can be very costly, as it diverts
management time and company resources toward
managing red tape rather than product improvement.

The goal of the Sarbanes-Oxley Act was to improve the reliability
of financial reporting and increase transparency. However, the law
has also had harmful effects, particularly in discouraging firms
from going public, which restricts an important channel for
financing potential innovative products and ideas.
In the recent past, going public would be seen as desirable because
it helps the valuation of a company and allows early investors to

69

recover their investment. Accessing public markets seemed to be
the best way of getting capital. Today, however, fewer companies
are going public. Sarbanes-Oxley has probably played a role by
imposing significant regulatory burdens and high compliance
costs on public companies.
Sarbanes-Oxley likely plays a role in pushing companies away
from exchanges in the U.S. and driving them overseas where
regulations are lighter. In addition, there is evidence that financial
regulation may be particularly damaging for smaller firms. A
study by Piotroski and Srinivasan 105 examined the effect of
Sarbanes-Oxley on foreign companies’ decision to go public on a
U.S. or U.K. exchange, using a sample of companies listed in the
U.S. and in the U.K. from 1995 to 2006. The authors found no
significant differences in listing preferences for large foreign
firms. However, for small firms, they found that Sarbanes-Oxley
had a negative effect on going public. This result suggests that
while large companies may more easily absorb the costs imposed
by Sarbanes-Oxley and may not be easily deterred from going
public in spite of the onerous regulations involved, smaller
companies experience difficulties in doing so. In other words, for
startups seeking access to capital, the compliance costs of going
public may be too high to overcome, and this once-surefire method
of raising capital may be closed to many entrepreneurs starting
new businesses.
DEREGULATION GROWS THE ECONOMY
Supporting innovation is key to economic progress in the coming
years. In his testimony, Dr. Harold Furchtgott-Roth, Director of
the Center for the Economics of the Internet at the Hudson
Institute, who testified in the Committee’s first innovation hearing,
set forth three basic principles for a robust technology sector. 106

70

•

•

•

Property rights – Strong property rights provide incentives
to innovate. Dr. Furchtgott-Roth
attributes much of
the success of the American software industry to strong
U.S. intellectual property laws.
Light regulatory approach – Government regulation can
substantially delay the development and dissemination of
new technologies. Dr. Furchtgott-Roth cited the case of
cellular technology; the first application dated back to the
1950s but it was then held up for 30 years by regulation.
Market competition – What is true for the supply of
familiar goods and services also applies to new
technologies; in competition the best tend to succeed, costs
and prices tend to decline, and choices for customers tend
to increase.

Recent reform efforts have attempted to address the problem of
inadequate access to capital for new businesses and innovators. In
July of 2018, the House passed the bipartisan JOBS and Investor
Confidence Act of 2018, which was intended to further ease
regulations on small businesses. The bill focused particularly on
helping businesses raise capital and go public. Specifically, the bill
would ease regulations on angel investors and expand the
definition of “accredited investors,” which makes it easier for
investors to invest in startups. Also, the bill expanded onramp
exemptions for emerging growth companies, giving them more
time to prepare for the costs of going public.
Committee Chairman Lee has contributed to recent deregulatory
efforts by promoting legislation that would ease regulations. For
example, Chairman Lee cosponsored the Executive in Need of
Scrutiny Act (S.21) which was introduced in the previous
Congress. This bill would revise the congressional approval
procedure for “major” rules. This includes rules that would result

71

in an annual effect of $100 million or more on the economy, rules
that would increase costs for consumers, individual industries, or
government agencies, and rules that could have a strong negative
impact on competition (both in domestic and foreign markets),
employment, investment, productivity, and innovation. 107
CONCLUSION
The current Administration and Congress have already made
progress in pro-growth reforms to regulation. Recent strong
economic growth and the record number of job openings in the
economy suggest that these efforts are paying off. Continuing this
progress will require avoiding overly prescriptive regulation and
protecting the economic freedom that encourages growth-driving
innovation.
Recommendations
Based on the advice presented by Dr. Joseph Kennedy 108, Senior
Fellow at the Information Technology and Innovation Foundation,
at the Committee’s hearing on “Breaking through the Regulatory
Barrier,” and the advice of other expert witnesses, we encourage
the Administration and Congress to support innovation by
reassessing and reforming regulations, while taking into account
the following general principles:
 Write rules to anticipate and encourage innovation;
 Make the regulatory process more transparent to regulated
entities and the general public;
 Place more trust in consumers who, given sufficient
information, will make the best decisions for themselves;

72

 Actively seek ways to reduce the cost of complying with
regulations;
 Use quantitatively-backed studies (as much as possible) to
conduct a cost-benefit analysis on every major rule being
implemented; and
 Focus on competition and avoid rigid regulations that
reduce the U.S. competitive advantage.

73

ENDNOTES
1
Congressional Budget Office. An Update to the Budget and Economic Outlook: 2016
to
2026.
Congressional
Budget
Office,
August
2016,
p.
88,
https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/519082016outlookupdateonecol-2.pdf
2 See: Dupraz, S., Nakamura, E., and Steinsson, J. “A Plucking Model of Business
Cycles.”
Working
Paper,
December
20,
2018,
pp.
8-9,
http://www.stephaneduprazecon.com/Plucking.pdf; Bordo, Michael D. and Haubrich,
Joseph G. “Deep Recessions, Fast Recoveries, and Financial Crises: Evidence from the
American Record.” NBER Working Paper No. 18194, June 2012, pp. 11-12,
https://www.nber.org/papers/w18194.pdf; Friedman, Milton. “The ‘Plucking Model’ of
Business Fluctuations Revisited.” Economic Inquiry, Western Economic Association
International, vol. 31(2), pp. 171-77, April 1993.
3 Pethokoukis, James. “Oval Office economics: A long-read Q&A with top Obama
adviser Jason Furman.” American Enterprise Institute, May 4, 2018,
http://www.aei.org/publication/oval-office-economics-a-long-read-qa-with-jasonfurman/
4 “Robert E. Lucas Jr. – Biographical.” NobelPrize.org, Nobel Media AB 2019, February
https://www.nobelprize.org/prizes/economic12,
2019,
sciences/1995/lucas/biographical/
5 Figure 1-7 methodology: The BLS’s Employment Cost Index (ECI) for private industry
wages and salaries is used as it is less sensitive to changes in the composition of the
workforce. The Dallas Federal Reserve Bank’s 12-month trimmed mean personal
consumption expenditures (PCE) is used to adjust for inflation as it better measures the
trend value of inflation. See Schibuola, Alexander. “The Rise of American Wages and
Incomes.” Republican Staff Study, Joint Economic Committee, October 25, 2018, pp. 2https://www.jec.senate.gov/public/_cache/files/480f3fb2-938f-48be-9f346,
54e537cecb26/american-wages-and-incomes.pdf
6 Congressional Budget Office. The Budget and Economic Outlook: 2019 to 2029.
Congressional
Budget
Office,
January
2019,
p.
55,
https://www.cbo.gov/system/files?file=2019-01/54918-Outlook.pdf
7 BLS’s U-3 rate measures those without jobs who have actively searched for work in
the last four weeks as a proportion of the labor force.
8 The inflation expectations measure referenced here and in Figure 1-9 is the 5-Year
Treasury Breakeven Inflation Rate as calculated by the Treasury Department. Details of
this estimation and its benefits relative to the “TIPS Spread” can be found in Girola,
James A. “The Treasury Real Yield Curve and Breakeven Inflation.” Treasury.gov, July
https://www.treasury.gov/resource-center/economic-policy/corp-bond21,
2015,
yield/Documents/tii_may2015.pdf
9 The Federal Reserve’s Federal Open Market Committee’s (FOMC) December 2015
Summary of Economic Projections, indicated that the median projection was for the
federal funds rate to rise from 0.4 percent to 1.4 percent by year-end 2016. As the FOMC
generally increases (or decreases) the fed funds rate in 25 basis point increments, this
would amount to four expected rate hikes in 2016.
10 The term “aggregate demand” in this chapter is defined as the combinations of price
level and real GDP that are consistent with a given level of nominal spending, i.e. NGDP.
(Or, dynamically, the growth rate of aggregate demand is the combinations of inflation
rate and real GDP growth rate consistent with a given rate of nominal spending growth,

74

i.e., NGDP growth rate.) It should not be identified as the equivalent of the Keynesian
theory of aggregate demand.
11 Ben Bernanke:
Let me end my talk by abusing slightly my status as an official
representative of the Federal Reserve. I would like to say to Milton
and Anna: Regarding the Great Depression. You're right, we did it.
We're very sorry. But thanks to you, we won't do it again.
Bernanke, Ben S. “On Milton Friedman’s Ninetieth Birthday.” Remarks by Governor
Ben S. Bernanke at the Conference to Honor Milton Friedman, Chicago Illinois. The
Federal
Reserve
Board,
November
8,
2002,
https://www.federalreserve.gov/boarddocs/speeches/2002/20021108/
12 Friedman, Milton. “Rx for Japan: Back to the Future.” The Wall Street Journal,
December 17, 1997. https://www.wsj.com/articles/SB882308822323941500
13 Scott Sumner:
I have some sympathy for the NeoFisherian view, if only as a rebuke
to conventional assumptions that low interest rates represent “easy
money.” Unfortunately, both conventional economists and their
NeoFisherian critics are “reasoning from a price change”, that is,
drawing inappropriate conclusions about the current stance of
monetary policy, based on the level or change in nominal interest
rates. In fact, very low interest rates are likely to lead to higher
inflation if caused by an easy money policy, and they are likely to
lead to lower inflation if caused by a tight money policy. And which
outcome actually does occur depends on what else the central bank
does when it changes interest rates.
As with the Keynesian view of monetary policy, the problem comes
from looking at the stance of monetary policy in terms of interest
rates, which are an outcome of policy. This error is analogous to
trying to discern the impact of plunging oil prices on oil
consumption, without first establishing whether the lower oil prices
are due to less demand or more supply.
Sumner, Scott. “Monetary policy rules in light of the great recession.” Journal of
Macroeconomics, Vol. 54, Part A, December 2017, p. 92.
14 Bernanke, Ben S. “Remarks by Governor Ben S. Bernanke At the Federal Reserve
Bank of Dallas Conference on the Legacy of Milton and Rose Friedman's Free to
Choose.”
Dallas,
Texas,
October
24,
2003,
https://www.federalreserve.gov/boarddocs/speeches/2003/20031024/default.htm
15 It is also possible that an increased conversion of bank deposits into currency can
produce a similar effect.
16 As Frederic Mishkin, former Vice Chairman of the Federal Reserve noted in
September 2008:
If the monetary authorities react to headline inflation numbers, they
run the risk of making serious policy mistakes. We have seen that
headline inflation has risen well above its underlying trend as the
price of energy has risen. But with energy prices having fallen, it
will soon fall back to or below its underlying trend. A tightening of
monetary policy in reaction to the rise in headline inflation would
lead to a decline in employment and inflation.
Mishkin, Frederic S. “Don’t Worry About Inflation.” The Wall Street Journal,
September 18, 2008, https://www.wsj.com/articles/SB122169336538749851

75

The inflation expectations measure referenced here and in Figure 2-3 is the 1-Year
Treasury Breakeven Inflation Rate as calculated by the Treasury Department. Details of
this estimation and its benefits relative to the “TIPS Spread” can be found in Girola,
James A. “The Treasury Real Yield Curve and Breakeven Inflation.” Treasury.gov, July
https://www.treasury.gov/resource-center/economic-policy/corp-bond21,
2015,
yield/Documents/tii_may2015.pdf
18 Federal Reserve statement:
The Federal Open Market Committee decided today to keep its
target for the federal funds rate at 2 percent…Inflation has been
high, spurred by the earlier increases in the prices of energy and
some other commodities…The Committee expects inflation to
moderate later this year and next year, but the inflation outlook
remains highly uncertain…The downside risks to growth and the
upside risks to inflation are both of significant concern to the
Committee.
“FOMC Statement.” Board of Governors of the Federal Reserve System, September 16,
2008,
https://www.federalreserve.gov/newsevents/pressreleases/monetary20080916a.htm
19 For further details on this episode refer to the 2018 Joint Economic Report, pp. 52-65,
https://www.jec.senate.gov/public/_cache/files/7faf912a-0fd2-4a92-bba4e41c2c1f8e93/2018-joint-economic-committee-response.pdf
20 Federal Reserve statement:
The payment of interest on excess reserves will permit the Federal
Reserve to expand its balance sheet as necessary to provide the
liquidity necessary to support financial stability [credit policies]
while implementing the monetary policy that is appropriate [a tight
monetary policy] in light of the System's macroeconomic objectives
of maximum employment and price stability.
“Board announces that it will begin to pay interest on depository institutions’ required
and excess reserve balances.” Board of Governors of the Federal Reserve System,
October
6,
2008,
https://www.federalreserve.gov/newsevents/pressreleases/monetary20081006a.htm
See also Ben Bernanke’s memoirs:
[By] setting the interest rate we paid on reserves high enough, we
could prevent the federal funds rate from falling too low, no matter
how much [emergency] lending we did.
Bernanke, Ben S, The Courage to Act, W.W. Norton, New York, NY, 2015, pp. 325–6.
See also Federal Reserve August 5, 2008 Federal Open Market Committee transcripts.
William Dudley, then-Manager of the System Open Market Account of the Federal
Reserve Bank of New York, stated:
…we continue to press for legislation that would accelerate the
timing of the Federal Reserve’s authority to pay interest on reserves.
Being able to pay interest on reserves would put a floor under the
federal funds rate. In this case, an inability to drain additional
reserves from the banking system would not result in the federal
funds rate collapsing toward zero.
“Meeting of the Federal Open Market Committee on August 5, 2008.” Board of
Governors of the Federal Reserve System, January 2013, p. 8,
https://www.federalreserve.gov/monetarypolicy/files/FOMC20080805meeting.pdf
21 Selgin, George. Floored! How a Misguided Fed Experiment Deepened and Prolonged
the Great Recession. Cato Institute, October 2018, pp. 164-65.
17

76

22 Beckworth, David. “Permanent versus temporary monetary base Injections:
Implications for past and future Fed Policy.” Journal of Macroeconomics, Vol. 54, Part
A, December 2017, p. 111.
23 As reported by the Board of Governors of the Federal Reserve System for December
2018.
24 “FOMC issues addendum to the Policy Normalization Principles and Plans.” Board of
Governors
of
the
Federal
Reserve
System,
June
14,
2017,
https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614c.htm
25 “Statement Regarding Monetary Policy Implementation and Balance Sheet
Normalization.” Board of Governors of the Federal Reserve System, January 30, 2019,
https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm
26 Michel, Norbert. “Does the Fed Funds Rate Still Matter?” Forbes, October 17, 2017,
https://www.forbes.com/sites/norbertmichel/2017/10/17/does-the-fed-funds-rate-stillmatter/#7efa5ffd7fdf
27 Gramm, Phil and Saving, Thomas R. “The Fed’s Obama-Era Hangover.” The Wall
Street Journal, January 1, 2019, https://www.wsj.com/articles/the-feds-obama-erahangover-11546374393
28 Beckworth, David. “The Great Divorce: The Federal Reserve’s Move to a Floor
System and the Implications for Bank Portfolios.” Mercatus Center, November 13,
2018, pp. 31-39, https://www.mercatus.org/publications/monetary-policy/federalreserves-move-floor-system-and-implications-bank-portfolios
29 George Selgin:
Some of [the tightening of credit] can also be traced to novel postcrisis central bank operating frameworks, floor systems especially,
that have reduced the follow of bank credit to business borrowers
by boosting banks’ demand for reserve balances. By encouraging
banks to fund central bank balance sheets instead of making loans
to business, these arrangements make it more difficult other things
being equal for business to finance capital investment and R&D,
both of which contribute to productivity.
Productivity is unlikely, on the other hand, to get boosted by the
Fed’s investment in Treasury and agency debt.
Selgin, George. Floored! How a Misguided Fed Experiment Deepened and Prolonged
the Great Recession. Cato Institute, October 2018, pp. 133-34.
30 See for example:
Interview with then-Federal Reserve Bank of New York President William Dudley:
I guess I was always more in the camp that the demand for reserve
was going to be higher in the new environment because of, you
know, changes in regulation, like the liquidity coverage ratio, that
increases the demand for high-quality assets.
“Transcript: Media Q&A With New York Fed President William Dudley.” WSJ Pro
Central Banking, June 15, 2018, https://www.wsj.com/articles/transcript-media-q-awith-new-york-fed-president-william-dudley-1529078294
Interview with Federal Reserve Board of Governors Vice Chairman Richard Clarida:
Now, that being said, and as I’m sure everyone in your audience
appreciates, we’re not going back to the size of the balance sheet we
had before the crisis, if for no other reason the demand for currency
– which is one of our primary liabilities – is approaching $2 trillion
now. So we’re not going back to a $700 billion balance sheet.
Secondly, of course, and as everyone in this room certainly
appreciates, is that there have been significant changes in financial

77

regulation with regards to so-called high-quality liquid assets and
liquidity coverage ratios. And that means that we are going to be in
a world in which financial institutions are either going to require or
going to want to hold onto liquid assets. And obviously, reserves at
the Fed are a very desirable liquid asset to meet those obligations.
“Transcript: Q&A With Fed Vice Chairman Richard Clarida in New York.” WSJ Pro
Central Banking, November 28, 2018, https://www.wsj.com/articles/transcript-mediaq-a-with-new-york-fed-president-william-dudley-1529078294?
31 Hogan, Thomas. “What Caused the Post-crisis Decline in Bank Lending.” Rice
University’s
Baker
Institute,
January
10,
2019,
p.
4,
https://www.bakerinstitute.org/media/files/files/97fc7f24/bi-brief-011019-cpfbanklending.pdf
32 Beckworth, David. “The Great Divorce: The Federal Reserve’s Move to a Floor
System and the Implications for Bank Portfolios.” Mercatus Center, November 13,
2018, p. 39.
33 Bank of Canada calculations were retrieved using data collected by Haver Analytics.
34 See also: Selgin, George. “The Fed's LCR Reserve Requirement: An Ace up Its FloorSystem Defense Sleeve.” Alt-M, December 20, 2018, https://www.altm.org/2018/12/20/the-feds-lcr-reserve-requirement-an-ace-up-its-floor-systemdefense-sleeve/
35 Selgin, George. Floored! How a Misguided Fed Experiment Deepened and Prolonged
the Great Recession. Cato Institute, October 2018, pp. 43-46.
36 Financial Services Regulatory Relief Act. Public Law 109-351, October 13, 2006, p.
4, https://www.congress.gov/109/plaws/publ351/PLAW109publ351.pdf
37
See
the
2018
Joint
Economic
Report,
pp.
53-56,
https://www.jec.senate.gov/public/_cache/files/7faf912a-0fd2-4a92-bba4e41c2c1f8e93/2018-joint-economic-committee-response.pdf
38 The Financial Crisis Inquiry Report: Final Report of the National Commission on the
Causes of the Financial and Economic Crisis in the United States. U.S. Government
http://fcicPrinting
Office,
Washington
D.C.,
January
2011,
static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf
39 “Federal Reserve to review strategies, tools, and communication practices it uses to
pursue its mandate of maximum employment and price stability.” Board of Governors
of
the
Federal
Reserve
System,
November
15,
2018,
https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614c.htm
40 Sumner, Scott. “How to Improve Fed Accountability and Transparency.” Mercatus
Center,
Arlington,
VA,
November
15,
2018,
https://www.mercatus.org/publications/monetary-policy/how-improve-fedaccountability-and-transparency
41 JEC hearing on “The Positive Economic Growth Effects of the Tax Cuts and Jobs
Act,” September 6, 2018.
https://www.jec.senate.gov/public/index.cfm/2018/9/the-positive-economic-growtheffects-of-the-tax-cuts-and-jobs-act
42 “Economic Growth and Tax Policy,” Joint Committee on Taxation, p. 2-3, February
20, 2015, https://www.jct.gov/publications.html?func=startdown&id=4736
43 Mankiw, Greg, “How are wages and productivity related?” Greg Mankiw’s Blog,
August 29, 2006, http://gregmankiw.blogspot.com/2006/08/how-are-wages-andproductivity-related.html
44 Testimony of Scott Hodge, JEC hearing “The Positive Economic Growth Effects of
the
Tax
Cuts
and
Jobs
Act,”
September
6,
2018,
p.
3,

78

https://www.jec.senate.gov/public/_cache/files/86eb6c11-4bd6-4530-9c6e335ae534d766/180906hodge.pdf
45 Hodge testimony, p. 7.
46 Hodge testimony, p. 2.
47 Ibid.
48 Hodge response to questions of JEC members at the hearing.
49 Hodge response to questions of JEC members at the hearing. For information on the
IMF study, see Alesina, Alberto, Carlo Favero, and Francesco Giavazzi, “Climbing Out
of Debt,” Finance & Development Vol. 55, No. 1, March 2018,
https://www.imf.org/external/pubs/ft/fandd/2018/03/alesina.htm
50 “Macroeconomic Analysis of the Conference Agreement for H.R. 1, the ‘Tax Cuts
and Jobs Act’,” Joint Committee on Taxation, p. 5, December 22, 2017,
https://www.jct.gov/publications.html?func=startdown&id=5055
51 “Macroeconomic Analysis of the Conference Agreement for H.R. 1, the ‘Tax Cuts
and Jobs Act’,” Joint Committee on Taxation, p. 6, December 22, 2017,
https://www.jct.gov/publications.html?func=startdown&id=5055
52 “Distributional Effects of the Conference Agreement for H.R. 1, the ‘Tax Cuts and
Jobs
Act’,”
Joint
Committee
on
Taxation,
December
18, 2017,
https://www.jct.gov/publications.html?func=startdown&id=5054
53 “Selected Issues Relating to Choice of Business Entity,” Testimony before the Senate
Finance Committee, Joint Committee on Taxation, p. 5, August 1, 2012,
https://www.jct.gov/publications.html?func=startdown&id=4478
54 Public Law 99-514.
55Testimony of Dr. William C. Dunkelberg, JEC hearing, September 6, 2018, p. 1,
https://www.jec.senate.gov/public/_cache/files/1d9a9a09-ef3a-4538-a252d96c30532225/180906dunkelberg.pdf
56 Dunkelberg testimony, p. 4.
57 Dunkelberg response to questions at the JEC hearing.
58 Ibid.
59 “How to Depreciate Property,” Internal Revenue Service, Publication 946, February
28, 2018, https://www.irs.gov/pub/irs-pdf/p946.pdf
60 Hodge testimony, p. 7.
61
“Table
II.1
Corporate
income
tax
rate,”
OECD,
https://stats.oecd.org/Index.aspx?DataSetCode=TABLE_II1
62 The graph includes average combined corporate income tax rates for OECD member
nations (Australia, Canada, France, Germany, Italy, Netherlands, Norway, Sweden,
Switzerland, and the United Kingdom). Except for the United States, these were the only
countries with OECD tax data going back to 1981. In the same graph, reinvested earnings
on U.S. direct investment abroad are shown as a percent of income receipts on assets.
The data source is BEA's Table 1.6 Sources and Uses of Private Enterprise Income.
63 “American Jobs Creation Act of 2004,” Public Law 108-357, October 22, 2004,
https://www.congress.gov/108/plaws/publ357/PLAW-108publ357.pdf
64 “Macroeconomic Analysis of the Conference Agreement for H.R. 1, the ‘Tax Cuts
and Jobs Act’,” Joint Committee on Taxation, pp. 6-7, December 22, 2017,
https://www.jct.gov/publications.html?func=startdown&id=5055
65 Cochrane, John, “Stock Buybacks Are Proof of Tax Reform’s Success,” Wall Street
Journal, March 5, 2018, https://www.wsj.com/articles/stock-buybacks-are-proof-oftax-reforms-success-1520292384
66
See Bricker, Jesse et al., “Changes in U.S. Family Finances from 2013 to 2016:
Evidence from Consumer Finances,” Federal Reserve Bulletin Vol. 103, No. 3,
September 2017, https://www.federalreserve.gov/publications/files/scf17.pdf and

79

Rosenthal, Steve and Lydia S. Austin, “The Dwindling Taxable Share Of U.S. Corporate
Stock,”
Special
Report,
Tax
Notes,
May
16,
2016,
http://www.taxpolicycenter.org/sites/default/files/alfresco/publication-pdfs/2000790The-Dwindling-Taxable-Share-of-U.S.-Corporate-Stock.pdf
67 "The Geography of Social Capital in America," Social Capital Project, JEC
Republicans,
April
11,
2018,
https://www.jec.senate.gov/public/index.cfm/republicans/2018/4/the-geography-ofsocial-capital-in-america.
68 “Form 6251 Alternative Minimum Tax – Individuals,” Internal Revenue Service,
https://www.irs.gov/pub/irs-pdf/f6251.pdf
69 Solomon, Eric, “Alternative Minimum Tax,” Testimony before the House of
Representatives
Ways
and
Means
Committee,
March
7,
2007,
https://www.treasury.gov/press-center/press-releases/Pages/hp299.aspx
70 “SOI Tax Stats – Individual Statistical Tables by Size of Adjusted Gross Income,”
Internal Revenue Service, 2016 tax year (2017 tax filing season),
https://www.irs.gov/statistics/soi-tax-stats-individual-statistical-tables-by-size-ofadjusted-gross-income
71 “Statistics of Income – 2016, Individual Income Tax Returns, Line Item Estimates,”
Internal Revenue Service, p. 8, 2016, https://www.irs.gov/pub/irs-soi/16inlinecount.pdf
72 Hodge testimony, p. 1.
73 Ibid.
74 Hodge testimony, p. 2.
75 CBO, “An Update to the Economic Outlook: 2018 to 2028,” August 2018, p. 4,
https://www.cbo.gov/system/files?file=2018-08/54318-EconomicOutlook-Aug2018update.pdf
76 CBO, p. 10.
77 CBO, p. 4.
78 ERP 2018, p. 74.
79 For an overview of RegData, see the following: https://quantgov.org/regdata/history/
80 Calculated using the “RegData 3.1 Annual Summary” data, accessed at:
https://quantgov.org/regdata-us/
81 Bosch et al., “Trump Administration Regulatory Savings More Than Double Goal.”
American
Action
Forum,
October
3,
2018.
https://www.americanactionforum.org/research/trump-administration-regulatorysavings-more-than-double-goal/
82 Phelps, Edmund, “The Fantasy of Fiscal Stimulus.” The Wall Street Journal, October
29, 2018. https://www.wsj.com/articles/the-fantasy-of-fiscal-stimulus-1540852299
83 Romer, Paul. 1990. “Endogenous Technological Change.” The Journal of Political
Economy, 98 (5): 71-102.
84 JEC hearing on “How the Innovation Economy Leads to Growth,” April 25, 2018.
https://www.jec.senate.gov/public/index.cfm/2018/4/how-the-innovation-economyleads-to-growth
85 Testimony of Michael Strain, JEC hearing on “How the Innovation Economy Leads
to Growth,” April 25, 2018.
https://www.jec.senate.gov/public/_cache/files/3614a2b6-7be7-4aa1-a9cf3a35b92175b8/180425---testimony---michael-strain.pdf
86 Testimony of Mark Mills, JEC hearing on “How the Innovation Economy Leads to
Growth,” April 25, 2018.
https://www.jec.senate.gov/public/_cache/files/2eb70133-fa17-44ef-beb62697c559614a/180425---testimony---mark-mills.pdf

80

87 Bailey, J., D. Thomas. 2017. “Regulating Away Competition: The Effect of
Regulation on Entrepreneurship and Employment.” Journal of Regulatory Economics,
52 (3): 237-254. and Thomas (2017)
88 Mokyr, Joel. 2002. The Gifts of Athena: Historical Origins of the Knowledge
Economy. Princeton and Oxford, Princeton University Press.
89 JEC hearing on “Breaking through the Regulatory Barrier: What Red Tape Means for
the Innovation Economy,” May 22, 2018.
https://www.jec.senate.gov/public/index.cfm/hearings-calendar?ID=BC46CC95-35D84425-AF15-A45726819034
90 JEC hearing on “The Innovation Economy, Entrepreneurship, and Barriers to Capital
Access,” July 25, 2018.
https://www.jec.senate.gov/public/index.cfm/hearings-calendar?ID=A67F7D64-44D84650-AE20-D7C2B6353B61
91 Testimony of Christopher Koopman, JEC hearing on “Breaking Through the
Regulatory Barrier: What Red Tape Means for the Innovation Economy,” May 22, 2018.
https://www.jec.senate.gov/public/_cache/files/4aa46fae-e525-425d-b2de6a3b476b8eb8/180522koopman.pdf
92 Jamrisko et al. “The U.S. Drops Out of the Top 10 in Innovation Ranking,”
Bloomberg, January 22, 2018.
https://www.bloomberg.com/news/articles/2018-01-22/south-korea-tops-globalinnovation-ranking-again-as-u-s-falls
93 Testimony of Scott Brinkman, JEC hearing on “Breaking Through the Regulatory
Barrier: What Red Tape Means for the Innovation Economy,” May 22, 2018.
https://www.jec.senate.gov/public/_cache/files/56dcd78b-5457-4208-8d9feb18be8e3743/180522brinkman.pdf
94 Testimony of Phil Mackintosh, JEC hearing on “The Innovation Economy,
Entrepreneurship, and Barriers to Capital Access,” July 25, 2018.
https://www.jec.senate.gov/public/_cache/files/ad29fdcb-3be0-451d-b45d88db433ad833/180725mackintosh.pdf
95 Testimony of Rachel King, JEC hearing on “The Innovation Economy,
Entrepreneurship, and Barriers to Capital Access,” July 25. 2018.
https://www.jec.senate.gov/public/_cache/files/8e23d909-2542-41cf-8525a9ec022a2985/180725king.pdf
96 “S.2155 (115th): Economic Growth, Regulatory Relief, and Consumer Protection
Act,”
govtrack
summary,
last
updated
March
14,
2018.
https://www.govtrack.us/congress/bills/115/s2155/summary
97 Public Law No: 115-174, the Economic Growth, Regulatory Relief, and Consumer
Protection Act.
98
National Venture Capital Association 2018 Yearbook, accessible at
https://nvca.org/research/research-resources/
99 Bobby Franklin, President and CEO of the National Venture Capital Association, in a
letter to Congress accessible here:
https://nvca.org/wp-content/uploads/delightful-downloads/2017/03/NVCA-Letter-toCapital-Markets-Subcommmittee-on-Volcker-Rule-3-28-17.pdf
100 “Volcker Rule,” Reviewed by James Chen, Investopedia, last updated February 12,
2019.
https://www.investopedia.com/terms/v/volcker-rule.asp
101 “Volcker Rule,” Reviewed by James Chen, Investopedia, last updated February 12,
2019.
https://www.investopedia.com/terms/v/volcker-rule.asp

81

Quinlivan, Steve. “Treasury’s Recommendations for the Volcker Rule,” Stinson
Leonard Street, July 19, 2017.
http://dodd-frank.com/treasurys-recommendations-for-the-volcker-rule/
103 Leech, Tim J. “Complying with Sarbanes-Oxley Sections 302 & 304,” April 2003.
https://www.sec.gov/rules/proposed/s74002/card941503.pdf
104 “Section 302: Corporate Responsibility for Financial Reports,” Sarbanes-Oxley 101,
last updated February 13, 2019.
http://www.sarbanes-oxley-101.com/SOX-302.htm
105 https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-679X.2008.00279.x
106 Testimony of Harold Furchtgott-Roth, JEC hearing “How the Innovation Economy
Leads to Growth,” April 25, 2018.
https://www.jec.senate.gov/public/_cache/files/9c5bde37-67ed-4895-8c750d33beb3115a/180425---testimony---harold-furchtgott-roth.pdf
107 “S.21 – Regulations from the Executive in Need of Scrutiny Act of 2017,”
Congress.gov, accessed at
https://www.congress.gov/bill/115th-congress/senate-bill/21
108 Testimony of Joseph Kennedy, JEC hearing on “Breaking Through the Regulatory
Barrier: What Red Tape Means for the Innovation Economy,” May 22, 2018.
https://www.jec.senate.gov/public/_cache/files/d25472d5-d3bc-4db4-9071b12b4c32a29d/180522kennedy.pdf
102

83

STATEMENT OF VICE CHAIR CAROLYN B. MALONEY
Introductory Letter
I am pleased to share the Joint Economic Committee (JEC)
Democratic response to the 2019 Economic Report of the
President. The JEC is required by law to submit findings and
recommendations in response to the Economic Report of the
President (the Report), which is prepared and released each year
by the Council of Economic Advisers (CEA).
This year’s Report is substantially different from those of previous
administrations, which largely were careful, research-based and
data-driven assessments of the economy supported by mainstream
economic theory. Instead, the 2019 Report misconstrues wellestablished facts, cherry-picks data, relies on economic theories
widely rejected by mainstream economists and entirely omits
critical subjects. As a result, it seems motivated more by politics
than economics.
The Report, like President Trump, claims full credit for economic
conditions that he mostly inherited from his predecessor. It
altogether ignores the fact that average monthly job growth was
stronger during the last two years of the Obama administration
than the first two years of the Trump administration, the period
examined in the Report. At the time of the president’s
inauguration, the unemployment rate was 4.7 percent and trending
down and the economy had added jobs for 76 straight months. The
president implausibly has claimed that he has achieved an
economic turnaround, a claim that has been refuted by the facts.

84

The Trump administration’s economic forecast is extremely
optimistic compared to those of respected mainstream sources like
the Federal Reserve and the Congressional Budget Office (CBO).
It estimates real GDP growth of 3.2 percent in 2019 and 3.0
percent or higher in each of the next five years, assuming full
implementation of an economic agenda that is widely believed to
be extremely unrealistic. In contrast, the Federal Reserve estimates
growth at 2.1 percent this year before falling below 2 percent in
2020. CBO projects average annual growth of 1.7 percent from
2020 to 2023.
The Report exaggerates the impacts of the Republican tax cuts,
which mainstream economists have characterized as a short-term
“sugar high” and an unnecessary stimulus of an already-hot
economy. While private investment increased in 2018, much of
the increase may have resulted from changes in oil prices. Even
with the boost from oil prices, private investment grew more
slowly in 2018 than in 2011 or 2012.
The Report’s claim that in the long term the tax cuts would result
in a $4,000 increase to average household income has been widely
dismissed by most economists as not credible. A year after the tax
cuts passed, corporate profits grew 14.3 percent while wages
increased only 3.4 percent. Moreover, the law is expected to
worsen economic inequality, with more than 99 percent of the
benefits going to the top 5 percent in 2027.
While the benefits of the Republican tax legislation are targeted at
the fortunate few, the costs are substantial and will be widely
shared. The 2017 tax package adds $1.9 trillion to the debt. If the
president’s FY 2020 budget were enacted, which makes
permanent the individual provisions set to expire at the end of

85

2025, the costs would increase. It is widely believed that this sharp
increase in debt likely will slow future economic growth.
The Report gives only brief consideration of the economic status
of Millennials, who now make up the largest generation in the
workforce. It ignores their experience entering the workforce and
beginning their careers during and in the wake of the worst
recession since the Great Depression. Many Millennials have
depressed wages, more student debt and lower rates of
homeownership and household formation than previous
generations at the same stage of their lives.
The Report tilts at windmills, spending many pages claiming the
dangers of the individual mandate for health insurance coverage,
even though Republicans already eliminated that mandate. When
it was in existence there was no evidence it was causing the
dangers claimed in the Report. After the Report’s release, the
administration came out in support of throwing out the entire
Affordable Care Act, which would take away health insurance
from millions of Americans and remove protections for the more
than 130 million Americans who live with pre-existing health
conditions.
The Report paints an overly rosy picture of recent progress on
prescription drug prices. The United States spends twice as much
per capita on prescription drugs as Great Britain. Some drugs, such
as insulin, cost thousands of dollar each year and as many as one
in four people using insulin do not take the amount they need
because of the high price.
The Report ignores the substantial risks inherent in the
administration’s weakening of financial regulations and consumer
protections. It fails to consider the impact of the administration’s
dismantling of the Consumer Financial Protection Bureau, which

86

has left consumers vulnerable to predatory lending practices. It
also ignores the fact that loosened lending regulations have led to
an explosion in leveraged loans. Lenders have made more than $1
trillion in high-risk loans in 2017 and 2018. These risks do not
appear in the Report.
The Report declares that President Johnson’s War on Poverty “is
largely over and has been a success” based on 1963 standards of
material hardship. It uses an alternative measure of poverty to find
that only 2.3 percent of Americans live in poverty, compared to
the official poverty rate of 12.3 percent. This makes light of the
daily challenges facing the nearly 40 million Americans who live
in poverty and the millions more who move in and out of poverty
during their lives.
With such an overly optimistic assessment of poverty, it is not
surprising that the Report says little about the critical issue of
income and wealth inequality, which has widened dramatically
over the past four decades. It also sidesteps issues of race, class,
gender, education, age and geography.
The Report almost entirely omits the subject of climate change,
perhaps the greatest challenge facing the global economy in the
coming decades. The economic effects of climate change likely
will dwarf those of any of the subjects covered by the Report.
Ultimately, the Report is a reflection of a president who attaches
little value to economic facts, and whom The Washington Post
found to have made 931 false or misleading economic claims
during his first 16 months in office. Like the president, the Report
claims credit for an economy he inherited and displays little regard
for the work of mainstream economists. This Democratic
response, by contrast, focuses on core economic challenges facing
the country and is grounded in fact. It is divided into six chapters:

87

1) Macroeconomic Overview
2) Economic Inequality
3) Millennials
4) Consumer Financial Protection
5) Prescription Drug Prices
6) Climate Crisis
This response is not intended to be exhaustive. It highlights major
issues from climate change to widening inequality that must be
part of any comprehensive effort to strengthen our economy and
lay the groundwork for future growth. In the coming months, we
look forward to addressing many of these issues in more detail
through reports, hearings and further analysis.

CAROLYN MALONEY
VICE CHAIR

88

CHAPTER 1: MACROECONOMIC OVERVIEW
OVERVIEW
The Economic Report of the President (the Report) presents a
misleading picture of recent economic trends, making overly
optimistic projections of economic growth, cherry picking data,
low-balling the debt and omitting entire subjects. It implausibly
claims credit for conditions and trends inherited from the Obama
Administration. In addition, it glosses over the economic costs of
numerous self-inflicted economic wounds by the Trump
Administration, including reckless trade wars, an unnecessary
government shutdown and massive tax cuts that favored the
wealthy and will add $1.9 trillion to the debt. 1
This chapter presents a more balanced and mainstream overview
of U.S. economic trends and indicators, assesses the
Administration’s policies that have affected these trends and
examines headwinds that are slowing long-term economic growth.
Later chapters explore some of the challenges that the economy
and individuals face, as well as disparities in economic outcomes
across different segments of the population.
STATE OF THE ECONOMY
The U.S. economy has come a long way in the last 10 years. After
the worst recession since the Great Depression—during which
unemployment peaked at 10 percent and nearly $13 trillion in
household wealth was lost—the unemployment rate now stands at
a level not seen since December 1969. 2 By the end of the Obama
Administration, housing prices had largely rebounded. Wages are
starting to grow again. These trends are the result of a nearly
decade-long expansion, spurred by actions taken by the Federal
Reserve, the Obama Administration and Congressional

89

Democrats. Two prominent economists, Alan Blinder and Mark
Zandi, projected that without these actions, the recession would
have been twice as large and twice as long. 3
Economic Growth
After contracting by more than four percent in the Great
Recession, the economy has recovered substantially, even though
growth has been uneven throughout the recovery. This long-term
trend continued through the first half of 2019, with quarterly
annualized real growth rates ranging from 2.2 to 4.2 percent. In
total, the economy grew by 3.0 percent from the fourth quarter of
2017 to the fourth quarter of 2018. 4 This boost in growth likely
reflected a short-term stimulus from the deficit-fueled Tax Cuts
and Jobs Act (TCJA). Unfortunately, as the sugar high wears off,
growth will quickly revert to its long-term trends. Although first
quarter 2019 GDP growth was 3.1%, the New York and Atlanta
Federal Reserve currently forecast second quarter growth rates of
1.5% and 1.4%, respectively. 5
The Report predicts sustained 3 percent growth, but only with a
second round of tax cuts, $1 trillion in new infrastructure
investment and new policies that it claims will bring people into
the labor force. These estimates are far out of the mainstream
consensus. The Congressional Budget Office (CBO) projects that
growth will slow to 2.3 percent in 2019 and 1.7 percent in 2020. 6
The median Federal Reserve projection shows growth slowing to
2.1 percent in 2019 and 2.0 percent in 2020. 7 The International
Monetary Fund projects 2.3 percent growth in 2019. 8 These
nonpartisan predictions show that the Report’s projection of
sustained 3 percent growth is unlikely.
The White House cherry-picks growth indicators to present a
misleading picture of long-term trends. For instance, it claims that

90

the fourth quarter of 2018 had the highest year-over-year growth
rate for any fourth quarter since 2005—this was technically true
but ignores the fact that there were higher growth rates in the third
quarter of 2010, the third quarter of 2014 and the first and second
quarters of 2015. 9 In other words, the fourth quarter of 2018 was
the fastest pace of growth in more than a decade only if you ignore
three-fourths of the data.
Similarly, when comparing annualized quarterly growth rates (see
Figure 1-1), the economy experienced higher growth rates during
the Obama Administration than over the last year. The
Administration fails to mention these facts when falsely claiming
that they have ushered in a new era of growth.
Figure 1-1

Real GDP Growth

6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%

Quarterly, Annualized Rate
4.47%

2008

2010

4.72%

2012

5.11% 4.93%

2014

4.16%

2016

3.13%

2018

Source: Bureau of Economic Analysis

Growth over the last year largely was boosted by positive
contributions from government spending and lower tax revenue.
The fourth quarter of 2017 through the end of 2018 represented
the first sustained positive fiscal contribution for the federal

91

government since the American Recovery and Reinvestment Act
(ARRA). 10 Ironically, when during the Great Recession the
economy was in dire need of stimulus, Republicans opposed it.
Now, during the strong economy left by the Obama
Administration and with unemployment below four percent, they
have embraced massive stimulus in the form of tax cuts.
The Labor Market
During the Great Recession, the unemployment rate doubled,
peaking at 10 percent in the fall of 2009; by the time President
Obama left office, the unemployment rate had fallen to 4.7
percent. 11 The economy had hemorrhaged more than 3 million
jobs in the first four months of 2009 alone. 12 Spurred by the ARRA
and other federal stimulus efforts, including actions taken by the
Federal Reserve, the economy began consistently adding jobs in
2010. By the end of the Obama Administration, the United States
labor market had already added jobs for 76 consecutive months.
By June 2019, the streak was extended to 105 straight months. 13

92

Figure 1-2

Unemployment Rate
12.0

Jan. 2007 - June 2019

10.0
8.0
6.0
4.0
2.0
0.0
2007

2010

2013

2016

2019

Source: Bureau of Labor Statistics, using the Civilian Unemployment Rate
Ages 16+, Seasonally Adjusted

During the first two and a half years of the Trump Administration,
this downward trend in unemployment has continued, with
unemployment dropping from 4.7 percent in January 2017 to 3.7
percent in June 2019. 14 Recent unemployment rates have been
lower than at any point in the previous business cycle and lower
than many economists’ estimates of full employment. 15
At the same time, inflation remains low and wages have only
recently started to rise, suggesting that the labor market is not quite
at its full productive capacity. The explanation for this can be
found in alternative measures of the labor market, such as the
employment to population ratio of prime-age workers, which is
only just now starting to reach its prerecession levels and still has
room to increase further. In April 2000, this measure peaked at
81.9 percent. In June 2019, it stood at 79.7 percent. 16

93

Figure 1-3

Employment to Population Ratio
Ages 25 to 54

84%
82%
80%
78%
76%
74%
72%
70%
2000

79.7%: Ratio in June 2019

2003

2006

2009

2012

2015

2018

Source: St Louis Federal Reserve

These trends suggest that workers who had dropped out of the
labor force during the recession are starting to come back as their
job prospects improve. Many of these individuals likely face high
barriers to entering the workforce. For example, they may be
suffering from a disability or have spent a considerable amount of
time unemployed. 17 As it becomes tougher for employers to fill
openings, they are more likely to look for workers from
historically marginalized groups. Pulling them into the labor force
allows the economy to add jobs without raising inflation concerns.
Recent research has shown that particularly tight labor markets
tend to disproportionately benefit disadvantaged groups and that
these gains persist into the future. 18
Wage Growth
The continued presence of labor market slack helps explain why
wage growth remained sluggish up until mid-2018 even as the
unemployment rate continued to drop. As employers looked to

94

hire in the expansion, they were able to find sidelined workers
willing to work for relatively low wages, rather than having to
offer higher wages to people already employed elsewhere.
Average wages for production and nonsupervisory workers—a
category that offers a real-time approximation of the median
wage—picked up in 2018 as the labor market further tightened,
but are still growing at a rate below their prerecession levels. 19
Figure 1-4

Average Hourly Wages

5%

Year-over-year growth, Jan. 2000-June 2019

4%
3%
2%
1%
0%
2000

2003

2006

2009

2012

2015

2018

Source: Bureau of Labor Statistics, numbers for Production and NonSupervisory Workers

Encouragingly, recent wage growth has been the most robust at
the bottom of the wage distribution. From 2017 to 2018, growth
was substantially higher for workers at the 20th and 30th percentile
of the income distribution than at the 95th percentile. 20 This comes
on the heels of sluggish growth at the bottom over the last several
decades. 21 These long-term trends are explored more in the
chapter on Economic Inequality.

95

Economic Disparities
An important caveat to current labor market trends is that not
everyone in the United States is experiencing the same strong
trends. The unemployment rate remains almost twice as high for
black workers (who faced an unemployment rate of 6.0 percent in
June) and a third higher for Hispanic workers (4.3 percent
unemployment) than for white workers (3.3 percent). 22
Homeownership rates, incomes and wealth also remain lower for
those groups. Labor force participation rates and wages remain
lower for women than men. 23 Millennials remain affected by
beginning their careers during or in the wake of the financial
crisis. 24 These disparities and others are explored in later chapters.
ASSESSMENT OF THE TAX CUTS
The Report claims that the recent tax cuts passed in TCJA are the
main drivers of the current strong labor market and economy.
While the deficit-financed TCJA likely acted as a temporary
stimulus in 2018, there is little logic in linking the year-old law to
the nine-year-long trend of a strengthening economy. Instead, the
tax cuts were a windfall for the wealthy and likely will have little
long-run positive effect on the economy.
Economic Effects of the TCJA
The theory behind the corporate tax cuts in the TCJA was to
incentivize companies to invest in America, leading to job
creation, higher wages and broad prosperity. While tax rates and
structures are important and have economic implications, many of
the Administration’s claims are outside the mainstream economic
consensus. In reality, the TCJA will lead to little in raises for
workers, higher income inequality and debt, little business

96

investment and, ultimately, little boost to gross domestic product
(GDP) growth.
Income and Wages: During the tax cut debates, the CEA claimed
that the TCJA would lead to at least a $4,000 increase in average
household income. 25 This claim has been widely dismissed by
mainstream economists. 26 Former Treasury Secretary and Harvard
professor Lawrence Summers said “[T]here is no peer-reviewed
support for his central claim that cutting the corporate tax rate from
35 percent to 20 percent would raise wages by $4,000 per
worker…The claim is absurd on its face.” 27
The fact that the claim is far outside the mainstream is
demonstrated by the estimate’s implied corporate tax incidence
rate on worker wages. Ultimately, corporate taxes come out of
either workers’ wages or the return to shareholders—the tax
incidence measures the share of which is born by each. As
economist Ben Harris testified to the JEC in 2018, the CEA
estimate implies that household income will increase four and a
half times more than the cost of the tax cut. 28 In other words, it
implies a corporate tax incidence of over 400 percent. This is well
out of line of the mainstream consensus for the corporate tax
incidence of around 20 percent. 29
Similarly, the Report implausibly gives credit to the tax cuts for
increasing average household income by $640 in 2018 alone. They
theorize that employers decided to share their tax cut windfalls
with their workers through bonuses and raises. More likely, wage
gains this past year were driven by the economy starting to reach
full employment, which requires employers to compete for
workers and gives workers more confidence to ask for raises or
switch jobs.

97

In the long run, the TCJA might have a small effect on wages, but
that will be outweighed by the tax law’s increased tax burden on
middle- and working-class families in the long run. The TCJA
permanently lowered the inflation adjustment for income tax rate
brackets. This will result in people moving up in brackets because
of inflation, not because they are earning more inflation-adjusted
dollars, known as “bracket creep.” By 2027, the Urban-Brookings
Tax Policy Center (TPC) estimates that the TCJA will lead to
lower after-tax incomes for the bottom 40 percent of households
in the income distribution and no change in after-tax incomes to
the next 40 percent. 30
Income Inequality: Rather than working to address decades of
increasing income inequality, the TCJA will exacerbate the
problem. Even in the early years, the benefits to the wealthiest
Americans are substantially larger than for others. TPC projects
that for 2018, the change in after-tax income for the wealthiest
fifth of Americans will be seven times larger than for the bottom
fifth. When the temporary provisions expire, the distortions will
be even worse. More than 99 percent of the benefits of the TCJA
in 2027 will go to the top five percent of tax units. 31

98

Figure 1-5

100%

Share of Total Federal Tax Change due
to TCJA, 2027
99.2%

75%
50%
25%

2.9%

0%
-25%

-4.6%

-5.4%

-2.1%

Lowest
quintile

Second
quintile

Middle
quintile

Source: Tax Policy Center

Fourth
quintile

8.3%

Top 5
80th to
95th
percent
percentile

Private Investment: The primary mechanism by which the Report
claims the TCJA increases growth and wages is through higher
business investment. It is not clear that the tax cuts have led to a
major investment boom to date. Private, nonresidential fixed
investment grew at about an 8.4 percent rate in 2018, similar to the
growth rate in 2014 and lower than in 2012 or 2011. 32
Although this rate of investment growth reflects a small uptick
from 2017, much or all of the boost may have been driven by
fluctuations in global oil prices, rather than by U.S. tax policy.
There is a strong relationship between crude oil prices and
investment within the United States—when prices rise, more
domestic oil fields become profitable to drill in, leading to firms
investing in new equipment and structures on those fields. The
Penn Wharton Budget Model estimates that if oil prices had not
risen, business investment growth would have remained flat in
2018. 33

99

Early evidence gives little reason to expect a wave of TCJA-driven
investment in the near future. A survey of business economists
found that 84 percent of their companies have not adjusted
investment or hiring plans due to the new tax law. 34 As Chairman
Powell recently told Congress, “[g]rowth in business investment
seems to have slowed notably, and overall growth in the second
quarter appears to have moderated. The slowdown in business
fixed investment may reflect concerns about trade tensions and
slower growth in the global economy. In addition, housing
investment and manufacturing output declined in the first quarter
and appeared to have decreased again in the second quarter.” 35
Stock Buybacks: Meanwhile, corporations announced more than
$1 trillion in stock buybacks in 2018. 36 Although the new report
portrays the boom in stock buybacks as part of the desired effect
of the TCJA, CEA reports leading up to the bill had emphasized
that companies would use repatriated earnings to make productive
investments in the United States. None of the pre-TCJA reports
mentioned share repurchases as a step in the process. 37
While the money that goes to shareholders could eventually be
reinvested in other companies, one of the main arguments in favor
of the law had been that the U.S. worldwide tax system was a
roadblock to companies bringing foreign profits back into the
states to invest. 38 However, according to experts, the tax law did
little to change the incentive for multinational companies to shift
profits overseas. 39 Profits that are repatriated will most likely
benefit shareholders but do little to boost investment. This was the
ultimate outcome of the 2004 repatriation. 40
Public Investment: The tax law will also likely affect public
investment at the state and local level. Part of the TCJA was to cap
taxpayers’ ability to deduct state and local taxes (SALT) paid from
their federal income tax returns. In effect, this makes the taxes paid

100

to state and local governments more burdensome for taxpayers and
puts pressure on lawmakers to cut taxes. 41 Since most states have
limitations on deficit spending, this will often come with budget
cuts or the inability to make new investments. 42
The impact will vary from state to state and locality to locality, but
the overall results should be very concerning. One-third of state
budgets are spent on education—making school funding a likely
casualty of this effect. 43 At a time when education is becoming
ever more important for economic success, substantial cuts would
likely result in worse economic outcomes for many children and
college students. It could also inhibit investments in infrastructure,
health care and other important areas that will affect economic
outcomes and growth. This is especially concerning given that
state and local government budgets were already hit hard by the
Great Recession.
Debt: Most mainstream economists suggest that deficits should
rise in economic downturns in order to stimulate growth, and then
fall as the economy picks up. The TCJA turns this conventional
wisdom around, adding stimulus spending at a time when the
economy was growing and labor markets were thought to be
approaching full employment. The cost of this stimulus is an
additional $1.9 trillion in debt through 2028. 44 If companies and
individuals can identify new loopholes in the hastily written law,
the revenue loss could be even larger.

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Figure 1-6

Mainstream economics posits that increased deficits can lead to
higher interest rates and crowding out of private sector investment.
While some economists are becoming more skeptical of the
magnitude of crowding out effects in the modern economy, there
are undoubtedly practical and political concerns about adding to
the deficit during good economic times. Higher deficits can
undermine the political will for growth-boosting investments in
infrastructure, education and research. Already, some
policymakers are decrying the higher deficits and demanding
spending cuts to compensate, and the President has proposed
hundreds of billions in cuts to Medicaid, Medicare and Social
Security. 45 Further, higher deficits are associated with smaller
stimulus responses to economic downturns, meaning that the
TCJA may decrease the United States’ ability to recover from
future economic troubles. 46
Growth: The TCJA came with a high price tag, but nonpartisan
experts estimate the long-term growth effects to be small. Out of

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eight models examined by the Tax Policy Center (TPC), six
estimated that the economy would be less than one percent larger
in 2027 because of the TCJA, and one estimated that the economy
would be just about one percent larger. TPC itself estimates that
the TCJA will result in an economy that is the same size as it
would have otherwise been. 47
GDP growth accelerated in 2018, likely driven by short-term
stimulus from the tax cuts, rather than the long-term supply-side
effects. CBO estimates that growth will fall in 2019 and again in
2020 before settling in around a long-term trend of 1.7 to 1.8
percent annual growth. 48
Figure 1-7
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%

Annual GDP Growth, Q4 to Q4

1990

1995

2000

2005

2010

2015

CBO
Projections

2020

Source: Bureau of Economic Analysis a nd Congressional Budget Office
Note: Grey ba rs represent CBO projections for future year-over-year growth rates

The presence of slack in the labor market helps explain why an
increase in the deficit from the Tax Cuts and Jobs Act (TCJA) and
2018 bipartisan budget agreement was able to provide a temporary
boost to growth. According to conventional economic models,
higher government deficits at a time when the economy is below

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potential leads to higher economic output. Traditionally,
mainstream economists advocate stimulus immediately following
a downturn—such as ARRA– rather than late in the cycle—such
as the TCJA. The stimulus also comes after years of Republicans
opposing other stimulus efforts and declaring that the deficit and
debt were national emergencies.
The contents of stimulus spending are also important. Spending
that increases the productive capacity of the economy, such as on
infrastructure improvements, will have a long-term higher return
on investment than tax cuts for favored special interest groups.
THE ECONOMIC EFFECTS OF AGGRESSIVE DEREGULATION
The Report gives part of the credit for higher growth in 2018 to
the Trump Administration’s deregulatory efforts. The research to
back this up is weak. The Report relies more on unsupported
economic theory than evidence. While the Report states that costbenefit analyses are important, it ignores the fact that many of the
regulations rolled back by the Administration passed rigorous
cost-benefit analyses. Indeed, the Office of Management and
Budget found that the major regulations implemented between
2006 and 2016 created between $287 and $911 billion in benefits
(in 2015 dollars), compared with costs of between $78 and $115
billion.49 The Report focuses more on the costs than the benefits
and ignores the harms that these rollbacks of protections will have
on workers, consumers, children, the environment and the
economy.
Research Fails to Find a Link Between Broad Deregulation and
Economic Growth
Studies on federal regulations have failed to find a link between
federal regulation and broad economic trends. In one study,

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economists looked across industries to see if there was a
connection between the extent of federal regulation and firm
dynamism and found no significant link. 50 An older study on air
pollution regulations, meanwhile, found that the regulations did
not substantially reduce employment. 51 A former EPA
administrator has cautioned that employment effects are going to
vary substantially from regulation to regulation and across varying
industries. 52 This implies that applying findings from studies on
occupational licensing research to actions such as eliminating
safety protections for mine workers would not provide useful
results. 53
Smart regulations are necessary to correct for market failures in
the complex modern economy. Broad and blind deregulatory
efforts that are more driven by contempt for the party that was in
charge when the rules were implemented, rather than by rigorous
cost-benefit analyses, are unlikely to yield good results for
American workers, families and the broader economy. It is also
important to remember that many regulations are the result of
experienced market failures and often devastating cases of fraud,
abuse and dereliction of duty. Forgetting this for the sake of
deregulation could result in repeating these mistakes.
Deregulation Results in Winners and Losers
Deregulatory advocates often focus mostly on the compliance
costs that businesses incur from regulations. However, there are
other stakeholders involved. Depending on the rule, the benefits
of a regulation accrue to consumers, workers, investors and the
broader economy and environment. For instance, in failing to
defend the proposed rule changing the threshold for mandatory
overtime, the Administration has left workers without $1.2 billion

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in additional pay they would have received under the new
guidelines each year. 54
Another example of the Administration rolling back a rule
projected to provide substantial benefits is the Clean Power Plan,
which was projected to provide $34 billion to $54 billion in annual
benefits by 2030, compared with $8.4 billion in costs. 55 The
updated and weaker Affordable Clean Energy rule eliminates the
carbon reduction mandates in the prior rule, thereby getting rid of
most of the projected benefits of the regulation. 56 Under this new
Trump rule, individuals living near power plants will lose out as
they suffer from higher levels of pollution and worse health
outcomes, and greater emissions will lead to higher levels of
global warming, which will hurt economic growth. Coal power
plants, meanwhile, will be the winners as there will be fewer
requirements for them to reduce emissions.
The Department of Labor Fiduciary Rule provides an example of
how consumers can benefit from smart regulations. The modern
finance industry is complex, and it is often difficult for consumers
to know whether their advisers are steering them toward the best
options or toward those that come with the highest fees for the
advisers. Conflicts of interest in retirement advice cost families
$17 billion each year. The Fiduciary Rule would have required
financial advisers to act in the best interest of their clients, helping
consumers recoup these costs. 57 However, the Trump
Administration put the rule on hold and then failed to defend it in
court. Consumers are losing billions each year because of these
actions. 58
THE COST OF TRADE WARS
There are legitimate concerns that need to be addressed in global
trade. Globalization has left many American workers with worse

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job prospects and lower wages, without a strong enough safety net
to help lift them back up. 59 Many countries engage in unfair trade
practices. China entered global markets full steam after joining the
World Trade Organization, but still engages in unfair trade
practices that advantage Chinese companies over American and
other competitors. 60
However, rather than proposing investment in a national
workforce development system or building a coalition of allies to
pressure change in Chinese policies, the Administration has
engaged in haphazard and counterproductive tariffs and
threats; on-again, off-again negotiations; and undermined
international institutions and relationships. The Report glosses
over these actions understates their magnitude and fails to fully
consider the harm that they are doing to the U.S. economy.
CBO estimates that the United States imposed new tariffs on 12
percent of goods imported into the country in 2018, and trading
partners imposed tariffs on nine percent of goods exported by the
United States. CBO projects that the result of this will be both
lower GDP and lower American exports. 61 Two studies released
early in 2019 found that in total, the cost of the U.S.-implemented
tariffs was almost entirely borne by Americans, lowering total
national income even after factoring in tariff revenue. 62
The soybean industry shows how retaliatory tariffs have harmed
American workers and businesses. After the first round of tariffs
on Chinese goods, one of the ways China retaliated was instituting
a 25 percent tariff on American soybean exports. 63 As China was
the number one export market for American soybeans, this was
devastating for farmers. Soybean exports to China fell by nearly
three quarters from 2017 to 2018 and were down 98 percent in
December 2018 relative to December 2017. 64 Even if a deal is
reached soon, American soybean farmers will still face some

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economic whiplash—the USDA projects that exports would not
reach their previous highs for another seven years, and more than
900 million bushels of stockpiled soy from last season will
continue to push prices down, hurting farmers. 65
Beyond China, the Administration’s targets have included close
allies, like Canada and the European Union, stoking
unprecedented levels of trade tension in modern times. It remains
to be seen what the result of this turmoil will be, as negotiation
deadlines continue to pass and be extended with no concrete
results to show for them.
Uncertainty Weakens Investment
Beyond the actual actions taken, investors and businesses are
uncertain of what direction the Administration is moving on trade
policy, as senior level advisers give different indications in public
from day to day and week to week. 66 Tweets from the President
on tariffs have sent markets roiling, only to be walked back the
next day by other officials. 67 One index tracking uncertainty over
trade in major news publications found that trade uncertainty has
more than doubled since the 2016 election. 68 Farmers and other
agricultural producers have also been unsure of whether to commit
to new investments in areas potentially affected by tariffs. 69
A January 2019 survey of businesses uncertainty said that tariff
hikes and trade tensions were projected to lower capital
expenditures by $32.5 billion, including $22 billion in the
manufacturing sector alone. 70 Further, some international
investors may decide that their dollars are better invested
elsewhere. Already, the United States has seen a drop in foreign
direct investment flows into the United States. While there are
many factors that influence these trends, uncertainty over

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American trade and other policies likely influences many
investors’ and business’s decisions. 71
THE GOVERNMENT SHUTDOWN
Another source of uncertainty and unforced errors was the recent
partial government shutdown, which CBO estimates will cost the
economy at least $3 billion in lost economic activity. 72 The third
shutdown of the Trump Administration, it lasted 35 days—longer
than any previous shutdown. 73 The shutdown had direct economic
impacts: workers did not get paid, important government services
were halted and important economic data was not released. BEA
estimated that the shutdown subtracted 0.1 percentage point from
fourth-quarter growth and a 0.3 percentage point from real GDP
growth in the first quarter. 74
These measures focus on lost government productivity—the
output lost because furloughed workers do not make up for lost
hours. The cost could be larger once indirect effects such as
delayed or canceled business investments and worsened agency
backlogs are taken into account.
LONG-TERM CHALLENGES
There are several key factors slowing economic growth in the
coming years and decades, factors that policymakers should be
working to address. At a high-level, economic growth is a function
of two factors: the number of hours worked and the productivity
of those workers. To this extent, it is concerning that labor force
growth and productivity growth have both been slowing in recent
decades. Further, demographic shifts, rising income inequality and
rising global temperatures present major challenges that require
substantial policy responses.

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Declining Labor Force Growth
Labor force participation peaked in the late 1990s and early 2000s
at around 67 percent, and has since declined to a rate of about 63
percent as of June 2019. 75 CBO projects that the rate will continue
to fall in the coming years, hitting 62.2 percent in 2023. 76 Much
of this decline has been and will continue to be driven by the aging
of the workforce. The number of Americans aged 65 or older has
doubled in the last 50 years and is projected to increase by another
third over the next decade. 77 While the labor force will continue to
grow overall, retiring Baby Boomers will put downward pressure
on that growth rate.
These trends are too large for policymakers to reverse, but federal
policy has a place in mitigating the decline. For instance, paid
leave and affordable child care can help attract more women to the
labor force, bringing the United States back toward its former
position of leading the globe in female labor force participation.
Bipartisan criminal justice reform passed last year is a promising
start toward getting more individuals out of the criminal justice
system and into the workforce—but much work remains in this
area, particularly at the state level. Similarly, bipartisan action to
address the opioid crisis will help more Americans avoid or
recover from addiction, allowing them to live longer, more
productive lives—although more work remains to fully address
the crisis.
Another major area where Congress can affect labor force growth
trends is through immigration. Immigrants tend to have high rates
of labor force participation, likely due to requirements associated
with the immigration process. 78 As the growth of the native-born
workforce declines, this becomes even more important. While
immigration cannot completely make up for this decline, limiting
the number of immigrants and refugees coming into the country

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and working to kick out large numbers of people already educated
and working in the United States is moving in the wrong direction.
The Report is unfortunately silent on this important issue.
Low Productivity Growth
Productivity growth has been slower in recent years than in
previous periods, a trend that is very concerning for future growth
prospects. 79 The cause of the slowdown is not entirely clear,
although economists have put forth potential explanations. Some
economists project that the decline is temporary, with major
productivity-boosting breakthroughs in areas like automation and
artificial intelligence on the horizon. Others posit that people have
discovered most of the low-hanging productivity-enhancing fruit,
and that future gains will be harder to come by. 80 Rising market
concentration, higher income inequality and aging demographics
are all also plausibly linked to lower investment and
productivity. 81
Regardless of the cause, policymakers cannot sit idly by. As we
have seen, the TCJA has done little to drive substantial private
sector investments to date. Instead of waiting for the possibility
that future investment materializes, Congress and the
Administration should work toward advancing substantial new
investments in infrastructure, education and federally funded
research. Policymakers should also facilitate competitive markets
where incumbents must innovate to maintain market share.
Democrats have already put forth a number of policies initiatives
that would work toward these goals in the 116th Congress.
Advancing these initiatives would create an environment where
innovation thrives, productivity increases and the economy grows.

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Income Inequality
Income inequality has been on the rise for the past four decades.
While the literature linking income inequality to economic growth
is still emerging, many economists have already sounded the alarm
that high levels of inequality can depress economic growth. A
recent study found a strong link between income inequality and
growth when also factoring in the level of economic mobility. 82 In
countries with lower levels of economic mobility, income
inequality is more likely to impact growth—a situation the study
points to as occurring in the United States. Income inequality
trends are explored more in the next chapter on Economic
Inequality.
The Climate Crisis
Rising global temperatures are likely already affecting the
economy, particularly through the rise in extreme weather events.
As temperatures continue to rise, these effects will expand to more
areas, industries and people. Agricultural yields will be hurt, labor
productivity will fall, property values will decline and entire
communities will be displaced. The longer policymakers take to
act on climate change, the greater the economic threats will be.
The impact that rising temperatures have on the economy is
covered in more depth in the chapter on the Climate Crisis.
CONCLUSION
The economic assessment of the Economic Report of the President
fails to acknowledge that current positive economic trends are a
continuation of the momentum that the Trump Administration
inherited from the Obama Administration. It cherry-picks facts to
claim that the President has ushered in a new economic era, rather
than acknowledging the reality that Trump is riding the wave of a

112

long economic recovery. It also presents overly rosy economic
forecasts that are out of line with mainstream and nonpartisan
consensus. Further, it neglects to reflect on the disastrous selfinflicted wounds caused by the President’s trade war, the
unnecessary government shutdown and ill-designed tax cuts that
favor the wealthy and balloon the federal debt.
Although the U.S. economy is strong in many ways, structural
challenges and disparities remain. The Administration glosses
over these challenges and disparities in its Report. We need smart
investments that address these issues and ensure that all
Americans have the opportunity to succeed.

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CHAPTER 2: ECONOMIC INEQUALITY
OVERVIEW
Aggregate measures of economic health do not fully reflect the
experiences of tens of millions of Americans, who face higher
unemployment, lower wages, higher poverty rates and decreased
economic mobility. Disaggregating those indicators reveals vast
economic disparities by income, race and ethnicity, gender and
geography.
Economic inequality has plagued the American economy for
decades, and by key measures, it is growing. However, rather than
address this issue, the Administration has worsened it by passing
$1.9 trillion tax cuts that disproportionally benefit the wealthiest
Americans. Unfortunately, the Economic Report of the President
is silent on this issue and paints an overly rosy picture of the
economy that ignores the reality many Americans face. This
chapter dissects aggregate indicators to examine economic
disparities and discusses possible ways to enable all Americans to
participate in national economic growth.
AGGREGATE ECONOMIC INDICATORS DO NOT TELL THE
WHOLE STORY
The United States economy has expanded at approximately 2.6
percent annually since 1980, adding over $12 trillion in total
economic activity to the U.S. economy over those four decades. 83
The current economic recovery from the Great Recession is now
the longest in United States history, with gross domestic product
(GDP) growing at an average of 2.3 percent and now exceeding
pre-recession levels by over $3 trillion. 84

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Decades of Wage Stagnation
However, economic growth has not led to broad-based gains in
wages over the last several decades. Wages have been growing
slowly for the median worker and even slower for those at the
bottom of the income distribution. From 1979 to 2017, the median
worker’s wages increased just over six percent, from an estimated
$20.27 an hour to $21.50 an hour, after accounting for inflation.
That is less than a two-tenths of a percentage point increase each
year, which translates to annual earnings growing from $40,540 in
1979 to only $43,000 in 2017. This long-term picture is even
worse for workers at the bottom of the income distribution. Over
the same period, wages at the 10th percentile grew by just 1.2
percent in total, increasing only 13 cents an hour from $10.81 in
1979 to just $10.94 in 2017. That means that annual earnings for
workers at the 10th percentile grew a mere $260 over almost four
decades, from $21,620 in 1979 to just $21,880 in 2017. 85
Slow wage growth translates to lower lifetime earnings for
workers. As shown by Figure 2-1, productivity growth has sharply
diverged from wage growth since the early 1970s, demonstrating
how economic growth has not translated to real wage gains for
workers. 86 Each cohort of men entering the labor force between
the late 1960s and early 1980s has experienced lower starting
median earnings than the cohort of men who entered the labor
force in the previous year, and lifetime earnings trended steadily
downward during that time. 87 There are several factors that are
likely contributing to sluggish wage growth, such as slower
productivity growth, increased automation, pressures from
globalization, the erosion of the real value of the minimum wage,
fewer protections for workers and more bargaining power for
employers. 88

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Figure 2-1

Wage and Productivity Growth
300%
250%
200%
150%

1948-2017

Productivity
Growth

100%
50%

Wage Growth

0%
1948 1956 1964 1972 1980 1988 1996 2004 2012

Source: Economic Policy Institute
Notes: Productivity growth shows the cumulative percent change in output per hour of work
since 1948, net of depreciation; wage growth shows the cumulative percent change in hourly
compensation of private sector production and nonsupervisory workers since 1948.

However, over the past year, wages have started to rise, likely as
a result of an unusually tight labor market. This has particularly
benefited low-income workers, whose wages have grown up to
twice as fast as those at the 95th percentile. 89 This is described in
greater detail in the Macroeconomic Overview chapter.
Rising Income Inequality
While median wage growth has been stagnant since the late 1970s,
the wages and incomes of those at the top have risen substantially.
Workers at the 90th percentile have seen wages grow by 34
percent, a stark contrast from the six percent for the median worker
and just over one percent for the worker at the 10th percentile. 90
Tax data show a dramatic increase in income inequality over the
last few generations. 91 One study suggests that the continued rise
of income inequality since 2000 has been driven largely by gains
of the top one-hundredth of one percent (0.01)—those with
incomes of about $7.2 million.92 Since 1980, approximately 70

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percent of the increase in the share of income going to the top 0.01
percent was caused by incomes within this group growing faster
than the long-run growth rate of two percent, and around 30
percent was caused by incomes outside this tiny sliver growing
more slowly. 93
While the top 0.01 percent have seen extraordinary gains and the
top one percent overall have seen very large gains, the top 10
percent of the distribution have kept up with GDP growth over this
time. The other 90 percent of the income distribution have been
losing ground (see Figure 2-2). 94
Figure 2-2

500%

Cumulative Post-Tax Income Increase
Since 1980
By Income Percentile

400%

Top 0.01%

300%
200%
100%
0%
1980 1985 1990 1995 2000 2005 2010

Top 1%
Top 10%
Middle
40%
Bottom
50%

Source: Piketty, Saez, and Zucman

Wage Growth Varies by Education Level
Disaggregating wage growth across different levels of educational
attainment reveals different wage patterns. Wages for workers
with lower levels of education (high school diploma or less) fell
from 1979 to 2017 at all levels of the income distribution, while
wages for workers with at least a college degree rose over this

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period. Wages dropped more than 14 percent for the median
worker with a high school degree or less, while they grew more
than 15 percent for the median worker with a college degree.
Rising wages for college graduates reflect the marked increase in
the college wage premium—the economic benefit of a college
degree—leading up to the turn of the century. However, in recent
years, the college wage premium has started to flatten out, likely
in part due to continued growth in the college-educated
population. 95
Growing Wealth Inequality
While income inequality measures the difference between earned
income in a given year, wealth inequality measures the differences
in accumulated lifetime assets. Today, wealth inequality is even
more extreme than income inequality. This is partly because the
returns of invested wealth are often high, leading to further
increases in income that allow for the acquisition of even more
wealth, and partly because wealth is passed down from generation
to generation. The share of wealth of the bottom 90 percent of
families has been falling for most of the past quarter-century,
down from one-third (33 percent) in 1989 to just under one-quarter
(23 percent) in 2016. 96 At the same time, the top one percent of
households hold nearly 40 percent of all wealth in America, with
half of that belonging to the top one-tenth of one percent (0.1). 97
Decreased Economic Mobility
Over the last several decades, absolute mobility rates have fallen,
and it has become increasingly difficult for children to earn more
than their parents—a foundational aspect of the American dream.
While a child born in 1940 had a 90 percent chance of earning
more at age 30 than their parents at the same age, the odds for a
child born in 1980 were no better than 50-50. These rates have

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fallen across the entire income distribution and in all 50 states,
with the largest declines for families in the middle class. 98
Family Economic Security
All of these structural challenges—including income and wealth
inequality and declining mobility—threaten families’ economic
security. Assessing family economic security is difficult, but it is
rooted in a family’s ability to plan for expenses, save for the future
and pay any outstanding debts. Tens of millions of Americans
experience substantial economic insecurity. Nearly 40 percent of
American adults report that they or their families struggle to meet
at least one basic need like food, health care, housing or utilities.99
A 2019 Federal Reserve report found that four in 10 Americans
reported that they would be either unable to afford an unexpected
$400 expense, or would have to resort to borrowing money or
selling possessions to cover it. 100
Improving Measurement
Aggregate national indicators do not tell the whole story. For
example, GDP figures do not show how economic growth is
distributed among the American people across different income
levels. Recent legislation introduced in the House and Senate
would work to supplement that information. The Measuring Real
Income Growth Act of 2019 (H.R. 707) instructs the Bureau of
Economic Analysis (BEA) to report on income growth indicators,
which measure how income is growing at each decile (bottom 10
percent up to top 10 percent) of income and for the top one percent.
New indicators like this would provide a more complete picture of
how economic gains are distributed, allowing policymakers to
implement policies that benefit all Americans.

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PERSISTENT DISPARITIES
More than half a century since the civil rights movement, racial
economic disparities in the United States persist. Evidence shows
gaps in key measures of economic well-being, such as
unemployment rates, incomes, poverty rates, wealth,
homeownership and mobility.
Employment
The black unemployment rate peaked at 16.8 percent in the
aftermath of the Great Recession, then fell to 7.7 percent at the end
of the Obama Administration and 6.0 percent in June of this year.
However, it is still about double the rate of white
unemployment. 101 Research shows black unemployment is also
more cyclical than white unemployment, and that black workers
experienced more involuntary part-time employment over the last
four decades. 102 Tight labor markets improve relative outcomes
for black workers, but the U.S. economy has more often than not
run below potential since 1980. 103
Wage and Income
Wage growth also has been particularly weak for black and
Hispanic workers over the last several decades. For Hispanic
workers, wages at the median and 10th percentile fell between
1979 and 2017. As a result, the wage gap between the median
Hispanic worker and the median non-Hispanic worker grew over
this period. In 1979, the median Hispanic worker earned 81 cents
for every dollar earned by the median non-Hispanic worker, but in
2017 that figure fell to just 70 cents on the dollar. The wage gap
also grew between the median white and black worker—the
median black worker earned 80 cents for every dollar earned by

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the median white worker in 1979, with that figure falling to just
71 cents on the dollar in 2017. 104
There are substantial gaps in household income by race. In 2017,
the median Hispanic household earned just 74 cents for every
dollar of income earned by the median white household, while the
median black household earned just 60 cents. Black household
incomes have remained relatively flat over the past few decades.
Black real median household income in 2017 was about $40,600,
roughly where it stood in 2007 and below its peak of over $42,300
at the turn of the millennium. 105
Wealth
Racial wealth disparities are stark and have significant
implications for the economic security of communities of color.
Median net worth for all families fell during and in the immediate
aftermath of the Great Recession. However, it continued to fall for
black and Hispanic families between 2010 and 2013, while
remaining unchanged for white families. Despite overall gains for
black and Hispanic families between 2013 and 2016, the racial
wealth gap increased during this period. In 2016, the typical black
and Hispanic family held about 10 and 12 percent, respectively, of
the wealth held by the typical white family (see Figure 2-3). 106
Homeownership rates remain lower among black and Hispanic
households compared to white households. 107 Further, home
equity makes up a larger proportion of household net worth for
black and Hispanic families—37 to 39 percent on average—
compared to 32 percent of a white family’s net worth. 108
Unfortunately, many families saw this equity vanish following the
Great Recession. Homeownership rates and the value of homes for
families of color plummeted following the housing crisis,
eliminating much of the wealth built up by these families. 109

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Figure 2-3

Wealth

$200,000

Median Family Net Worth by Race, 2016
$171,000

$150,000
$100,000

$64,800

$50,000
$0

White

$17,600

$20,700

Black

Hispanic

Other

Source: Federal Reserve Survey of Consumer Finances, 2016
Note: Both white and black refer to non Hispanic; other refers to other or multiple race.

Poverty
Communities of color also experience higher poverty rates. In
2017, poverty rates among blacks and Hispanics were 21 percent
and 18 percent, respectively—more than twice as high as the white
poverty rate of less than nine percent. Out of the nearly 40 million
people living in poverty, almost 13 million are children. 110
Roughly one in four black and Hispanic children were living in
poverty in 2017 (28 percent and 25 percent, respectively),
compared to just one in ten white children (10.9 percent). 111
Research shows that children growing up in poverty tend to
experience worse health, educational and economic outcomes than
children who do not grow up in poverty. 112
Economic Mobility
Black children experience far less upward mobility than white
children. For every one hundred black children who grow up in
households in the bottom fifth of the income distribution, less than

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three will make it to the top fifth as adults. White children are more
than four times as likely to move from the bottom fifth to the top
fifth. Further, black children are more downwardly mobile, as they
are nearly twice as likely to fall from the top of the income
distribution to the bottom as white children are. 113
GENDER DISPARITIES
Over the last several decades, women have made significant wage
gains and great strides toward pay parity. Since 1980, real median
earnings for women working full-time, year-round have increased
by more than 30 percent and the gender pay gap has been cut in
half. 114 Key elements of this progress include improved female
labor force participation, increased educational attainment among
women and strengthened legal protections for fair pay.
The Gender Pay Gap Persists
In 2017, the typical woman working full-time, year-round earned
just 80 cents for every dollar earned by her male counterpart. 115
The gap was wider among women of color: the typical black and
Hispanic woman earned 61 cents and 53 cents respectively for
every dollar earned by the typical white man. Although Asian
women come closest to achieving pay parity, some Asian
subgroups earn far less than the national average (see Figure 24). 116
These wage gaps add up over women’s careers. The 20 percent
gap in real median earnings translates to a little more than $10,000
each year. 117 If a woman were to experience this same disparity
over her 40-year career, she could lose out on more than $400,000
in wages (in today’s dollars). 118 Research looking into the longterm earnings of women compared with men find that the gap can

123

even be greater once you factor in the gendered pattern of
disruptions to men’s and women’s careers. 119
The gender wage gap does not only affect women; it has lasting
consequences for families, men and the economy as a whole.
Women’s share of household earnings has grown from 36 percent
in 1993 to 45 percent in 2016. 120 One study shows that mothers
are the sole or primary breadwinners in half of U.S. households
with children. 121
Figure 2-4

Gender Wage Gap by Race

Women's Earnings as a Share of White Male Earnings
100%
85%
77%

80%

61%

60%

53%

40%
20%
0%

Asian

White

Black

Hispanic

Source: JEC analysis of 2018 CPS ASEC
Note: Ratio is comparing median annual earnings of full-time, year-round workers only; Asian
American, white, and black figures exclude respondents with multiple races reported or of
Hispanic ethnicity; the pay gap is substantially larger for some Asian American subgroups.

There are many factors that contribute to the gender pay gap. For
example, women are more likely than men to have to interrupt
their careers to care for children. Roughly 43 percent of women in
the workforce have experienced at least one year with no
earnings—nearly twice the rate of men. 122 The wage penalties
associated with taking time out of the labor force are high, harming
women’s present and future earnings and hampering their overall
economic potential.

124

Female Labor Force Participation Still Lags Male Participation
In the postwar period, women flooded into the labor force, and the
prime-age female labor force participation rate (LFPR) more than
doubled from 1948 to 1999. The dramatic increase in female
participation in the labor force began to offset the declining
participation of men, and overall labor force participation was
rising until 2000. However, since its peak at the turn of the century,
women’s LFPR has declined and remains far below men’s LFPR.
123

Additionally, the United States is trailing other industrialized
countries when it comes to women’s labor force participation (see
Figure 2-5). Many countries with higher female labor force
participation have family-friendly workplace policies, such as paid
family leave and child care, which make it easier to balance work
and family obligations. 124 It is estimated that lower women’s labor
force participation in the United States, relative to other OECD
countries, potentially left over $500 billion in estimated economic
activity on the table in 2017 alone. 125

125

Figure 2-5

U.S. Female Labor Force Participation
Compared to Other OECD Countries
100%

Female prime-age LFPR, 1960 to 2017

United States

80%
60%
40%
20%
0%
1960

1968

1976

1984

1992

2000

2008

2016

Source: OECD La bour Force Statistics by s ex a nd a ge
Note: Pri me-age includes persons aged 25 to 54.

Gender Disparities Result in Retirement Insecurity
Earnings disparities between men and women have implications
for women’s economic security later in life. Planning for
retirement early is becoming increasingly important for women.
Older women are less financially secure than they were more than
25 years ago. 126 In 2017, women ages 65 and older earned just 59
percent of what men the same age earned, which is more than
twice the overall gender wage gap. 127 In fact, elderly women are
40 percent more likely than elderly men to live in poverty. 128
Lower lifetime earnings, longer life spans and shorter work
tenures all contribute to women’s retirement insecurity. 129
Improving the Economic Outlook for Women and Families
Paid family leave allows both male and female workers to better
fulfill caregiving responsibilities without sacrificing pay.
Research shows that paid leave policies increase employment

126

among mothers, as those with access to leave are almost 70 percent
more likely to return to work in the long run than those without
access. 130 However, only 16 percent of private sector workers had
access to paid family leave through their employers in 2018. 131
The United States is the only industrialized country that does not
guarantee any paid leave for new parents. 132 The Federal
Employee Paid Leave Act (H.R. 1534) would provide 12 weeks of
paid leave for federal employees—an important first step in the
effort to expand access to paid family leave.
In addition to paid family leave, more accessible and affordable
child care can help increase women’s work hours and earnings. As
women have entered the workforce and become breadwinners,
access to high-quality, affordable child care has become an
increasingly important part of a family’s economic success.
Research shows that mothers whose children attend high-quality
early learning and care programs can boost their earnings by
$90,000 over the course of their careers. 133
GEOGRAPHIC DISPARITIES
Just as the U.S. economy has become fractured by income, race
and gender, it has increasingly been divided by geography. While
some communities and areas of the country are booming, others
might be experiencing a bust. In the years since the Great
Recession, these differences have become more pronounced with
the gaps between thriving and struggling areas growing wider.
Large swaths of American communities—many of them in rural
areas—have not shared in the recovery since the Great Recession.
Economic Growth is Increasingly Geographically Concentrated
In successive recoveries, job growth and business creation have
aggregated in fewer and fewer metropolitan areas. 134 Nearly half

127

of the nation’s ZIP codes still had not reached pre-recession
employment levels in 2016, and some are on a track to never fully
recover. 135 As the think tank Economic Innovation Group (EIG)
puts it, this means that “National growth rates have become less
reflective of local realities.” The median county added jobs at less
than half the pace of the national economy, according to their
research, and if you subtract the top five counties, the nation as a
whole still had fewer businesses in 2016 than in 2007. 136
These disparities manifest in a variety of ways. The Brookings
Institution’s Hamilton Project divided the nation’s counties into
quintiles based on several indicators of economic vitality. They
found that in the lowest performing quintiles, incomes are less
than half that of the highest performing quintile, poverty rates are
nearly three times higher, employment levels for prime-age
workers trail by nearly 16 percent and life expectancy is a full six
years lower. 137
The Rural-Urban Divide
Wages have been particularly stagnant for rural workers. Since
2007, the median income of rural workers has averaged 25 percent
below that of urban workers. 138 Rural Americans also experience
higher unemployment rates than their urban counterparts—a gap
that has widened since the Great Recession. 139 EIG found that the
number of rural Americans living in distressed communities has
risen even as the national share has fallen. 140
There is also a stark rural-urban divide in labor force participation
rates, with participation much lower in rural areas. Some of this
can be attributed to an aging population and the outmigration of
young people from rural areas. However, even when looking at
participation rates of prime-age workers, there is a growing gap
between participation in urban areas and rural areas, especially

128

since the Great Recession. 141 This gap is mostly concentrated
among workers with lower levels of education. Recently, the ruralurban gap in labor force participation grew sharply among workers
with a high school diploma or less. 142
Rural America has not shared in the employment recovery that has
occurred since 2010. While most urban areas have long since
surpassed pre-recession employment levels, employment in rural
America is still below pre-recession levels (see Figure 2-6).
Figure 2-6

Index (100 = 2004)

115

Employment in Rural vs. Urban
America

110
Metro

105
100

Nonmetro

95
90
2004

2006

2008

2010

2012

2014

2016

Source: Bureau of Labor Statistics, Local Area Unemployment Survey.
Note: Quarterly data is indexed at 2004Q1, seasonly adjusted, and uses USDA adjusted data
for survey redesign break in 2009Q4 -2010Q1.

Economic Opportunity Varies by Location
The geographic economic divide is about more than just the
current working population—it also affects future generations.
Groundbreaking research over the last decade has revealed that
where a child is born has a large impact on their ability to achieve
upward economic mobility. Researchers have tapped into federal
administrative data records to show how children’s ability to
improve their economic situation is heavily influenced by several

129

factors, including where they are born. Children who move from
a below average mobility area to a high mobility area—for
example, from a low-income to an affluent community—early in
life increase their lifetime earnings by $200,000. They are also less
likely to end up incarcerated or have a teenage birth. Even growing
up a few miles apart can make the difference in where a child ends
up later in life. 143
THE IMPORTANCE OF ANTI-POVERTY PROGRAMS
Nearly 40 million Americans live in poverty—for a family of four
with two children, this includes those with incomes of less than
about $25,000. 144 Many more will experience poverty at some
point during their lives. More than half experience poverty by the
time they are 65, typically from losing a job for a period of time. 145
The effects of poverty ripple throughout the economy. Child
poverty alone costs the nation an estimated $1 trillion each year in
increased health care bills, child maltreatment costs, higher crime
rates and lost wages and productivity. 146
The Report declares that “President Johnson’s War on Poverty is
largely over and has been a success based on 1963 standards of
material hardship.” 147 It arrives at this conclusion using a proposed
alternative to the U.S. Census Bureau’s Official Poverty Measure
(OPM) and Supplemental Poverty Measure (SPM). The proposed
measure uses a different index for inflation, counts the household
rather than the family as the sharing unit and includes the various
forms of federal assistance to help low-income Americans. These
include the Earned Income Tax Credit (EITC) and Child Tax
Credit (CTC), as well as the “the market value of noncash
transfers, including [the Supplemental Nutrition Assistance
Program] (SNAP); subsidized school lunches; rental housing
assistance; and public health insurance (Medicare and

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Medicaid).” 148 In other words, the Report suggests that the War on
Poverty has been won thanks to federal government programs that
many conservatives deem too generous or unnecessary. The
Report then proposes a new war on poverty centered on gutting
these same programs that are focused on alleviating poverty for
millions of Americans.
While the Report is correct in arguing that a strong labor market
can help offer opportunities for those living below the poverty line
to work their way out of poverty, an unemployment rate under four
percent will not continue indefinitely and is not the silver bullet to
ending poverty. Many Americans face barriers to work that a tight
labor market would not address, such as serious health conditions
or a lack of child care. For these reasons, federal programs that
mitigate poverty will continue to be critical.
As shown by the SPM, which extends the OPM by taking into
account many of the programs that assist low-income Americans,
anti-poverty programs like the EITC, CTC and SNAP keep
millions of Americans from feeling the worst effects of poverty
each year. In 2017, Social Security alone lifted 27 million
Americans above the poverty line, while refundable tax credits
like the EITC and CTC alleviated poverty for another eight
million. Out of the 3.4 million people SNAP prevented from
falling into poverty, more than 40 percent were children (see
Figure 2-7). 149

131

Figure 2-7

Millions Kept Out of Poverty
30.0
25.0
20.0
15.0
10.0
5.0
0.0

By Program, 2017

27.0

All Ages
8.3
1.4

4.5

Social Refundable
Security tax credits

3.4

1.5

SNAP

3.2

0.5

SSI

Children

2.9

0.9

Housing
subsidies

Source: U.S. Census Bureau, 2018 CPS ASEC
Note: Refundable tax credits include the Earned Income Tax Credit and the refundable
portion of the Child Tax Credit. SSI is Supplemental Security Income.

There are other proven benefits that these programs provide in
addition to the sheer number of people lifted above the poverty
line, such as the intergenerational effects that will benefit future
generations. Medicaid results in long-term health, educational and
economic benefits for recipients. Children with Medicaid
coverage are healthier and are more likely to complete high school
and college and be employed as adults. 150
Research shows that programs like SNAP and EITC collectively
reduce the level of income volatility in the economy. 151
Additionally, SNAP is a vital investment in human capital, setting
a healthy foundation for America’s current and future workforce.
Every dollar of SNAP generates $1.79 in increased GDP. 152 Tax
credits like the EITC and CTC provide much-needed wage boosts
for families and improve outcomes. Increasing the EITC has been
shown to substantially increase employment among single
mothers and reduce poverty levels for their families. 153 Supporting

132

these programs is key to setting up current and future generations
for success to fuel a strong, vibrant economy.
CONCLUSION
While the Economic Report of the President focuses mostly on
aggregate economic indicators that show a strong economy, data
and research reveal large disparities by income, race and ethnicity,
gender and geography. The Report includes almost no discussion
of economic inequality, except in a discordant chapter on
socialism, and it declares that the War on Poverty has been won.
This ignores the economic experiences of tens of millions of
Americans.
Addressing these disparities will require a robust agenda that
combats discrimination, invests in education and sets the
foundation for broad-based inclusive growth. It also will require
expanding access to paid family leave and affordable, high-quality
child care to help workers balance the demands of work and family
while remaining in the labor force. Finally, rather than claiming
that poverty is rare and attempting to cut Medicaid and nutrition
assistance, we should protect these programs so that they can
continue to help lift millions out of poverty and put future
generations on a viable path to the American Dream.

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CHAPTER 3: MILLENNIALS
OVERVIEW
Young adults today are less likely to earn more than their parents
than any generation in American history. Children born in 1940
had about a 90 percent chance of earning more than their parents;
the first Millennials, born in 1980, had only a 50 percent chance. 154
This is a crisis for millions of Millennials and it should be a
primary concern for policymakers. However, the Economic
Report of the President largely disregards the unique challenges
of this generation and the word "Millennial" does not appear in the
Report.
With education increasingly a prerequisite for economic
opportunity in the labor market, Millennials are more likely than
any prior generation to seek higher education and more advanced
degrees. 155 However, the need for more education has ripple
effects that affect them throughout their lives. They take longer to
achieve milestones such as completing school, setting up their own
household and marrying. More face the burden of student debt
while fewer obtain homeownership. These social changes and
economic challenges may be further complicated by the increasing
diversity of the Millennial generation.
Despite these vast changes, many federal policies, especially
concerning support for families and children, have changed little
in the past half-century. Therefore, today’s young adults are
supported by a less adequate national safety net compared to their
parents’ generation, in that it no longer reflect the realities that
American young adults face. For Millennials to have a better
chance to succeed, new social policies are needed to address the
unique challenges they face. However, the first step, which is
lacking in the Report, is to acknowledge that the challenges exist.

134

THE HISTORICAL CONTEXT
Millennials grew up during times of great social and economic
change. There was a transformative shift in household structure,
increasing globalization, weaker protections for unions, stagnating
male wages and mass deregulation. 156 Despite the economic and
social instability faced by this generation, federal social
investments—such as in public education, housing subsidies and
income support programs—were reduced and more federal social
programs were transferred to states or localities starting in the
1980s. 157
Within seven months of President Ronald Reagan's inauguration,
Congress slashed spending by $35 billion below projected levels
and reduced personal and corporate income taxes by almost $38
billion. Most of the budget savings were made in programs
affecting the poor. 158 President Reagan also gave states more
options to vary the implementation of social programs, such as
allowing states to require welfare recipients to participate in
workfare programs in order to receive cash aid and other program
benefits. The transfer of power to states allowed some states to
develop innovative safety net programs while others engaged in a
‘race to the bottom’ to minimize public investments in social
services. 159
In the 1980s, the nation also faced a period of deepening urban
ills—such as the crack epidemic and violent crime—and
increasingly punitive approaches to addressing social problems,
which had devastating impacts on low-income families, children
and neighborhoods. Sentencing for drug offenses became more
punitive as mandatory prison time for these offenses was widely
adopted by the states through the 1980s. In 1986, President Reagan
signed legislation with harsh federal mandatory minimum
sentences for drug offenses and Congress authorized hundreds of

135

millions of dollars in new grants for state and local law
enforcement. 160
Children—many
from
low-income
communities—were separated from their parents as more men and
women were incarcerated for longer periods.
The initial cohorts of Millennials were born in a decade of new
family and work arrangements among their parents’ generation,
the Baby Boomers (ages 17 to 35 in 1981). Starting in the late
1970s and early 1980s, most women worked irrespective of
whether they were married or had a young child. 161 Women’s
earnings proved to be critical to the American household amid
instability in the economy and the male-head-of-household
structure during this decade. In the 1980s, there was a double-dip
recession, mass layoffs and the U.S. divorce rate peaked. 162
Between 1960 and 1980, the annual number of divorces tripled
from approximately 400,000 to nearly 1.2 million. 163
As children growing up and as young adults coming of age,
Millennials experienced economic instability and have not
enjoyed the same level of federal social investments experienced
by other generations. In the postwar era, workers, families and
children had an array of federal investments, subsidies and
protections that began to erode under the deregulation and federal
funding cuts that started in the 1980s. 164 Compared to Millennials,
Baby Boomers grew up during an era of more stable wages for
(male) breadwinners, historically high marriage rates, a more
robust safety net and higher rates of upward mobility. 165
Coming of Age in a Changing America
Much of the recent analysis about the economic status of
Millennials reflects that, by definition, Millennials are now in the
coming-of-age period of life (ages 23 to 38 in 2019). Most
Millennials are finishing or have finished schooling and most are

136

entering or have entered the labor market. Generation X and Baby
Boomers are in later life stages. Generation X—ages 39 to 54 in
2019—are typically considered to be in the middle stage of life
with most having achieved the typical milestones of adulthood,
such as establishing financial independence and an independent
household or family. In contrast, Baby Boomers—ages 55 to 73 in
2019—typically have more experience in the labor market and
most have entered or are preparing to enter retirement. 166 In 2019,
the number of Millennials is expected to exceed the number of
Baby Boomers at 73 million versus 72 million, respectively. 167
Overall, Millennials lag prior generations in the timing and order
of obtaining the traditional markers of American success—a
steady career, homeownership, starting a family and building a
nest egg. While Millennials report highly valuing these typical life
milestones, economic uncertainty, rising housing costs and high
debt levels are pushing these goals out of reach for many. Most
Millennials report being worried about future job opportunities.
Four in five say that student debt has forced them to delay
homeownership and three in five believe the country is headed
down the wrong track. 168 The promise and duty to ensure the
nation’s economy works for all Americans is increasingly critical
to the vitality of our labor force, households and consumer markets
as each new generation is becoming more diverse and many hold
a precarious position in an unstable economy.
Growing Diversity and Economic Inequality
Today’s young adults represent the most diverse U.S. generation.
Nonwhite racial and ethnic groups make up more than half of the
millennial population in 10 states and in another 10 states
nonwhites are more than 40 percent of millennial residents. 169 One
in four Millennials speaks a language other than English at home.

137

About one in seven marriages among Millennials are
interracial. 170 As of 2015, most of the U.S. population under age
five were nonwhite. 171 The share of nonwhite infants (less than
one year old) in the United States reached about half (49.6 percent)
for the first time in 2010 (see Figure 3-1). 172 Yet the Report has
not fully considered the policy implications of the emerging
millennial demographic shifts on U.S. education patterns, the
labor force, household arrangements and the economy.
Figure 3-1

Percentage of Nonwhite Infants
2000-2018

55%

50.6%

50%
45%
40%
35%
2000

2004

2008

2012

2016

Source: U.S. Census Bureau
Note: Percentage reflects nonwhite and Hispanic resident population under the age of 1.

It is possible that the young adults of today are also on track to be
the most unequal generation yet. 173 On the one hand, the top end
of the income and wealth distribution has seen the most gains since
the Great Recession. 174 Millennials who are technologically savvy
are positioned to earn a high premium for their skills and higher
education in the labor market. 175 This year, a record number of the
world’s billionaires were under 40. 176 The 71 youngest billionaires
in the world (under age 40) are collectively worth nearly $300
billion and, on average, each is worth about $4 billion. 177

138

On the other hand, there has been increasing wage inequality in
the labor market. 178 Compared to Baby Boomers and Generation
X when they were ages 25 to 34, young adult Millennials are more
likely to live in poverty (eight percent in 1980, 10 percent in 2000
and 15 percent in 2015, respectively). 179 Millennial households
have the highest rates of poverty compared to other U.S.
generations, which reflects that the poverty rate among young
adult households has been rising since WWII while declining
among households headed by older Americans. 180 Many
Millennials also have no retirement savings and most lack
confidence in the future of Social Security. 181
Black and Latino Millennials report various dimensions of being
more financially vulnerable than white Millennials. 182 White
Millennials employed in full-time positions report having more
benefits from their employer than black and Latino full-time
workers. Black Millennials (ages 25 to 34) are more than twice as
likely as white Millennials to live in poverty (24 percent compared
to 11 percent, respectively). 183 Black Millennials also report being
less likely to rely on financial assistance from their parents or
family. 184
Long-Lasting Impacts of Economic Instability
Overall, the Report lacks sufficient attention to the economic and
social realities that Millennials face. While Millennials are on
track to be the most highly educated and productive generation of
workers, troubling indicators of economic insecurity are evident
across race, ethnicity, gender, education level and geography.
Many Millennials graduated from high school or college and
entered the labor market during the Great Recession and many
experience unemployment, underemployment or depressed
wages. Without an effective policy framework to foster greater

139

financial security and fairer economic outcomes, the fragile status
and disparate outcomes of today’s young adults pose a great risk
to the pillars of the American Dream as well as to the stability and
growth potential of our nation’s economy.
THE SHIFTING OUTCOMES AND COSTS OF EDUCATION
Changing Benefits of Education and Gender Shifts in
Educational Attainment
While a generation ago a high school education would typically
be enough to achieve the milestones associated with the American
Dream—buying a home, starting a family and building a nest
egg—it has become far more important to get a college degree or
an advanced degree to guarantee such success. Nearly four in ten
(37 percent) jobs typically require some type of postsecondary
education. 185 According to the Georgetown University Center on
Education and the Workforce (CEW), 65 percent of all jobs in the
economy will require postsecondary education and training
beyond high school by 2020. 186
Millennials represent the second U.S. generation in which women
outpaced men in college completion (Generation X was the
first). 187 By the mid-to-late 1990s, young women ages 25 to 29
began to have higher college attainment rates than young men. 188
This means that young men and women now stay in school longer,
which can affect the timing of entering the labor market and
starting a family for both.

140

Figure 3-2

Educational Attainment by Gender
2007-2018

100%
80%
60%

Women, High school
completion or higher

Men, High school
completion or higher
Women, Bachelor's or
higher degree

40%

Men, Bachelor's or
higher degree

20%
0%
2007

2009

2011

2013

2015

2017

Source: National Center for Education Statistics; Percentages reflect educational attainment
for persons 25 to 29 years old

Even though Millennials are the most educated generation in U.S.
history, recent educational gains have been modest. Between 2007
and 2017, the percentage of young people achieving a high school
degree increased from 87 to 93 percent and the percentage earning
a bachelor's degree or higher increased from about 30 to 36
percent. 189
Skyrocketing Tuition Costs and the Student Debt Crisis
Since the 1980s, the average costs of a full-time undergraduate
degree has more than tripled for public institutions and private
institutions. From the 1978-79 school year to the 2018-19 school
year, average public college costs went from $2,700 to $10,200
and average private college costs went from $11,400 to $35,800.
The average published tuition and fee price at private nonprofit
four-year institutions is now about 3.5 times the average price at
public four-year institutions. 190

141

Figure 3-3

Average Tuition and Fees for a Four-Year
Institution

$40,000

$35,800

$30,000

Private

$20,000
$10,000
$0

$28,400

Public

$22,700
$17,000

$11,400
$2,700

$3,400

$5,000

$7,600

$10,200

1978-79 1988-89 1998-99 2008-09 2018-19

Source: JEC Democratic staff calculations based on College Board, Trends in College Pricing
2018 – Note: Average tuition and fee prices exclude room and board; prices reflect in-state
charges for public four-year institutions and are rounded to the nearest one hundred dollars.

Many young adults come into the labor market seeking financial
independence, but have the disadvantage of a high student debt
burden. Four in ten young adults under age 30 have student
debt. 191 More than 2.5 million student loan borrowers have student
loan debt higher than $100,000, with more than 600,000 of these
borrowers holding student loan debt exceeding $200,000. 192
Today’s young adults graduate from school owing substantially
higher debt than prior U.S. generations, with total aggregate
student debt now surpassing $1.5 trillion.193
The average student loan balance for Millennials in 2017 was
more than double the average loan balance for young adults of
Generation X (in 2004). 194 The cost of attending college has
increased much faster wages, leading to higher student loan
burdens. 195 This debt is difficult to repay, setting up many young
adults for financial precariousness. While the economic rewards
of a college degree—such as higher earning power and lower
unemployment rates—continue, escalating costs have discounted

142

the benefits of completing college. 196 Even adults with a Ph.D. are
showing frustration about not finding their way in the economy. 197
Citing risks ranging from social unrest to another economic
freefall (due to the insolvency of sky-rocketing student debt),
experts have started to argue that the rising costs and financing
scheme of higher education in the United States merit urgent
attention from policymakers. 198
Trump Administration Moves to Deregulate Higher Education
Despite Scandals
The Trump Administration has moved to weaken federal oversight
and deregulate the higher education industry. For example,
Education Secretary Betsy DeVos restored federal recognition of
Accrediting Council for Independent Colleges and Schools
(ACICS), a for-profit college accreditor from which the Obama
Administration withdrew recognition. 199 In another departure
from the prior Administration, the Department of Education did
not intervene or place stringent conditions on a proposal by the
nonprofit Dream Center for the acquisition and consolidation of
several for-profit colleges and universities, including Argosy
University, South University and the Art Institutes. 200 The deal
was ultimately a catastrophic failure, resulting in $13 million in
misused federal student aid and the sudden closure of multiple
higher education campuses—leaving thousands of students with
unpaid bills, unfinished classes and dashed hopes for graduation
day. 201 College scams using false advertising and high-pressure
sales techniques—such as those alleged in claims against the nowdefunct Trump University—have harmed countless students
across the nation. 202
Education Secretary Betsy DeVos also moved to loosen rules and
restrictions on student lending, undermining efforts by the Obama
Administration to protect student borrowers from fraud and to

143

require federally funded institutions to prepare students for gainful
employment or risk losing funding. 203 Given lax oversight, the
rollback of common sense consumer protections for students and
threats to end subsidies for student loans, the current
Administration has failed to lighten the load on Millennials—a
generation already overburdened by the effects of entering the
labor market during a volatile economy and starting adulthood in
a rapidly changing society.
Figure 3-4

Unemployment Rates by Educational Attainment
20%

Less than a high school diploma

15%

Some college or associate degree

High school graduates, no college
Bachelor's degree and higher

10%
5%
0%
2008

2010

2012

2014

2016

2018

Source: Bureau of La bor Statistics
Note: Unemployment ra tes are for persons 25 yea rs and older, s easonally a djusted

RISING MARKET UNCERTAINTIES
Harsher Labor Market Realities
The prosperity of America’s future depends on Millennials’
successful labor market entry and financial well-being. Four in ten
(38 percent) workers in the labor force are Millennials. 204 By
2025, they are expected to comprise three in four workers. 205
Labor market outcomes for this generation are uncertain as many

144

Millennials entered the labor market during the 2001-03 recession,
the 2007-09 Great Recession or a recession recovery period.
Studies show that entering the labor market in a bad economy can
have negative effects on earnings and employment that can be long
term. 206 Data show college enrollment increased following the
Great Recession. 207 While some young adults obtained additional
schooling during the recession, other Millennials endeavored to
find jobs and start their careers during a volatile labor market.
Many are Overqualified and Underemployed
Many Millennials have had a hard time securing employment in
the wake and recovery of the Great Recession. 208 Even outside of
the business cycle, Millennials face a secular trend of increasingly
difficult labor market conditions, including widening wage
inequality and an increasing gap between “good jobs” versus “bad
jobs.” 209 With a college degree being increasingly necessary for
employment, studies show that the extent of job mismatches and
the percentage of workers who are overqualified for their job have
been increasing since the 1970s. 210
Even recent college graduates face the risk of underemployment,
as workers with a college degree outnumber the jobs that require
a college degree. 211 Underemployment and unemployment may be
contributing to less work and life satisfaction among
Millennials. 212 A 2016 Gallup study found that most Millennials
(71 percent) do not feel engaged at work and more than half of
Millennials say they are looking for new employment
opportunities. 213 Data show that low employee engagement costs
firms and the economy due to lower worker productivity. 214

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The Housing Crisis, Barriers to Asset Building and the Rental
Trap
According to the Pew Research Center, Millennials are less likely
to own their home compared to prior generations of young adults.
From the 1980s to the present decade, the percent of young adult
households (under age 35) that owned their homes dropped from
over two in five (41 percent) to just over one in three (35
percent). 215 Studies show today’s young adults have many barriers
to homeownership. Millennials face a U.S housing market with a
declining share of modest-priced housing suited for first-time
homebuyers, often called “starter homes” (see Figure 3-5). Some
also have not yet recovered from the negative effects of the Great
Recession on wealth recovery and asset building, which may
further reduce their ability to buy a home. 216
According to Trulia, starter homes have seen continued increases
in prices and decreases in inventory. These homes have seen a
nearly 10 percent (9.6 percent) annual increase and starter
inventory has hit a historic low. As the inventory for starter homes
has declined, the share of income spent on housing costs has
risen. 217 According to the Census Bureau, the median price for a
home in 1950 was $44,600, adjusted for inflation. 218 By 2018,
average prices for starter homes had more than tripled to $150,000
in some markets and even quintupled to $250,000 in others. 219

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Figure 3-5

300,000

25%

Starter Home
Inventory (Left Axis)

23%

200,000

Share of
Income
(Right Axis)

100,000
0
2013

2014

2015

27%

2016

2017

2018

21%
19%
17%

Share of Income

Inventory

400,000

Starter Home Inventory vs. Price
Share of Income

15%

Source: T rulia
Note: Data on a quarterly basis. Share of income is amount needed to afford a median-priced
starter home.

Most of the nation’s metro areas—where most Millennials work—
have not increased new housing supply to meet the growing
demand among Millennials. About nine in ten Millennials (88
percent) live in metro areas. 220 Data show undersupply is worst in
city centers where new construction has lagged and median rental
housing costs in urban areas have risen faster than median
incomes. 221
Moreover, saddled with the financial burden of high rates of
school debt, most Millennials (80 percent) report that student debt
has forced them to delay homeownership. 222 According to the
Federal Reserve, increasing student debt among Millennials can
account for a 20 percent decline in homeownership among today’s
young adults. 223 Economists Mezza, Ringo and Sommer conclude
that a $1,000 increase in student loan debt causes a 1.5 percentage
point drop in the homeownership rate for student loan borrowers
in their mid-20s and early 30s. 224

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MODERN HOUSEHOLD ECONOMICS
According to a 2017 U.S. Census Bureau report, compared to
young adults in 1975, fewer young adults live with a spouse (27
percent) and more live alone (eight percent) or live with a
roommate (21 percent). Since the 1980s, most people have started
to live with a romantic partner around age 22. Though many more
do so by living with an unmarried partner (rather than marrying).
The number of single people living with a romantic partner
increased by more than 12 times in about the last 40 years,
becoming the fastest growing living arrangement for young adults.
Nearly one in eight Millennials live with an unmarried partner (12
percent). 225
In the context of the difficulties of achieving financial selfsufficiency, living with a parent is now the most common and most
stable living arrangement among young adults. Nearly one in three
(31 percent) young adults live with a parent and most young
people who report living with a parent are still living with a parent
one year later. 226 Among young adults, men are more likely than
women to live with a parent. 227
According to the U.S. Census Bureau, one in four young adults
who live with a parent is not in school and does not work. Young
adults who live with a parent are more likely to have a child and
are more likely to have a disability, suggesting that many young
adults are living at home to receive parental help. 228 Previously,
adults ages 85 and older, who often cannot live alone and require
assistance, were most likely to live in a multi-generational
household whereas today young adults are the age group most
likely to live in a multi-generational household. Multigenerational living arrangements are growing for nearly all racial
groups. 229

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Millennials may be more likely to live with a parent due to
economic reasons. The Pew Research Center reports there was an
increase in the number and share of Americans living in multigenerational households during and immediately after the Great
Recession. Since then, however, the trend has slowed but
remained more rapid than the growth before the Great
Recession. 230 In 2009, approximately 50 million Americans were
living in a multi-generational household and the number rose to
about 60 million Americans in 2014. The trend continued in 2016,
rising to 64 million people. 231 Data show that those who are
unemployed and those without a college degree are more likely to
live in a multi-generational household. 232
Delaying Marriage and Children
Given the difficulty in achieving the traditional precursors to
family formation, Millennials are staying single longer and living
in new household arrangements. While these are not new trends,
the recent economic difficulties of Millennials suggest the delayed
achievement of economic milestones may become more
pronounced. That would have a long-lasting impact on future
family and household arrangements in the United States. 233
Despite social expectations, few young adults have obtained fulltime employment or become financially independent of their
parents by their early twenties. One in four young adults (under
age 30) receive some form of financial support from someone
living outside their home. 234 About nine in ten Americans think
that certain milestones—including completing school, being
employed full-time, becoming financially independent from their
parents and the ability to financially support a family—are
important experiences to becoming an adult. Most Americans
believe that educational and economic milestones are more

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important and should be achieved before marrying and having
children. 235 A 2016 Gallup study showed that nearly one in five
(19 percent) Millennials report they have put off marrying due to
financial constraints. 236
Although most Americans think the ideal age to marry is 25, only
one in four adults marries by that age. 237 In 2018, the median age
to marry was 30 for men and 28 among women. This is seven years
later than the median age (23) for men in 1956 and eight years later
than the median age (20) for women. 238 However, data show that
the chances of ever marrying have not changed much in recent
decades, suggesting as many Millennials will eventually marry as
did in prior generations—just at a later age. 239
Another change in the economics of marrying in the United States
is the timing and chances of marrying for the college educated. In
the past, the college-educated were the least likely to marry.
According to the Pew Research Center, the college-educated are
now more likely to marry compared to those without a college
degree. 240 The National Center for Health Statistics has found that,
once married, college-educated women are also more likely to stay
married. 241
Among Millennials, modern household and family economics are
based on the income of not only men but also women. Most of
today’s married households with children rely on two incomes to
achieve economic security for their families (see Figure 3-6). As
young adults now report wanting to achieve financial
independence at an earlier age than marrying, dramatically
different economic and living arrangements have emerged as
today’s young adults seek economic security and romantic
partnership outside of marriage. 242

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Figure 3-6

Share of Families with Two Earners
80%
70%
60%
50%
40%
30%
20%
10%
0%

Percent of married-couple families with children under 18
72%
63%

Only One Parent
Employed
Both Parents
Employed

34%

25%

1960

2018

Source: JEC Democratic staff calculations based on data from the Pew Research Center and the
Bureau of Labor Statistics
Note: Excludes married-couple families with neither parent employed

It is likely that Millennial women will continue to hold jobs after
marrying and after having their first child. According to the
Bureau of Labor Statistics, more than half (54 percent) of marriedcouple households—with or without children—report earnings
from both the husband and wife. Less than one in five (18 percent)
have earnings from the husband alone. Most married mothers also
work (two-thirds). 243
According to a 2018 study by Child Care Aware of America, three
in five children under age six have both parents in the workforce.
The average annual cost of child care is over $9,000. Across all
states, the average cost of center-based infant care exceeds 27
percent of median household income for single working parents.
Over six months, nearly half of parents (45 percent) are absent
from work at least once due to child care breakdowns, which
negatively affects families, workplaces and the nation’s economy.

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U.S. businesses lose around $4.4 billion annually due to the
employee absenteeism associated with child care breakdowns. 244
Family Income and Dual-Earner Households
In most married American families, when the wife is working in
the labor market, the husband is also working and vice versa.
Today, more than three-quarters (78 percent) of millennial
families have dual-earner couples. 245 Starting in about the 1970s,
the increases in median income of married families have been
mostly observed among households with a wife in the paid labor
force (see Figure 3-7). The median family income for married
families without a wife in the paid labor force has been generally
flat since then.
The prevalence of the dual-earner household structure and
increasing average income level for married families with a wife
in the paid labor force suggest that having two earners in the
household is increasingly necessary for American families.
Further, compared to the 1960s, those with a college graduate
degree are now more likely to marry someone else with a college
degree. 246 Marriage may now be a factor that widens rather than
narrows income inequality. 247

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Figure 3-7

Family Income by Household Structure
Median Family Income in 2017 Dollars, 1960-2017
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
1960

Married, Wife in Paid Labor Force

Married, Wife Not in Paid Labor Force

1970

1980

1990

2000

2010

Source: U.S. Census Bureau, Historical Income Tables, Table F-7, All Races

CONCLUSION
Millennials are less likely than previous generations to earn more
than their parents. 248 Entering the labor market and starting a
family has been difficult for them due to challenging labor market
conditions, high levels of debt and high housing prices. In
addition, many Millennials face an inadequate federal safety net
and rising wage inequality. 249 Overall, federal policies have not
kept pace with the changing lives of Millennials and their new
household arrangements.
For Millennials to be given a fair chance to achieve upward
mobility, federal policies must keep pace with the vast
transformations that have occurred over the past half-century. This
should include greater support for education, paid family leave,
affordable child care and more robust consumer protections. Such
policies would go a long way to ensuring that Millennials have the

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opportunity to meet or exceed the economic success of previous
generations.

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CHAPTER 4: CONSUMER FINANCIAL PROTECTION
OVERVIEW
The Great Recession was “the worst financial crisis in global
history, including the Great Depression,” according to former
Federal Reserve Chairman Ben Bernanke. 250 The economy shed
8.7 million jobs; unemployment reached 10 percent; almost four
million Americans lost their homes and more than 170,000 small
businesses closed. 251 The economic meltdown was the result of
predatory lending practices, lax regulation, poorly understood
financial instruments, overleveraged financial institutions and
excessive risk-taking. 252 In response, Congress passed the
landmark Wall Street Reform and Consumer Protection Act,
which created a framework to protect consumers and minimize the
risk of future crises.
The Trump Administration has aggressively attempted to roll back
financial regulations and to undermine consumer protections. 253
The Economic Report of the President tries to justify these actions
and the President’s claims that regulations place unsustainable
burdens on small financial institutions and choke business lending.
Both those claims have been shown to be untrue. 254
The Administration’s actions have made the economy more
susceptible to financial shocks and consumers more vulnerable to
predatory practices. This undermines the financial security of all
Americans and particularly threatens those on the economic
margins.
Nevertheless, the Report looks only at the potential costs of
regulations while ignoring the proven benefits of financial
safeguards and consumer protections. This chapter examines these
issues more broadly, finding that prudent regulations and strong

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consumer protections are critical to the economic well-being of all
Americans.
REGULATORY REFORMS RESTORED CONFIDENCE AND
CONSUMER SPENDING
The modern regulatory framework implemented after the Great
Recession under the 2010 Dodd-Frank Wall Street Reform and
Consumer Protection Act helped strengthen our economy by better
protecting Americans from the unscrupulous financial activities
that threatened the stability of the nation’s financial system in the
2000’s. The advent of the Consumer Financial Protection Bureau
(CFPB) marked the first time in U.S. history that the federal
government created an agency whose sole responsibility was to
protect consumers of financial products from unfair, deceptive and
abusive practices. 255 The 2009 Credit Card Accountability
Responsibility and Disclosure (CARD) Act curtailed certain credit
card fees, strengthened protections for young consumers and made
credit card notices and the true cost of credit more transparent.
These pioneering post-crisis regulatory reforms successfully
ensured American consumers could rely on a dedicated federal
entity to take action—including disseminating information,
investigating, enforcing and recovering restitution—to prevent
future catastrophic risks, predatory behavior and a loss of
confidence in the nation’s financial system. 256
The Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010
Signed into law by President Barack Obama in 2010, the Wall
Street Reform and Consumer Protection Act (Dodd-Frank) was
the most sweeping reform of the nation’s financial system since
the Securities Exchange Act of 1934. 257 It increased oversight and
regulations on large financial institutions to prevent or mitigate the

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far-reaching effects that the failure of a big bank could have on
financial markets and the economy. To ensure that taxpayers do
not have to shoulder the cost of big bank dissolutions, Dodd-Frank
requires larger institutions to periodically undergo stress tests to
ensure they have sufficient capital and liquidity to survive a
financial crisis. 258 In order to mitigate systemic risk, large banks
must now develop and submit for federal review resolution and
recovery plans (“living wills”) to show they have the internal
capacity to dissolve or restructure in the event of a financial crisis
or failure. 259
To prevent the catastrophic shocks and financial uncertainty that
hurt Main Street and the everyday consumer during the last
financial crisis, Dodd-Frank created a regulatory framework to
address the grave abuses and systemic instabilities in the financial
sector. 260 It also required more derivatives to be cleared and traded
through regulated exchanges. 261 Indicators show banks to be safer
now due to the guardrails on the banking sector that were
established by Dodd-Frank. 262 For example, capital ratios of the
country’s largest firms have shown positive growth and one key
measure of capital strength, the average Tier 1 risk-based capital
ratio, has increased 48 percent since 2007. 263
Dodd-Frank also amended the Truth in Lending Act (TILA) to set
minimum “ability-to-repay” standards for certain residential
mortgages and bolstered other existing financial regulations and
consumer protections. 264 It enhanced protections for
whistleblowers and strengthened anti-retaliation laws for
employees who report wrongdoing. It also mandated additional
reporting requirements to permit more effective detection of racial
discrimination and federal oversight of discriminatory lending
practices. 265 Contrary to the claims of its early opponents, the
proactive approach to protect American consumers and ensure a

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stable financial system resulted in enhanced access to credit: credit
card, auto and mortgage lending all increased since the passage of
Dodd-Frank. 266
The Consumer Financial Protection Bureau (CFPB)
Dodd-Frank established the Consumer Financial Protection
Bureau (CFPB)—an independent agency within the Federal
Reserve System—as the first federal agency specifically charged
with protecting consumers of financial products from unfair,
deceptive and abusive practices. 267 The CFPB has primary
compliance authority over larger banks, thrifts and credit unions
(depositories with more than $10 billion in assets). Previously,
federal consumer financial protection authority was spread across
various federal agencies. Six federal agencies—the Federal
Reserve, Office of the Comptroller of the Currency (OCC),
Federal Deposit Insurance Corporation (FDIC), National Credit
Union Administration (NCUA), Department of Housing and
Urban Development (HUD) and Federal Trade Commission
(FTC)—retain some authorities, but they hold consumer
protection powers among an array of other responsibilities that
may be competing or at times conflicting. That includes the
responsibility to serve the interests of depositories and other or all
participants in the financial system. 268
Charged with rulemaking, enforcement and supervisory powers,
the CFPB has conducted over 200 enforcement actions against bad
actors dealing with predatory student loan debt, car dealerships,
cellphone providers and more. 269 The CFPB allows consumers to
provide feedback and make inquiries about financial consumer
products across the nation. Through the CFPB, nearly 30 million
consumers have received restitution, totaling over $12 billion in
relief. 270 The CFPB also coordinates with federal and state

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agencies, including the Department of Defense, to improve
consumer protection measures and lending rules. 271 The broad
success of the CFPB shows that Dodd-Frank created a prudent
framework for more robust checks and balances to our financial
system, resulting in effective outreach, education, advocacy,
oversight and enforcement efforts.
In late 2017, President Trump appointed as interim CFPB director
Mick Mulvaney, a former congressmember and state senator from
South Carolina and the White House Budget Director. Mulvaney
had previously said that the agency should not exist and called it a
“joke” in “a sick, sad kind of way.” In some of his first actions at
the CFPB, Mulvaney instituted a hiring freeze at the agency, put
new enforcement cases on hold and sent the Federal Reserve a
budget request for zero dollars. 272 Mulvaney dismissed the
members of the agency’s Consumer Advisory Board (CAB) after
11 CAB members held a news conference and criticized Mulvaney
for canceling legally required meetings with the board. 273 He
pulled back the probe into how Equifax failed to protect customers
and timely notify the public after a data breach that had exposed
the information of 145 million consumers. Some Equifax
executives quickly sold nearly $2 million worth of the company’s
shares yet waited weeks before publically disclosing the breach,
estimated to hit record costs of over $600 million. 274
Mulvaney, who comes from the home of some of the largest
payday lending companies in South Carolina, also moved to roll
back the investigation and prosecution of payday lenders. In one
instance, the Bureau settled with a group of payday lenders named
NDG Enterprise that falsely threatened customers with arrest and
imprisonment if they failed to repay loans and levied no financial
penalty on the group after a three-year prosecution. 275 The CFPB
also dropped a lawsuit in Kansas against four payday lending

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companies that charged interest rates of 440 to 950 percent—well
beyond the limit many states allow for consumer loans—with little
explanation. 276 The CFPB even joined with a payday lending trade
association in asking a federal judge to stay both the compliance
date for the payday lending rule and the trade association’s own
lawsuit against the Bureau. 277
Overall, the CFPB’s enforcement actions have been drastically
curtailed under the Trump Administration. In 2018, the Bureau
announced just 11 lawsuits or settlements, which is less than a
third of the number it announced in 2017 during Richard
Cordray’s final year as director. When Mulvaney and his
successor have allowed cases to move forward, they have often
settled with lenders for lowered fines or none at all. 278
Mulvaney radically undermined the agency’s mission by asserting
that the Bureau had an equal responsibility to serve the interests of
consumers and financial institutions.279 Under Mulvaney’s tenure
as acting director, one of the regulatory agency’s new priorities
would be deregulation. This new role was added to the Bureau’s
mission statement—making the CFPB “a 21st-century agency that
helps consumer finance markets work by regularly identifying and
addressing outdated, unnecessary or unduly burdensome
regulations…” 280 The mission shift left consumers without an
agency solely dedicated to consumer protection.
Mulvaney filled top positions with other political appointees rather
than career specialists, and the Bureau lost more than 10 percent
of its staff over a year. 281 For example, Eric Blankenstein, a CFPB
policy director responsible for enforcing an array of consumer
protection laws such as the Equal Credit Opportunity Act,
previously worked as a private sector lawyer and represented
banks involved in prior CFPB regulatory investigations. His preCFPB contributions to discourse about combating racial

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discrimination were blog posts dismissive of hate crimes and
mocking of increased academic penalties for racist behavior on
college campuses. 282 Already-low morale worsened under
Mulvaney’s leadership. 283
The Trump Administration and Republicans in Congress have
made clear attempts to dismantle the CFPB with the failed
Financial CHOICE Act of 2017 and early moves made by Trump
appointees. 284 Mulvaney, who is now President Trump’s acting
chief of staff, was replaced by current CFPB Director Kathy
Kraninger in December 2018. Kraninger had previously worked
with Mulvaney in the Office of Management and Budget. 285 In her
first testimony before Congress this year, she did not provide any
concrete pledges to make changes to the shifts initiated under
Mulvaney. For example, Kraninger declined to commit to
restoring the Office of Fair Lending to its former role under the
Obama Administration. 286
The Credit Card Accountability Responsibility and Disclosure
(CARD) Act of 2009
In 2009, Congress passed the Credit Card Accountability
Responsibility and Disclosure (CARD) Act with bipartisan
support. 287 Introduced by U.S. Representative Carolyn Maloney,
the CARD Act bans unfair, arbitrary and retroactive rate increases;
requires institutions to give cardholders more transparent
disclosures; mandates consumers be given a reasonable time to
pay their bills and more advanced notice of rate increases;
eliminates double-cycle billing; increases industry accountability;
and provides new protections for college students and young
adults, among other consumer protection measures. 288
Numerous studies find clear evidence that the bill’s enhanced
notice requirements, college credit card marketing prohibitions,

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“ability-to-pay” provisions and fair fee standards successfully
resulted in reduced late fees, less college-based marketing of credit
cards, improved readability of credit card statements and more
straightforward information about the total costs of credit.289
Advocates and consumer protection agencies laud the CARD Act
for reducing the costs of credit, including fees and interest charges,
by two percent while available credit increased. According to the
CFPB, the CARD Act has saved consumers over $16 billion in
unfair overdraft and late fees. 290
However, the successful implementation of the CARD Act
revealed additional areas of concern in deceptive practices related
to overdraft fees on debit cards and bank transactions that are not
covered by the 2009 legislation. Without additional consumer
protection regulations, overdraft practices can be especially
egregious in applying outrageously high overdraft fees for smalldollar transactions. 291 The CFPB found that the average consumer
pays a 17,000 percent annual percentage rate on overdraft fees.
Most debit card overdraft fees are incurred on purchases of $24 or
less while financial institutions charge a median overdraft fee of
$34 for typically small overdrafts. In order to fully extend the
protections to bank accounts, Representative Carolyn Maloney has
called for congressional legislation and/or CFPB rule-making to
extend opt-in requirements, fee caps and disclosure rules to debit
card, Automated Clearing House (ACH), checking and direct debit
transactions. 292
FINANCIAL SERVICES VITAL TO ECONOMIC WELL-BEING
Financial protections provided by legislation like Dodd-Frank are
becoming increasingly important as a growing number of
Americans participate in the financial system. Most national
indicators on assets, debt and financing have rebounded since the

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Great Recession. 293 Notwithstanding the robust recovery at the
aggregate level, the wealth and financial security of U.S.
households vary greatly across demographics and socioeconomic
statuses.
The consumers hardest hit by the financial crisis—such as young
adults, racial minorities, working families and those with less
education—still lag in the economic recovery. 294 Wealth gaps
persist or have widened since the Great Recession. The mean net
worth of white families is now higher than pre-recession levels;
however, the (mean and median) net worth of black and Latino
families is still below pre-crisis levels. That is in part because
nonwhite families faced net worth losses over a longer period than
white families after the recession recovery period. Among white
families, net worth for the median percentile still has not
rebounded, which indicates the recovery was experienced by the
top of the income distribution. 295
Americans who gain access to the financial system are often
confronted by a sophisticated and complex market. Historically,
overly aggressive, predatory and exclusionary practices of bad
actors have hurt American consumers and threatened the stability
of the financial sector, causing widespread economic and social
impacts. Today, nearly every American household and family
relies on financial services to meet their daily needs, manage
unexpected emergencies and realize their lifetime goals,
suggesting the ramifications of firm behavior and systemic risk in
the finance sector are even more far-reaching.
Expanding Financial Services
Based on a 2017 FDIC national survey of unbanked and
underbanked households, less than one in 10 U.S households (6.5
percent) were unbanked or lacked bank account services in 2017.

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Nearly nine in 10 households that reported receiving income (86.7
percent) typically receive a direct deposit into a bank account.
Most American households (68.4 percent) accessed insured banks
for all their financial services, and technology is further improving
access to financial services. From 2013 to 2017, the percent of
banked households using mobile banking to access their bank
account nearly doubled and the number of banked households that
deposited a check electronically tripled. 296
The “Unbanked” and the “Credit Invisible”
Though most households meet their needs through financial
services, about 8.4 million American households remained
unbanked in 2017, 26 million Americans were “credit invisible”
and millions more had insufficient credit histories or lacked a
recent credit history to be “scorable” by a commercially-available
credit scoring model. 297 Those who were excluded from
mainstream banking and financial services were more likely to be
younger, have lower levels of education and have lower income
levels. They were more likely to be black or Latino, disabled and
to experience more income volatility. Black households (16.9
percent) and Latino households (14.0 percent) were much more
likely to lack a checking or savings account than white households
(3.0 percent) in 2017. Black and Latino households had lower
credit use rates than white households irrespective of income
level. 298
Most of the changes in those served by financial institutions and
those recently exiting or entering the finance and banking system
have been due to demographic and socioeconomic shifts. 299 While
historically underserved groups have shown declines in unbanked
rates and increases in credit utilization, they still have
disproportionately less access to safe, secure and affordable

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financial services. Given the widespread reliance on financial
services to make ends meet, the banking sector and financial
institutions have an essential role to play in facilitating financial
stability and economic well-being by making available full
information and offering affordable financial products to all
Americans.
Lack of Sufficient Savings
More than half of households (57.8 percent) reported in 2017 that
they save for unexpected expenses or emergencies and most said
they do so using a savings account (71.6 percent) or a checking
account (23.7). 300 In the Federal Reserve System’s “Report on the
Economic Well-Being of U.S. Households in 2018,” 39 percent of
Americans reported they could not afford a $400 emergency using
cash or its equivalent. Many Americans reported they could not
even fully cover their expected expenses in a typical month.
Nearly one-fifth of adults were unable to pay their current month’s
bills in full, and one-fourth of adults reported skipping necessary
medical treatment because they could not afford the cost. 301 In
other words, for many Americans, unexpected needs and even
daily consumption are covered through mainstream financial
services (through savings and checking accounts) or, if they are
not fully banked, through informal debt or alternative financial
services.
Among unbanked households, over half (52.7 percent) reported in
2017 that they do not have a bank account due to not having
enough money to keep in an account and, increasingly, most (58.7
percent) reported they do not plan to open an account at all. 302
Other top reasons reported for not having a bank account include
lacking trust in banks (30.2 percent) as well as high banking fees
(29.9 percent). Concern for privacy was also listed as a reason by

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many (28.2 percent) for not having a bank account. For those who
are unbanked, most said they hold their savings in their home or
with friends or family (66.8 percent) and about one in ten (10.1
percent) use a prepaid card to hold their savings. 303
Credit Card Gap and Debt Share by Age
Most American households (80.3 percent) use a mainstream credit
product or service to finance consumption, with households
primarily accessing financial services through a major credit card
(68.7 percent) or a store credit card (41.6 percent). Fewer hold debt
as a home loan (33.8 percent), auto loan (32.3) or student loan
(16.6 percent). 304 However, debt share by loan type and, more
specifically, credit card adoption rates and average credit card
balances dramatically differ by age groups. 305
Young adults (under age 25) hold the least credit card debt (see
Figure 4-1). Those aged 45 to 54 hold the most credit card debt.
Less than half of young adults under the age of 25 (48.4 percent)
have at least one credit card while most adults over the age of 25
have two or more cards. 306

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Figure 4-1

Credit Card Balance by Age
$8,000
$5,483

$6,000
$3,241

$4,000
$2,000
$-

$6,252

$5,359
$3,634

$2,336

Under
25

25-34

35-44

45-54

55-64 Over 64

Source: Federal Reserve Bank of Boston/Equifax, 2018 Q4

Compared to older age groups, young adults have a different
profile of consumer debt types (see Figure 4-2). Student loan
delinquencies increased during the recession and the rate of
student loan delinquencies has not returned to prerecession levels
(see Figure 4-3). These delinquencies disproportionately affect
young adults, as student debt is the largest segment of debt they
hold. For those over the age of 30, the largest share of debt held is
in the form of a home mortgage, which has a lower delinquency
rate compared to student debt (see Figure 4-3).
Holding a large share of debt in a loan type that features a higher
delinquency rate as a young adult may contribute to lower
creditworthiness in the future for these birth cohorts. Partly due
merely to a shorter length of credit history, there is a 91-point
difference between the average credit scores of those in the oldest
and youngest age groups. 307 However, the debt composition of
young adults may portend lower credit worthiness even at later
ages if the credit history they establish is affected by holding debt

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of a higher delinquency rate. For example, missing a student loan
payment could hinder or delay the timing of obtaining a mortgage
and lifetime asset accumulation. In this context, the debt, credit
and assets of Americans must continue to be assessed by age, birth
cohort and other demographic factors to fully assess the current
snapshot and long-term horizon of national and household
financial well-being. 308
Figure 4-2

Debt Share by Product Type and Age
Auto Loans

Credit Card

Mortgage

HELOC

40-49

50-59

Student Loans

Other

100%
80%
60%
40%
20%
0%

18-29

30-39

60-69

Source: New York Fed Consumer Credit Panel/Equifax, 2018 Q4

70+

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Figure 4-3
Percent

15

Percent of Balance 90+ Days Delinquent
by Loan Type
Credit Card
Student Loans

10
5

Auto Loans

Mortgage

Other

HELOC

0
08:Q1

10:Q1

12:Q1

14:Q1

16:Q1

18:Q1

Source: New York Fed Consumer Credit Panel/Equifax

THE NEED FOR STRONGER CONSUMER PROTECTIONS
Increased consumer participation in the financial system has led to
the entry of more vulnerable consumers. We must maintain robust
safeguards and reasonable protections so that we do not undermine
the U.S. financial system’s ability to absorb an expanding
consumer base and promote equal economic opportunity and the
financial well-being of every American. Unfair banking practices
negatively affect Americans who already have and can least afford
higher costs of credit.
Before the Wall Street reforms enacted in the wake of the Great
Recession, there was no federal regulator dedicated to ensuring
that financial institutions would responsibly and fairly manage the
financial products that most American households rely on to meet
their basic day-to-day needs and to make critical life investments,
such as purchasing a home. It would be imprudent to weaken the

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very regulatory reforms that brought about a robust financial
recovery and the recent bout of economic stability.
Financial Insecurity in Retirement
Elderly adults can be targeted by predatory lending practices, risky
lending products and face financial precariousness in
retirement. 309 The adequacy of consumer protections for seniors is
critical because abuses of seniors can be especially devastating to
the financial stability and well-being of retirees. David Stevens, a
former FHA commissioner, has blasted predatory sales tactics
targeting seniors in the reverse-mortgage industry. 310 The Federal
Housing Administration’s investigation into possible appraisal
inflations on reverse-mortgage loans found approximately 50,000
appraisals (37 percent) were overvalued by at least three
percent. 311 According to the CFPB, inflated appraisals allow fraud
perpetrators to create a false appearance of high equity, allowing
borrowers, who otherwise would not qualify, to obtain a loan and
higher sums of liquidity that can be subject to a scam. 312
Many older Americans face the risk of downward mobility in their
golden years. About one in two seniors facing retirement risk not
having enough assets to combine with Social Security to maintain
their living standards. 313 The average home equity of elder
homeowners is nearly $80,000, which is higher than the nearly
$45,000 average held in a retirement account. 314 According to the
Government Accountability Office (GAO), about one in three (29
percent) older Americans have neither a pension nor a defined
benefit plan nor any assets in a 401(k) or IRA account. 315
Further, according to the CFPB, suspicious activity reports (SARs)
of elder financial exploitation quadrupled from 2013 to 2017.
Most elder financial exploitation (58 percent of incidents)
occurred through money services businesses. In SARs involving a

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loss to an older adult, the average amount lost was $34,200. When
an elderly victim was known to the suspect, the average loss was
even larger than when the suspect was unknown. 316 Given the
fragile financial standing of seniors facing retirement and the
inadequacy of Social Security and asset holdings, it is critical that
U.S. financial institutions enhance services and consumer
protections for elderly consumers.
Reverse Redlining
Leading up to the Great Recession, large banking institutions, such
as Wells Fargo and Countrywide Financial, aggressively targeted
vulnerable groups with predatory lending practices, now referred
to as reverse redlining. 317 At the dawn of the mass production of
single-family homes, the Federal Housing Administration (FHA)
was established in 1934 to guarantee long-term (30-year) housing
mortgages. While the intent of the federal government was to
make homeownership more affordable and accessible, widespread
and institutionalized discriminatory practices at the time
exacerbated racial segregation and inequality because the FHA
refused to insure mortgages in and near nonwhite
neighborhoods—a policy known as “redlining.” 318 Despite
promulgated protections against racial discrimination in housing,
racial minorities continue to be preyed upon in housing finance
markets. Today’s “reverse redlining” refers to the countering
approach of saddling underserved communities with predatory,
and often insolvent, financial products.
Under the Obama Administration, a U.S. Justice Department
investigation found 34,000 instances of Wells Fargo charging
black and Latino customers higher fees and rates on mortgages.
Nonwhite borrowers were charged higher fees than white
consumers with similar credit profiles and were steered into

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subprime mortgages even though they qualified for cheaper loans.
Wells Fargo paid a $175 million settlement in the federal probe.
Bank of America’s Countrywide Financial unit paid $335 million
to settle similar charges of racial discrimination. 319 Without
federal consumer protections and enforcement action, the nation
risks returning to chronic racial disparities in lending at levels
similar to when racial discrimination was legal in this country.
Modernization of the Community Reinvestment Act
In August 2018, the Office of the Comptroller of the Currency
(OCC) published its Advanced Notice of Proposed Rulemaking
for the 1977 Community Reinvestment Act (CRA). 320 CRA
established a federal mandate that financial institutions serve the
needs of the communities in which they are chartered, including
in low- and moderate-income communities. The federal legislation
was a pioneering measure to address the historical redlining
practices of housing and banking discrimination in urban and
minority neighborhoods. According to the National Community
Reinvestment Coalition (NCRC), banks have made about $6
trillion in CRA commitments since the law took effect. 321
CRA has a long track record of encouraging banks to provide
underserved communities access to banking and financial
services. 322 The Financial Crisis Inquiry Commission found CRA
was not a significant factor in subprime lending or the financial
crisis. 323 Loans made by CRA-regulated lenders in communities
mandated under CRA to lend were half as likely to default as
comparable loans in the same neighborhoods by independent
mortgage originators not subject to CRA.
Despite the demonstrated positive impact of CRA, Trump
Administration Treasury Secretary Steven Mnuchin and OCC
head Joseph Otting have spearheaded a CRA rollback effort

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focused on regulatory relief for banks rather than reforming the
CRA to address the modern landscape of banking, lending and
credit disparities. 324 Mnuchin and Otting have personal
experiences with CRA as former bank heads who once had a
standoff with community groups over the sale of the bank they
owned, OneWest, due to an initial lack of CRA commitments.325
According to S&P Global data analyzed by Bloomberg, banks
have shut nearly two thousand (1,915) more branches in lowerincome neighborhoods than they have opened nationally from
2014 to 2018. 326 Technology has transformed the way the banking
industry provides credit to consumers. Millions of Americans are
unable to access affordable credit and many low- and moderateincome communities continue to suffer blight from a lack of public
and private investments. Reforming the CRA regulatory
framework is important, but the modernization effort must be
responsive to the original intent and strengthen rather than weaken
the law’s mission to combat discriminatory and predatory lending
practices.
SECURING FAIR AND AFFORDABLE CREDIT FOR ALL
Given the Trump Administration’s lack of commitment to
consumer protections, Congressional Democrats have taken
leadership to defend the nation’s consumers against unfair fees for
payday lending and overdraft protection and to stand against the
deregulation of corporate fraud and abuse.
Payday Lending
Interest on payday loans often has an effective annual percentage
rate of 390 percent or more—well above industry standards for
credit cards or other consumer loans. 327 The Center for
Responsible Lending found that small, short-term payday and car

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title loans cost borrowers $8 billion every year. 328 Short-term
payday loans often turn into long-term debt traps.
Many borrowers take out consecutive loans to pay off prior loans.
According to the CFPB, over 80 percent of payday loans are rolled
over or followed by another loan within two weeks. 329 Half of all
payday loans are part of a sequence of 10 or more consecutive
loans, and loan size is more likely to increase in longer loan
sequences. 330
Payday lenders historically operated with little regulation and
oversight until the CFPB took steps to implement a rule governing
payday, vehicle title and certain high-cost installment loans in
2017. 331 The rule would have required lenders to make
underwriting determinations to ensure that borrowers could afford
their loans before issuing the loan. It also would have limited the
number of consecutive loans lenders can make by barring them
from making more than three short-term loans without a 30-day
“cooling off” period. 332 These provisions sought to prevent
spiraling debt traps and outrageously expensive debt obligations.
However, in 2019, the CFPB proposed rescinding most of the
2017 rule, including the underwriting and consecutive loan
provisions. 333 The CFPB also proposed delaying the compliance
date for the underwriting provision of the rule from August 19,
2019 to November 19, 2020. 334
Overdraft Protection Fees
Americans pay billions of dollars in overdraft fees, with total
overdraft revenue increasing to $34.5 billion in 2018. 335 Most
debit card overdraft fees are incurred on small purchases and,
according to the CFPB, consumers repay most overdrafts within
three days. 336 The application of high overdraft fees causes those
who face hard times to essentially pay very high interest rates for

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small, short-term loans. Given the success of the CARD Act on
saving consumers billions in excessive fees on credit cards and the
still exorbitant fee rates for debit card overdrafts, there is evidence
to support prudent expansion of overdraft and other consumer
protections to banking and prepaid card transactions not covered
by existing rules. 337
Emerging technologies have stepped in to provide financial
products for small loans as small as $2 internationally, but the
robust financial system in the United States means that many of
these transactions occur within the mainstream banking system in
America. 338 In some cases, U.S. banks engage in practices to
maximize overdraft coverage fees collected and impose multiple
overdraft coverage fees resulting from a single overdraft. 339 There
already are some opt-in and notice regulations for banks, such as
Regulation E requirements that financial institutions obtain
affirmative consent from account holders to charge certain
overdraft fees for ATM and point-of-sale (POS) debit card
transactions. 340 Yet there are also cases of banks violating the
existing “opt-in” rules. 341 For example, Santander Bank was
ordered to pay $10 million for deceptively marketing overdraft
services and signing up some customers without consent in
2016. 342
Emerging Threats to Consumer Protections and Financial
Stability
While our financial system is now considered safer than before the
Great Recession, there is a grave concern that the common sense
reforms adopted to prevent a future economic freefall are being
hastily dismantled. The very consumer and taxpayer protections
that made our banking sector safer have been undermined in the
Trump Administration through moves to weaken financial
regulations, rollback consumer protections and cut funding. 343 It

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is further alarming that the Trump Administration has endeavored
to violate the independence of the Federal Reserve and other
regulatory institutions from political influence. 344
Financial security, consumer confidence and economic stability
depend on a fair, transparent and inclusive banking system. DoddFrank bolstered the existing American framework of prudential
financial regulations and consumer protections, many of which
also were direct responses to financial crises and corporate fraud.
The Federal Reserve Act of 1913, which created the Federal
Reserve System as the nation’s central bank, followed the Panic
of 1907. 345 The 1929 Great Depression prompted the GlassSteagall Act of 1933, which established the Federal Deposit
Insurance Corporation. 346 Many corporate accounting fraud
schemes in the early 2000s, including the Enron scandal, resulted
in the 2002 Sarbanes-Oxley Act to combat corporate fraud and
protect whistleblowers. 347
CONCLUSION
Congress responded to the Great Recession by enacting the most
comprehensive financial regulations and consumer protections
since the 1930s. These reforms attempt to protect American
consumers from predatory practices and minimize the risk of
catastrophic market failure and.
The Economic Report of the President provides a theoretical
foundation for the Trump Administration’s efforts to roll back
regulations and weaken consumer protections. However, it
focuses only on the potential costs of regulations and protections,
almost completely overlooking their substantial benefits.
Furthermore, it ignores the effect of financial deregulation and
poor enforcement on American families, particularly those most

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vulnerable, who rely on the federal government to help protect
their economic well-being.
Economic growth and prosperity depend not only on increasing
productivity but on an adequately regulated financial system and
strong consumer safeguards. Given the lessons of the Great
Recession, it is irresponsible to ignore these prerequisites for a
sound economy.

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CHAPTER 5: PRESCRIPTION DRUG PRICES
OVERVIEW
The United States spends approximately $500 billion annually on
prescription drugs, more per person than any other country in the
world. 348 The Economic Report of the President claims that this is
mostly the fault of the federal government. However, the core of
the problem is a series of failures in complex and opaque markets,
in which incentives for manufacturers, distributors and insurance
companies often conflict with the interests of patients.
New drugs for rare diseases drive much of the overall spending.
However, the law prohibits the federal government from assessing
the cost-effectiveness of those medications, creating an
information asymmetry that can lead to overuse of the newest and
most expensive drugs. Moreover, although the United States uses
generic medications at a higher rate than other OECD countries,
Americans pay more for them because some companies use
strategies like “pay-for-delay,” compensating other manufacturers
for slowing introduction of generic drugs.
Market concentration and perverse incentives in supply chains
also drive up prices. In other industrialized countries, governments
negotiate drug prices, resulting in lower costs to consumers.
However, Medicare is prevented by law from negotiating prices.
The Report largely overlooks these complexities, offering few
solutions that would lower costs.
IMPACT ON CONSUMERS
The growing cost of prescription drugs imposes financial hardship
on millions of Americans and poses a health risk to some of the
country’s most vulnerable populations. One in four Americans

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who take prescription drugs reports having difficulty affording
their medications. 349
Some people cope with high costs by skipping doses. Two-thirds
of Americans who did not fill a prescription in the previous 90
days did so because of cost. 350 This figure goes up to almost 95
percent of Americans earning under $25,000 a year. In a 2016
international survey of adults, insured Americans were seven
times more likely than people in the United Kingdom not to fill a
prescription or skip doses due to cost. 351
One study found that 25 percent of diabetic patients have
underused their insulin because of the cost, as the price has
roughly tripled in the last decade. 352 Although prices do not
necessarily reflect the cost to consumers, Americans pay more out
of pocket than people in other countries. That is because they are
more likely to lack health insurance and even those with insurance
tend to be less shielded from drug prices than consumers in other
countries. 353
The inability to comply with recommended medical treatment,
including failing to fill a prescription, skipping doses or cutting
pills in half to make them last longer, has severe health
consequences and can lead to higher long-term medical costs. 354
These practices are estimated to cause 10 percent of
hospitalizations among older adults and are associated with
increased mortality rates. 355 They also cost the U.S. health care
system an estimated $100 billion to $289 billion annually. 356
Some consumers deal with high costs by attempting to purchase
medicines outside of the United States. In a 2017 survey, 12
percent of consumers reported that the cost of prescription drugs
drove them to purchase medication abroad. 357

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COST DRIVERS
The United States spent an estimated $333 billion on retail
prescription drugs in 2017, which was approximately 10 percent
of total health care spending, according to the latest CMS National
Health Expenditure data. 358 Including non-retail drugs, such as
those administered at a physician’s office or hospital, the figure
climbs to around half a trillion dollars or nearly one-fifth (17
percent) of all personal health spending. 359
Americans spent approximately $1,000 per capita on prescription
drugs in 2015—roughly 50 percent more than what Germany pays
and double what the United Kingdom pays. 360 Although some of
this difference is because we often use newer, more expensive
treatments, higher spending is not linked to better health
outcomes. Since Americans use similar quantities and types of
drugs overall, much of the cost difference has to be driven by
Americans paying higher prices for the same or similar drugs. 361
The Most Expensive Drugs Drive Total Costs
High drug prices impact all Americans, though a smaller group
that uses very expensive medicines bears a growing share of the
costs. Many new, innovative drug releases are for specialty drugs,
which often treat chronic, complex or rare diseases and are
administered by a specialist in a hospital or doctor’s office. These
drugs can have prohibitively high prices, running into hundreds of
thousands of dollars in a single year. 362
These trends force the government to concentrate on spending on
fewer, costlier drugs. Just 10 drugs make up 17 percent, or $24
billion, of all Medicare Part D spending by the government and
consumers. 363 The three percent of enrollees who reached the
highest threshold of out-of-pocket expenses—called catastrophic

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coverage—spend, on average, nearly $3,200 out-of-pocket on
their medication, over six times more than the overall average. 364
Figure 5-1

Prescription Drugs as a Share of Spending for the
Most Costly Conditions

80%
60%
40%
20%

0%

Diabetes Infectious Hyper- Mental COPD, Arthritis Back
Heart
Diseases tension Disorders Including & Other Problems Disease
Asthma
Joint
Disorders

Cancer TraumaRelated
Disorders

Source: JEC Democratic Staff analysis of the Medical Expenditure Panel Survey, 2015
Note: Prescription drug expenditures do not include drugs administered by a doctor or in a
hospital. COPD is Chronic Obstructive Pulmonary Disease.

For the 10 most costly conditions in the United States, private and
public expenditures on prescription drugs accounted for $227
billion, more than one-quarter (28 percent) of all outlays, even
excluding the cost of drugs directly administered by hospitals or
physicians. 365 For example, the annual cost of insulin almost
doubled from 2012 to 2016, reaching $5,705 on average. 366
Prescription drugs accounted for over 60 percent of spending on
diabetes in 2015.
The solution to higher drug prices is not just wider use of generic
medicines. In fact, data from the OECD shows that the United
States already has almost the highest share of generic
pharmaceutical use, comprising 84 percent of drug utilization in
the United States. 367 This suggests that at some level, incentives to
use cheaper drugs are getting through to doctors and patients. It
also suggests that cost differences are being driven by other

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factors, including large increases in the prices of even generic
drugs. 368
One reason prices are substantially higher in the United States is
that other countries have more centralized government payers
negotiating prices or policies to restrict prices. A Brookings/USC
paper estimates that sales in the United States account for twothirds to three-fourths of global drug makers’ profits, despite the
country only accounting for one-fourth of global income. 369
Overall, drug prices in the United States are more than twice as
high as those in the United Kingdom. 370 Compared to the United
Kingdom, prices in America are double for Humira (used to treat
arthritis), 42 percent higher for Harvoni (used to treat Hepatitis C),
89 percent higher for Truvada (used to treat HIV/AIDS) and over
seven and a half times more for Tecfidera (used to treat multiple
sclerosis). 371
Figure 5-2

U.S. Drug Prices Compared to Other
Countries
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$-

$5,089

US

UK

Switzerland

Spain

$2,669
$1,362
$1,253 $1,301
$906
$822
$689 $559

Humira
(arthritis)

Truvada
(HIV/AIDS)

Source: International Federation of Health Plans

$1,855
$1,399
$663

Tecfidera (MS)

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MARKET FAILURES
Challenges of a Patent System
Inefficiencies and market failures in the pharmaceutical supply
chain stymie innovation and drive up drug prices. For example,
the uncertainty and long research times involved in drug discovery
make it difficult for the private sector to fund research and
development of pharmaceuticals.
The federal government issues patents, as well as markets
exclusivities, and grants temporary monopolies to successful drug
innovators as an incentive to conduct private investment in
research and development (R&D). In effect, it delegates
responsibility for providing a public good to a private company
and compensates the company for doing so by allowing it to
charge monopoly prices.
Contracting out a task that you cannot fully observe to an agent
who has their own incentives creates what economists refer to as
a “principal-agent problem.” Principal-agent problems can often
be solved, but this requires sufficient monitoring and carefully
designed rewards and penalties. Naively assuming that markets
will deliver efficient outcomes in these situations is a recipe for
inefficiency and abuse.
It is difficult to argue that this system for incentivizing drug
discovery is achieving its goals in an efficient manner. One study
found that the amount that Americans overpay (relative to other
Western countries) on the top 20 drugs alone is more than oneand-a-half times what the drug manufacturers involved spend on
R&D worldwide. 372 To maximize returns on their research
investments, companies spend huge sums on marketing their

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drugs. Only one of the 10 largest drug companies spends more on
research than it does on marketing. 373
The Role of Federally Funded Research
The federal government is involved in pharmaceutical R&D
through funding research, providing tax credits, reviewing drug
safety and ensuring patents and exclusivities. In particular,
publicly funded research continues to be a large contributor to
fundamental scientific discoveries. Private companies have an
incentive to underinvest in “upstream” research that can be used
for multiple products later on since some of the benefits of widely
applicable discoveries will end up going to their competitors.
The government helps offset this underinvestment by investing
directly in basic research. One study of 35 major drugs found that
at least 80 percent were based on scientific discoveries made by
public sector research institutions.374 Another study found that a
one percent increase in publicly funded research led to a 1.8
percent increase in new drugs developed. In the same study, a onetime $1 investment in public sector basic research yielded $0.43
in benefits every year from then on, due to the development of new
molecular entities. 375
Public institutions are also now taking a more direct role in applied
research. Estimates of the share of new drugs attributable to
publicly-funded sources vary, but one study found that over nine
percent of drugs approved by the FDA from 1990 to 2007 resulted
from patents from public sector research institutions. These
applications could also be more targeted toward the public good,
as they are twice as likely as purely private applications to be
granted priority review by the FDA. That means the FDA
determined the drug would provide a significant improvement in
safety or effectiveness in treating a serious condition. 376

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Non-Transparent Pricing
Pharmaceutical companies use complex price structures to extract
as much money as possible from customers. The practice, known
as price discrimination, would be impossible in a perfectly
competitive market. The ability to conceal that pricing structure
from other customers is a further departure from that ideal.
Manufacturers typically sell their drugs to pharmacies through a
wholesaler. When the patient has insurance, they pay a copayment
to the pharmacy that accounts for a share of the drug price. The
insurer reimburses the pharmacy for the remainder of the cost of
the medication. The insurer bargains with the pharmacy over the
final price of the drug and may change the size of the copayment
to encourage patients and doctors to opt for drugs that are more
profitable for the insurer.
Additionally, the manufacturer may go around the pharmacy and
wholesaler and offer rebates and incentives directly to the
insurer. They do this to persuade the insurer to give their drugs
better placement in the insurer’s tier system, which means that
plan participants will pay a lower copay for those drugs. This
drives business toward those drugs instead of drugs made by
competing manufacturers. The insurer, in turn, often negotiates
coverage decisions with an employer or the government, rather
than directly with the insured patient. Increasingly, the insurer
may contract out the management of this process, and the
bargaining involved, to another company, called a Pharmacy
Benefits Manager (PBM).
The complexities and imperfections of the market for prescription
drugs are partly caused and compounded by information
asymmetries at several steps in the process. As with any aspect of
the health care process, the patient has much less information than

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the doctor, physician assistant or nurse practitioner about the
correct treatment for their condition. The health care provider, in
turn, will have less information than drug manufacturers about the
effects of drugs, particularly newer ones. Manufacturers also have
an information advantage over regulators such as the FDA, which
does not see all the omitted research in an application to market a
drug. Manufacturers have an incentive to selectively share
information with regulators and to market their drug aggressively
to health care providers and directly to consumers instead of
providing unbiased information to both groups.
Markets that deviate from the ideal of perfect competition in so
many ways require vigilance to prevent abuse, such as unfair price
increases, and guarantee that existing and new products are
delivered efficiently to the public.
Perverse Incentives in Supply Chains
The practices of drug manufacturers are only partly responsible
for the high cost of prescription drugs. Prices that consumers pay
are also the result of a series of negotiations among drug makers,
health care insurers, wholesalers, pharmacies and PBMs.
The gap between the price of drugs before negotiations with the
PBM and after price concessions remains large. In 2017, prices
before negotiations increased by about seven percent, compared to
about two percent after negotiations. 377 These prices generally
reflect a dynamic where manufacturers push sticker prices higher
to improve their negotiating position, while insurers and PBMs
attempt to extract the greatest concessions from manufacturers.
Perverse incentives, however, can lead multiple actors to attempt
to generate greater profits by driving list prices higher and can be
exacerbated by reimbursement structures in public insurance

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programs. In general, the practice of charging different prices to
different customers is always an indicator that a seller is exploiting
some form of market power. The complex, opaque system of
discounts and rebates can produce results that are good for profits
but not good for consumers.
Anti-Competitive Practices
Research shows that competition generally leads to lower prices.
Greater competition among brand-name drugs in a given
therapeutic category and greater generic competition for a brandname drug are both well-documented to lower prices. FDA
research found that the first generic competitor only reduces prices
slightly lower than the brand-name drug on average, but the
second generic competitor reduces the price of the drug by nearly
half. Further, drugs with nine or more generic competitors had an
average price of 80 percent less. 378
Unfortunately, there are more than 180 off-patent drugs without
any generic competition. Some generics also may have no
competition, as there are more than 500 drugs where brand-names
have withdrawn from the market, possibly leaving only one
generic. 379
Egregious price increases, such as those involving Albuterol
Sulfate and Digoxin, are enabled and exacerbated by lack of
competition. The price for a bottle of 100 tablets of Albuterol
Sulfate (used to treat asthma) increased from $11 to $434—a four
thousand percent increase—in only six months. The price for a
tablet of Digoxin (used to treat irregular heartbeats and heart
failure) increased from $0.11 to $1.10 (an 884 percent increase) in
less than two years. 380 Such extreme price increases often occur
when a manufacturer is the sole producer of a drug that treats a

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small market. One example of this is the drug Daraprim, which is
used for a rare, life-threatening parasitic infection. 381
Abuse of the Patent System
Brand-name companies engage in practices to create barriers to
generic competition. Companies will extend the patent protection
period for a drug by filing for additional patents on a certain
aspect, such as methods of production, new formulations or new
dosage schedules. One study found that almost 80 percent of drugs
associated with new patents between 2005 and 2015 were existing
drugs, not new ones. Nearly 40 percent of all drugs available on
the market during that period added patents or exclusivities. 382
Pay-for-Delay
Brand-name companies engage in other practices to block
competition and maintain monopoly status. In pay-for-delay
settlements, they pay generic companies to slow the introduction
of a generic version of a drug, effectively extending the patent and
preserving their monopoly. The Federal Trade Commission
estimates that this costs consumers at least $3.5 billion per year. 383
Slowing the Development of Generics
Some brand-name manufacturers also attempt to block generic
companies from accessing the samples of a drug they need to
prove that their product is identical when they file generic drug
applications to the FDA. Access is sometimes blocked by
misusing FDA safety protocols intended to ensure that drugs are
properly handled and distributed. One study found that access
restrictions cost the U.S. health care system $13.4 billion
annually. 384

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“Gag Clauses”
Because of the lack of transparency in drug pricing and their
efforts to charge different prices to different payers, PBMs
inserted “gag clauses” into contracts with pharmacies to prevent
pharmacists from notifying customers when the cash price of a
drug they were buying would have been less than the copay
required to purchase it through their insurance. Several states
passed laws to ban this practice, and in 2018 Congress passed the
“Patient Right to Know Drug Prices Act” and the “Know the
Lowest Price Act of 2018” to eliminate this practice nationwide. 385
Price Fixing
Generic companies also engage in anti-competitive practices. A
massive antitrust lawsuit by the Attorneys General of 47 states and
the U.S. Department of Justice alleges price-fixing by 16 generic
drug companies encompassing over 300 drugs. Executives at one
company pled guilty to conspiring to collude with other drug
makers to divide up markets and keep prices higher. Investigators
report that even a small fraction of the $104 billion in total sales
by generic-drug makers in 2017 would have cost consumers
billions of dollars. 386
Market Concentration
Mergers and acquisitions between companies that would
otherwise be competitors generally result in less competition and
higher prices. There is even evidence that mergers between large
brand-name drug companies result in less R&D spending and
fewer patents. According to a Government Accountability Office
report, the number of mergers and acquisitions in the
pharmaceutical sector held steady between 2005 and 2015, but the
total value of the average deal went up, as did the number of deals

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involving the 25 largest manufacturers. 387 Market concentration is
increasing in some drug classes. 388
Medicare Part D
The federal government is the largest payer for pharmaceuticals in
the United States through various government programs like
Medicare and Medicaid, which together spend almost as much on
pharmaceuticals as all private insurers combined. In fact, those
programs comprised 40 percent of retail prescription drug
spending in 2017, and that share is projected to grow to nearly 45
percent by 2026. 389 Prescription drug costs have an outsized role
in budgets for these programs. Drug spending in Medicare Parts B
and D combined, which includes both physician-administered
drugs and retail drugs, accounted for almost one-fifth (19 percent)
of all Medicare spending in 2017.
The governments of other industrialized countries like Canada,
Germany and the United Kingdom use centralized bargaining
power to hold down pharmaceutical prices. In the United States,
the Department of Veterans Affairs and the Department of
Defense bargain with drug manufacturers to get a discount of
approximately 50 percent relative to retail pharmacies. 390
However, Medicare Part D is prohibited from bargaining on behalf
of the American people. The Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, which created
Medicare Part D, prohibits the government-subsidized voluntary
insurance program for prescription drugs for Medicare recipients
from negotiating drug prices. The Republican majority in the 108th
Congress passed this provision by bending House rules to hold
votes open for hours to get the bill through the House and then to
pass the conference report. 391

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Unlike those in other countries, American regulators are not
required to consider whether new drugs deliver better value for
money than existing alternatives. The FDA does not even require
applicants to submit pricing information with new drug
applications and is doubtful of its legal authority to do so. Because
of this, the FDA is unable to consider the price of a drug when it
decides whether to grant the medicine market exclusivity. 392
Foreign governments may be more effective shoppers than the
U.S. government in other ways as well. Several other countries
have agencies charged with comparing the effectiveness of new
drugs—going beyond simply evaluating their safety and
effectiveness. Those countries tend to spend less on expensive new
drugs. 393 While it is important to determine whether cost savings
will result in slower adoption of useful new treatments, allowing
more expensive drugs to enter the market without determining
whether they are more effective than existing medication results
in higher overall costs. Some countries balance these competing
priorities by using different pricing mechanisms for old and new
drugs. 394
CONCLUSION
The Economic Report of the President fails to dig deeply into the
causes of high prices for prescription drugs, pointing the finger at
the FDA when in fact drug companies, distributors and insurance
companies deserve much of the blame. As in other areas, the
Report fails to recognize market failures even when they are
obvious.
The patent system is often abused, stifling competition and driving
up prices. Well-functioning, fairly regulated markets would lead
to lower drug prices for millions of Americans. Conservatives—
supposedly proponents of competitive markets—should take heed.

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The federal government could help reduce drug prices by
enforcing antitrust laws and outlawing anticompetitive behavior
such as “pay-for-delay.” It could provide unbiased research into
the cost-effectiveness of new treatments. In addition, it could learn
from the example of other countries to negotiate lower prices and
to counterbalance the market power of drugmakers.
However, the Report fails to grapple with market failures and other
factors that drive up prices. Lowering the high cost of prescription
drugs will require a better analysis of the root causes of the
problem.

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CHAPTER 6: CLIMATE CRISIS
OVERVIEW
The Economic Report of the President fails to address sufficiently
one of the most critical threats facing the American and global
economies: the climate crisis. Without sweeping and immediate
action, global temperatures will continue to rise and cause growing
economic harm that will dwarf the most serious economic crises
in our history. It is estimated that the future cost to the U.S.
economy will reach hundreds of billions of dollars each year.
Nevertheless, President Trump has called climate change a
“hoax,” and his Administration has taken steps to undo progress.
He plans to withdraw the United States from the Paris Agreement,
ceding U.S. leadership on the issue. Moreover, he has pulled back
from the Clean Power Plan, removing standards requiring power
plants to reduce emissions.
Earlier this year, four former Federal Reserve chairs joined 27
Nobel laureates and 12 former chairs of the CEA to issue a
statement saying, “Global climate change is a serious problem
calling for immediate national action.” This list includes every
living former Republican CEA chair, with the exception of CEA
Chair Kevin Hassett, who was charged with writing this year’s
Report and has left the CEA since its publication. It is
disappointing that the President’s CEA, under Hassett’s
leadership, did not express similar concerns.
This chapter presents an overview of the macroeconomic impact
of the climate crisis, including the rapidly growing costs of more
frequent severe weather events. It looks at the rising costs to
individuals and businesses, including the disproportionate impacts
of the climate crisis on disadvantaged communities. On the other

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hand, this chapter also highlights improvements in renewable
energy and the economic opportunities of that sector. It is
unfortunate that these issues are missing from the Report.
MACROECONOMIC ESTIMATES OF CLIMATE CRISIS COSTS
Major new studies highlight the grave threat of the climate crisis.
The United Nations’ Intergovernmental Panel on Climate Change
recently released a comprehensive 700-page report written by
scientists and researchers from dozens of countries based on 6,000
peer-reviewed studies. 395 The report estimates that global
economic damages will total $54 trillion at 1.5 degrees Celsius of
warming, and $69 trillion at 2.0 degrees of warming. Without
policy interventions, the researchers project that global
temperatures are on track to rise 3.7 degrees by the end of the
century. 396
In May 2019, the Intergovernmental Science-Policy Platform on
Biodiversity and Ecosystem Services (IPBES) announced the
findings from its forthcoming report on biodiversity, which is the
most comprehensive assessment of the planet’s biodiversity to
date. The 455 authors from 50 countries who contributed to the
1,500-page report warn that up to 1 million of the planet’s eight
million species are at risk of extinction, many within decades.
They call for transformative change—“a fundamental, systemwide reorganization across technological, economic and social
factors”—to protect and restore nature. 397 The report also
highlights the impact of the unprecedented loss in biodiversity on
human health, water, energy, agriculture and property. Notably, it
concludes that land degradation has already reduced the
agricultural productivity of 23 percent of the global land surface;
up to $577 billion global crops are now at risk from pollinator loss

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each year and up to 300 million people now face increased risk of
floods and hurricanes due to coastal habitat destruction. 398
The most recent U.S. National Climate Assessment, compiled by
a team of more than 300 experts, concluded that if emissions
continue to grow at current rates, the annual losses to the U.S.
economy could surpass half a trillion dollars by the end of the
century. 399 The assessment warns of impacts to the agriculture,
tourism and fisheries sectors, higher spending on electricity and
disruptions to global supply chains and trade. 400
A 2017 study estimates that the level of U.S. gross domestic
product (GDP) will decline by about 1.2 percent for every degree
of additional warming—for context, 1.2 percent of GDP in 2017
was $233 billion.401 These costs include higher human mortality,
lower agricultural output, higher crime rates, more coastal storms,
lower labor productivity and higher energy costs. The study also
estimates that the economic costs could be even more severe at
high levels of warming, with costs of up to 5.6 percent of GDP at
four degrees of warming. 402
Research published by the Federal Reserve Bank of Richmond
projects that climate change could reduce annual economic growth
in the United States by one-third over the next century. 403 For
context, that magnitude of impact would have reduced U.S.
economic growth from three percent to two percent last year.404
The researchers use seasonal and geographical variations to show
that the effects of global warming will spread beyond strictly
outdoor industries, such as agriculture and construction, and have
substantial negative effects on industries such as real estate and
the services sector. These negative effects are driven by lower
labor productivity during the summer as temperatures rise. 405

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THE INCREASING FREQUENCY AND COST OF EXTREME
WEATHER DISASTERS
It will not take decades to see the economic consequences of the
climate crisis—many areas of the country are already feeling its
effects. One already visible consequence of climate change is the
increase in frequency, intensity and cost of severe weather events,
which climate experts have unambiguously linked to warming
temperatures. 406
The National Oceanic and Atmospheric Administration (NOAA)
tracks weather events that cause more than $1 billion in economic
damage (adjusting past events for inflation). These events include
hurricanes, droughts, floods, wildfires and other storms. In the
1980s, there were 28 such events, causing over $170 billion in total
damages. The pace of these extreme events has dramatically
accelerated, and since 2010, there have been more than 100 highcost weather disasters, causing more than $750 billion in total
losses. The economic cost also has soared—so far this decade the
economy has suffered $580 billion more damage from extreme
weather events than during the 1980s. The years 2016, 2017, and
2018 saw the most such events in the history of the NOAA aside
from 2011, and 2019 has already seen six billion-plus dollar
disasters (the yearly average since 1980). 407
Extreme weather leads to high costs to the federal government, in
addition to the costs to the economy. The Office of Management
and Budget (OMB) estimated in 2017 that the climate crisis cost
the federal government more than $350 billion in the prior decade.
Much of this spending goes to emergency aid and rebuilding
infrastructure. 408 These costs will likely rise even further in the
near future. An analysis by the OMB projects that climate change
could increase the average annual expenditures on hurricane relief
by $50 billion by 2075. 409

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Figure 6-1

Number of events

20

Weather Events Causing $1 Billion or
More in Damage
1980-2018

15
10
5
0

1980 1985 1990 1995 2000 2005 2010 2015

Source: National Oceanic and Atmospheric Administration
Note: All numbers adjusted for inflation

Threats to Household Wealth and Property
Rising sea levels and increased frequency of disasters will have
enormous consequences for homeowners and businesses in
affected regions. Rising sea levels will cause increased chronic
tidal flooding in coastal neighborhoods. 410 This flooding will
cause damage and hurt property values.
The Union of Concerned Scientists identified 311,000 homes and
14,000 commercial properties that will be at increased risk of
chronic tidal flooding over the next 30 years. By the end of the
century, more than $1 trillion in homes and commercial properties
will be at increased risk of chronic tidal flooding because of the
climate crisis, including around one million homes in Florida
alone. Some U.S. communities will be hit particularly hard—
almost 175 will see at least 10 percent of homes put at risk by
2045. 411

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Property values in coastal communities likely are already being
affected. While many of these regions are still seeing property
values increase, recent research shows that exposure to potential
sea-level rises is leading to lower property value appreciation.
Exposed homes sell for seven percent less than comparable homes
that are not exposed to rising sea levels, even after accounting for
the distance to beaches. 412 For homeowners whose wealth is
mostly in home equity, a seven percent hit to a home’s value can
be a substantial financial setback.
With extreme weather disasters, homes and businesses are
damaged and destroyed, local and regional economies are
disrupted and, most importantly, lives are lost. In 2018, California
wildfires that raged for weeks because of exceptionally dry
conditions killed 106 people and caused a record $24 billion in
damage. 413 Hurricane Maria, which hit Puerto Rico in 2017, is
estimated to have taken 2,975 lives. 414
Few parts of the country have been spared from the rise in extreme
weather. In March 2019, for instance, a “bomb cyclone” hit the
Midwest United States, dropping record amounts of snow and rain
and creating massive floods across a large swath of the country.
Nebraska Governor Pete Ricketts called the flooding “the most
widespread disaster we have had in our state’s history.” 415 Early
estimates placed the total damage at $12.5 billion across 11 states,
including home and property damage, lost business and farm
revenue from destroyed crops. 416
Businesses have also suffered catastrophic losses, which affects
not only shareholders but also employees. For example, after the
2018 Camp Fire in California was linked to power lines from
Pacific Gas and Energy (PG&E), the anticipated liability claims
led the company to declare bankruptcy. 417 The company is
California’s largest utility and it employed 24,000 people. 418

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Extreme Weather Creates Increased Risk
Private sector actors increasingly are showing strong concern
about the likely economic impacts of the climate crisis. This
should send a strong message to policymakers.
The insurance industry, which is in the business of calculating the
possible economic impact of future catastrophic weather events, is
sounding the alarm. Extreme weather brings costly damages to
homeowners and business proprietors. Afterward, these
individuals are reliant on insurance policies to make them whole—
or if they are uninsured, the government often steps in to partially
mitigate the loss. However, where and how the climate crisis will
strike is uncertain, and it is not clear that risk models can keep up.
As the environment becomes less predictable, it is more likely that
insurers will find that they mispriced risk and the associated
premiums. 419 Where insurers do correctly price in climate change,
premiums are likely to rise for consumers and some may choose
to go without it if possible. 420
For instance, the models and maps that use past floods to
determine the designation of flood zones, setting of premiums by
insurance companies, and decisions of where to build or rebuild
are proving increasingly inadequate for providing a realistic
roadmap of risks. For example, in Houston, floods that were
expected by insurers only once every 500 years hit three times in
the three years from 2015 to 2017, driving home the lesson that
measures of flood risk have become outdated. 421
Catastrophic weather events are hitting uninsured properties more
often than in the past. The amount of annual catastrophic weatherrelated damages not covered by insurance has increased by 50
percent globally since 2004. 422 This increase makes it more
difficult for families and businesses to rebuild after disasters. For

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example, only 50 percent of homes in Puerto Rico were covered
against wind damage before Hurricane Maria. 423 Further, less than
four percent of households had flood insurance. This left
homeowners without the money needed to rebuild and instead
waiting to be approved for Federal Emergency Management
Agency (FEMA) aid. 424
Insurers are starting to recognize the risks that climate change
poses. Several industry actuary groups worked together to create
the Actuaries Climate Index, which monitors the rise in extreme
weather and sea levels in the United States and Canada. 425 The
five-year moving average of the index reached a new high with its
latest release. 426 An association of insurance executives, the
Geneva Association, has also reported on the challenges that the
climate crisis brings to the insurance industry, highlighting the
inherent complexity and volatility of disasters and limited takeup
of disaster insurance, among other challenges. 427
Figure 6-2

The Actuaries Climate Index
2
1.5
1
0.5
0
-0.5
-1

Continental USA, 1961-2017

1961

1971

1981

1991

2001

2011

Source: Actuaries Climate Index
Note: Data is average of 4-quarters; measures frequency of extreme
weather and sea level rise

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Past and current insurance executives are also calling for action.
In a recent op-ed, former State Farm chief executive Edward B.
Rust said, “We need to move away from the politically charged
rhetoric about climate change and talk about its real, tangible
consequences.” 428 Announcing damages from the California
wildfires, Allstate’s current chief executive Tom Wilson stated,
“It's time to address the impact that more severe weather is having
on Americans instead of fighting about climate change…. It is
now time to come up with longer-term solutions.” 429
CLIMATE CHANGE WILL HAVE DISPARATE IMPACTS
The climate crisis will not impact everyone or all parts of the
country equally. Areas such as the South and Midwest, where
temperatures are already warm or that rely heavily on agriculture,
will suffer some of the harshest effects of rising temperatures.
Crop yields will be negatively affected and humans will be forced
to deal with the growing health consequences of extreme heat.
Atlantic coastal areas will be hardest hit by rising sea levels,
experiencing more chronic flooding and more intense storms. 430
Not all industries will be impacted equally. Sectors that rely
heavily on labor, like construction, will see large declines in
productivity and output during hotter summers. 431 The agriculture
sector will have to adjust to new growing seasons and weather
patterns. 432 The real estate industry will be hit as hotter summers
affect peak buying season. Wholesale and retail trade rely on
laborers to load and unload goods in areas that are typically not
climate-controlled, exposing those industries to the effects of
rising temperatures as well. 433
The climate crisis also will adversely affect the health and wellbeing of the elderly, poor and most vulnerable in our society.
Increases in air pollution and frequency of extreme weather events

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and temperatures due to climate change will hurt poor
communities and some communities of color the most, many of
whom already experience higher than average exposure to
unhealthy environments. 434 Children will more often suffer from
infectious diseases, air pollution, heat waves and mental health
trauma resulting from extreme weather changes. Moreover, the
elderly are at higher risk of heat-related deaths. 435
Climate Change Will Cause Mass Migration
Rising temperatures will have disparate effects internationally,
with some parts of the globe potentially seeing drastic changes that
lead to mass migration. Destruction from extreme weather will
force people from homes and communities, rising sea levels will
make it untenable to live in some low-lying areas and declining
agricultural yields will leave many farmers unable to earn a living.
While people will first try to adapt to changes so they can stay in
their communities, millions will likely be forced to find new
homes. 436 One estimate suggests that up to one billion people
could be environmental migrants by 2050. 437
One-third of the population of the Marshall Islands, a U.S.
territory, has already moved to the continental United States,
partially due to the effects of climate change. 438 A town in Alaska
received funding to start relocating because of the effects of the
climate crisis last year. 439 More are under threat from coastal
erosion and also considering or undergoing relocation. 440 Some
island nations are already planning to relocate entire
communities. 441
Increased global migration will impact not only those forced to
migrate but the rest of the world and the global economy as well.
Migrant caravans could become more frequent and global
humanitarian efforts will have to adjust accordingly. Developing

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countries will look to richer nations like the United States to lead
in relief efforts. Local communities and labor markets will have to
adjust to dramatic and sudden changes in population flows.
INNOVATION IS DRIVING RENEWABLE COSTS DOWN
Mitigating the worst effects of climate change will require
increased usage of renewable energy. Fortunately, as solar and
wind are deployed on larger scales, production techniques
continue to develop and grids become smarter, experts anticipate
the costs of renewables will continue to decline.
Solar photovoltaic (PV) cells have dropped substantially in price
and have become more efficient. System costs for PV fell by
between 10 and 15 percent annually from 2010 to 2016, when
measured on a per-watt basis. 442 These gains were driven by both
improvements in production technologies and improvements in
cell design leading toward more efficient cells. 443 Estimates from
the International Renewable Energy Agency (IRENA) show that
solar projects are continuing to converge on the lower end of the
cost range, driving down the average cost of new solar projects. 444
The cost of producing electricity from onshore wind turbines
dropped by two-thirds from 2009 to 2017. 445 Improved
efficiencies in designs, like longer turbine blade lengths and higher
hub heights, and more developed supply chains have pushed down
these costs. IRENA research shows that onshore wind projects are
continuing to move toward the lower end of the current cost range,
which will further drive down the average cost in coming years
and make wind more competitive. 446

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Figure 6-3

$400

Levelized Cost of Solar and Wind
Energy

$300
Utility Scale Solar

$200
$100
$0

Wind
2009

2011

2013

2015

2017

Source: Lazard

Data on power purchase agreements (PPA)—contracts between
energy providers and buyers—in the United States show a similar
trend. In 2009, PPAs for wind averaged around $70 per megawatt
hour (MWh). By 2017 that price had dropped to around $20 per
MWh. 447 Similarly, prices for solar PPAs have dropped
substantially since 2006. Some solar agreements are priced as low
as $20 per MWh. 448 At these prices, solar and wind are
competitive with traditional energy sources.
Renewable Prices Are Competitive with Fossil Fuels
This rise in innovation, along with increasing economies of scale,
is leading to increasing cost parity between renewables and fossil
fuels. In many parts of the country, utilities are discovering that
solar or wind energy comes in below the cost of conventional
energy sources. As innovation continues, and prices continue to
decline, the case for renewables will become even clearer.

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Lazard, a financial advisory firm, analyzed new energy generation
projects in the United States using a variety of conventional and
alternative sources. The analysis finds that utility-scale solar and
wind energy are already cheaper than coal and on par with or
cheaper than natural gas, after accounting for tax preferences. This
is even before factoring in the cost of externalities associated with
many conventional sources of fuel, such as high levels of air
pollution and climate change-induced effects of carbon
emissions. 449
More Innovation Is on the Horizon
Energy storage plays a key role in integrating renewables into
electrical grids. Solar and wind production is variable, and storage
is needed to bridge gaps in production, such as overnight when
there is no sunlight. On a small scale, batteries can help homes and
mini-grids powered by solar store enough energy to meet their
overnight needs. 450 On a larger scale, hydroelectric storage
facilities use surplus energy production to pump water into higher
locations, which can then be released through turbines to generate
electricity when demand is higher. 451 More advanced utility-scale
technologies are also being invested in to meet this challenge—for
example, a 100-Megawatt battery was brought online last year in
Australia and Bloomberg NEF projects that more than $600 billion
will be invested in large-scale energy storage by 2040. 452
As costs drop and new technologies emerge, energy storage will
become cheaper and allow for longer durations. Costs for lithiumion batteries already dropped by three-fourths from 2010 to
2016. 453 With these advances, the case for renewables will become
stronger.
A development that has facilitated the incorporation of renewable
technology into grids and will likely become more important in

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the coming years is Distributed Energy Resources (DER)
technology. These advancements incorporate a variety of physical
and virtual technologies which enable a transition away from oneway centralized grids where power goes from power plants to
consumers. Instead, DER creates smart microgrids where
consumers and communities can feed unused power back into the
grid, batteries store excess energy to cover production lulls, and
other technologies are implemented to improve energy efficiency
and better manage demand. 454 Nationwide DER capacity is
expected to double from 2017 to 2023. 455
International Competition Over Renewable Jobs is Fierce and
Growing
Many jobs in clean electricity generation are protected from global
competition and outsourcing because wind and sunlight cannot be
imported in the same way as fossil fuel sources. However, the parts
essential to making a wind turbine, the photovoltaic cells that
convert sunlight into electricity, and the batteries that store energy
can all be produced anywhere on the globe.
Countries around the world recognize this opportunity and are
investing billions of dollars into advancing clean energy
production, storage, and distribution technologies in the hopes that
their countries will become the global leaders producing the
technologies and jobs of the future. Clean energy investment in
China totaled $569 billion in the last five years—comparatively,
clean energy investment in the United States totaled $289 billion
over the same time frame, less than half the Chinese investment.456
Before the 2016 presidential election, Ernst & Young had rated the
United States as the most attractive country in the world for private
sector renewable energy investment. Since the Trump
Administration has taken over, China has surpassed the United

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States and now is ranked as the most attractive destination for
renewable investments. 457 Ceding leadership in this space means
ceding the jobs of the future to China and other countries.
THE CLIMATE CRISIS REQUIRES IMMEDIATE AND BOLD
ACTION
Circumventing the worst impacts of climate change requires
substantial investment in clean energy innovation and
infrastructure, as well as other actions to reduce carbon and
greenhouse gas emissions. The economic costs of not acting
justify a very large-scale approach that some have compared to the
moon landing. This Congress, more than one hundred
Congressional Democrats in the House and Senate introduced a
resolution calling for a Green New Deal, outlining bold principles
that would help transition to a clean economy. 458
Supercharging Clean Energy Growth
In 2018, renewable energy sources were used to produce nearly
one-fifth (17 percent) of the electricity generated in the United
States. This is almost twice the market share renewables had in
2008 (9 percent). 459 This surge is driven by rapid declines in the
price of renewable energy, though the federal government could
do more to support the sector. This is particularly important in
light of the large-scale investments being made by other
countries. 460 Millions of jobs will be created in clean energy
production over the coming decades. 461 Ensuring that American
workers are filling many of those jobs requires smart policies at
the federal level.
Fully pricing in the cost of carbon through a carbon tax would
level the playing field and make clean energy even more costcompetitive. Federal research support for clean sources and

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complementary technology is also vital to the sector’s growth.
Further, the federal government could increase its own usage of
clean energy wherever possible, creating more demand, and
thereby greater economies of scale, for clean energy. Lastly,
subsidies for high-carbon emission technologies should be ended
by recognizing the high social costs that come with these fuels.
Committing to International Efforts and Goals
The climate crisis is a global problem and requires international
cooperation to address. In 2015, the United States joined with 194
other countries in the Paris Agreement to commit to taking action
to mitigate climate change. 462 Specifically, the agreement called
for efforts to keep the global increase in average temperatures to
below two degrees Celsius, with a long-term target of 1.5 degrees
of warming. 463 At these levels, the negative global economic
impact would still be significant, but less severe than at higher
levels. 464
As noted earlier, the Trump Administration has abdicated
leadership on the agreement and is working to remove the United
States from the pact. 465 Instead, the United States should be
leading this effort and holding the international community
accountable for reaching these targets. We also must do better—
after three straight years of declines, U.S. carbon emissions
increased by 3.4 percent in 2018. 466
Investing in Resiliency
Beyond working to reduce emissions, policymakers need to
recognize that the climate crisis is already impacting people,
businesses and local economies, and work to mitigate these
effects. The United States should build more resilient
infrastructure and take steps to ensure that we better understand

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and better minimize the risks of living in communities likely to be
most affected by climate change. When it responds to major
disasters, the federal government should stipulate that the relief
funds are used to make regions more resilient to future extreme
weather events, as was done during the previous Administration.
Updating outdated FEMA flood maps to more accurately reflect
flood risk and to account for the anticipated effects of climate
change would provide homeowners, construction and insurance
companies and urban planners better information.
Equipping Workers with Training for Clean-Energy Jobs
An issue at the center of any meaningful effort to move to a cleanenergy economy is support for those workers in traditional fossil
fuels jobs. Regardless of the particular approach, there must be
investments in workers to help them transition from jobs in fossil
fuels to new careers. The wind, solar and other clean-energy fields
could offer new employment options that take advantage of many
of the skills these workers already have.
There have been recent efforts in Appalachia and Wyoming,
supported by companies and nonprofits, to assist workers with the
transition from coal to clean-energy jobs. Some of the skills are
transferrable; others require workforce training. 467 Of course,
many of the jobs in wind and solar will be hundreds of miles from
the coal mines where generations of workers earned substantial
wages after graduating from high school. Successful efforts will
need to combine diversification of economies in communities
where mining jobs are being lost and also assistance to those
workers who are able to move to build skills in demand in other
regions.
The Obama Administration launched the Partnerships for
Opportunity and Workforce and Economic Revitalization

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(POWER) initiative in 2015 to give grants to communities seeking
to transition workers from legacy fuel industries to new career
paths. 468 Building on this model, and learning from how
communities have used these grants, could be an opportunity to
expand these initiatives.
CONCLUSION
The climate crisis is one of the most pressing economic threats
facing humanity in the 21st century. Without significant action, the
cost to the United States alone will reach hundreds of billions of
dollars annually and the cost to the global economy will be in the
trillions. However, the Economic Report of the President largely
ignores the issue and offers no proposals to address this growing
threat.
Ironically, the Administration is trying to undo previous progress
on climate change. This not only makes it more difficult to slow
the rise in global temperatures but also cedes markets for
renewable energy technologies to international competitors.
Policymakers should take swift and bold action to lower carbon
emissions and integrate clean energy sources. Such progress will
be impossible as long as the President continues to put his head in
the sand.

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ENDNOTES
1 McClelland, John and Jeffrey Werling. 2018. “How the 2017 Tax Act Affects CBO’s
Projections.” Congressional Budget Office, April 20.
https://www.cbo.gov/publication/53787.
2Joint Economic Committee. 2016. “The 2016 Joint Economic Report.” Minority
Views, page 178. U.S. Congress.
https://www.jec.senate.gov/public/_cache/files/0db793da-5e90-4f9d-ad9e487f28652c7a/3-2-2016-joint-economic-report-w-minority-views-final.pdf; Bureau of
Labor Statistics. “The Unemployment Situation,” April and May 2019.
3 Blinder, Alan S. and Mark Zandi. 2015. “The Financial Crisis: Lessons for the Next
One.” Center on Budget and Policy Priorities, October 15, 2015.
https://www.cbpp.org/research/economy/the-financial-crisis-lessons-for-the-next-one
4 Bureau of Economic Analysis. Gross Domestic Product.
https://www.bea.gov/data/gdp/gross-domestic-product.
5 Bureau of Economic Analysis. Gross Domestic Product, First Quarter 2019 (Third
Estimate); Corporate Profits, First Quarter 2019 (Revised Estimate).
https://www.bea.gov/index.php/news/2019/gross-domestic-product-first-quarter-2019third-estimate-corporate-profits-first-quarter; Federal Reserve Bank of New York. Jul
12, 2019: New York Fed Staff Nowcast.
https://www.newyorkfed.org/research/policy/nowcast; Federal Reserve Bank of
Atlanta. GDP Now. https://www.frbatlanta.org/cqer/research/gdpnow.aspx.
6 Note: Q4 over Q4; Congressional Budget Office. 2019 “The Budget and Economic
Outlook – January 2019.” Page 30. https://www.cbo.gov/system/files?file=201903/54918-Outlook-3.pdf.
7 Federal Open Market Committee. June 19, 2019: FOMC Projections materials,
accessible version.
https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20190619.htm.
8 Note: Q4 over Q4; International Monetary Fund. 2019. “World Economic Outlook,
April 2019.” https://www.imf.org/en/Publications/WEO/Issues/2019/03/28/worldeconomic-outlook-april-2019?intcid=OBanner-WEO0419#Chapter%201.
9 Bureau of Economic Analysis. Retrieved via Federal Reserve Bank of St. Louis
FRED webpage. Accessed April 17, 2019. https://fred.stlouisfed.org/graph/?g=eUmi.
10 Brookings. 2019. “Hutchins Center Fiscal Impact Measure.”
https://www.brookings.edu/interactives/hutchins-center-fiscal-impact-measure/.
11 Bureau of Labor Statistics. Retrieved via Federal Reserve Bank of St. Louis FRED
webpage. Accessed April 17, 2019. https://fred.stlouisfed.org/series/UNRATE/.
12 Bureau of Labor Statistics. Retrieved via Federal Reserve Bank of St. Louis FRED
webpage. Accessed April 17, 2019. https://fred.stlouisfed.org/series/PAYEMS.
13 Bureau of Labor Statistics. Retrieved via Federal Reserve Bank of St. Louis FRED
webpage. Accessed April 17, 2019. https://fred.stlouisfed.org/series/PAYEMS.
14 Bureau of Labor Statistics. Retrieved via Federal Reserve Bank of St. Louis FRED
webpage. Accessed June 11, 2019. https://fred.stlouisfed.org/series/UNRATE/.
15 For instance, the median projection of the Federal Open Markets Committee for the
long-term unemployment rate is 4.3 percent. Federal Open Market Committee. 2019.
“Economic Projections.” Federal Reserve, March 20, 2019; Bureau of Labor Statistics.
Retrieved via Federal Reserve Bank of St. Louis FRED webpage. Accessed June 11,

211

2019. https://fred.stlouisfed.org/series/UNRATE/.
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf.
16 Bureau of Labor Statistics. Retrieved via Federal Reserve Bank of St. Louis FRED
webpage. Accessed July 11, 2019. https://fred.stlouisfed.org/series/LNS12300060.
17 Tedeschi, Ernie. 2018. “Will Employment Keep Growing? Disabled Workers Offer a
Clue.” The New York Times, March 15, 2018.
https://www.nytimes.com/2018/03/15/upshot/will-employment-keep-growingdisabled-workers-offer-a-clue.html; see also, Obama Administration. 2014.
“Addressing the Negative Cycle of Long-term Unemployment.”
https://obamawhitehouse.archives.gov/sites/default/files/docs/wh_report_addressing_th
e_negative_cycle_of_long-term_unemployment_1-31-14_-_final3.pdf.
18 Aaronson, Stephanie, Mary C. Daly, William Wascher, and David W. Wilcox. 2019.
“Okun Revisited: Who Benefits Most From a Strong Economy?” Brookings Papers on
Economic Activity, March 7, 2019. https://www.brookings.edu/bpea-articles/okunrevisited-who-benefits-most-from-a-strong-economy/.
19 Bureau of Labor Statistics. Retrieved via Federal Reserve Bank of St. Louis FRED
webpage. Accessed April 17, 2019. https://fred.stlouisfed.org/series/AHETPI.
20 Gould, Elise. 2019. “State of Working America Wages 2018.” Economic Policy
Institute, February 20, 2019. https://www.epi.org/publication/state-of-american-wages2018/.
21 Donovan, Sarah A. and David H. Bradley. 2018. “Real Wage Trends, 1979 to 2017.”
Congressional Research Service. https://fas.org/sgp/crs/misc/R45090.pdf.
22 As of June 2019. Bureau of Labor Statistics. 2019. Employment Situation.
https://www.bls.gov/news.release/empsit.nr0.htm.
23 See chapter on Economic Inequality
24 See chapter on Millennials
25 Council of Economic Advisers. 2017. “The Growth Effects of Corporate Tax
Reform and Implications for Wages.” The White House, October 2017.
https://www.whitehouse.gov/sites/whitehouse.gov/files/images/Corporate%20Tax%20
Reform%20and%20Growth%20Final.pdf.
26 Rainey, Michael. 2017. “About that $4,000 Pay Raise: Debate Over the Trump
Corporate Tax Cut Heats Up.” The Fiscal Times, October 23, 2017.
https://www.thefiscaltimes.com/2017/10/23/About-4000-Pay-Raise-Debate-OverTrump-Corporate-Tax-Cut-Heats; see also, Clausing, Kimberly and Edward Kleinbard.
2017. “Trump’s Economists Say a Corporate Tax Cut Will Raise Wages by $4,000. It
Doesn’t Add Up.” Vox, October 20, 2017. https://www.vox.com/the-bigidea/2017/10/20/16506256/cea-report-corporate-taxes-wages-boost-job-growth.
27 Summers, Lawrence. 2017. “Trump’s Top Economist’s Tax Analysis Isn’t Just
Wrong, It’s Dishonest.” The Washington Post, October 17, 2017.
https://www.washingtonpost.com/news/wonk/wp/2017/10/17/lawrence-summerstrumps-top-economists-tax-analysis-isnt-just-wrong-itsdishonest/?utm_term=.dba192c6f6c2.
28 Joint Economic Committee hearing on “The Positive Economic Growth Effects of
the Tax Cuts and Jobs Act.” September 6, 2018. Page 14.
https://www.jec.senate.gov/public/_cache/files/354e7bf4-6e97-4071-8bbb523405a88817/the-positive-economic-growth-effects-of-the-tax-cuts-and-jobs-act.pdf.
29 Nunns, James R. 2012. “How TPC Distributes the Corporate Tax Income.” Tax
Policy Center, September 13, 2012. https://www.taxpolicycenter.org/publications/howtpc-distributes-corporate-income-tax/full; see also, Joint Committee on Taxation. 2013.

212

“Modeling the Distribution of Taxes on Business Income.”
https://www.jct.gov/publications.html?func=startdown&id=4528.
30 Tax Policy Center. 2017. “Distributional Analysis of the Conference Agreement for
the Tax Cuts and Jobs Act.”
https://www.taxpolicycenter.org/publications/distributional-analysis-conferenceagreement-tax-cuts-and-jobs-act/full.
31 Tax Policy Center. 2017. “Table T17-0316.”
https://www.taxpolicycenter.org/model-estimates/conference-agreement-tax-cuts-andjobs-act-dec-2017/t17-0316-conference-agreement.
32 Bureau of Economic Analysis. Retrieved via Federal Reserve Bank of St. Louis
FRED webpage. Accessed April 17, 2019. https://fred.stlouisfed.org/series/PNFI.
33 Arnon, Alexander. 2019. “The Price of Oil is Now a Key Driver of Business
Investment.” Penn Wharton Budget Model, January 17, 2019.
http://budgetmodel.wharton.upenn.edu/issues/2018/12/14/the-price-of-oil-is-now-akey-driver-of-business-investment.
34 National Association for Business Economics. 2019. “NABE Business Conditions
Survey, January 2019.”
https://nabe.com/nabe/surveys/business_conditions_surveys/january_2019_business_c
onditions_survey_summary.aspx.
35 Chairman Powell testimony before House Financial Services Committee, July 10,
2019. https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=403999.
36 Pisani, Bob. 2018. “Stock Buybacks Hit a Record $1.1 Trillion, and the Year’s Not
Over.” CNBC, December 18, 2018. https://www.cnbc.com/2018/12/18/stockbuybacks-hit-a-record-1point1-trillion-and-the-years-not-over.html.
37 Council of Economic Advisers. 2017. “Corporate Tax Reform and Wages: Theory
and Evidence.” The White House, October 2017.
https://www.whitehouse.gov/sites/whitehouse.gov/files/documents/Tax%20Reform%2
0and%20Wages.pdf; see also, Council of Economic Advisers. 2017. “The Growth
Effects of Corporate Tax Reform and Implications for Wages.” The White House,
October 2017.
https://www.whitehouse.gov/sites/whitehouse.gov/files/images/Corporate%20Tax%20
Reform%20and%20Growth%20Final.pdf; see also, Kevin Hassett. 2017. Prepared
remarks before the Tax Policy Center-Tax Foundation. October 5, 2017.
https://www.whitehouse.gov/sites/whitehouse.gov/files/documents/TPC%20%20Hassett%20Speech%20-%20FINAL%20FINAL.pdf.
38 Blair, Hunter. 2017. “The Arguments Supporting Corporate Tax Cuts are Wrong,
and Territorial Taxation Will Make Things Worse.” Economic Policy Institute,
December 15, 2017. https://www.epi.org/blog/the-arguments-supporting-corporate-taxcuts-are-wrong-and-territorial-taxation-will-make-things-worse/.
39 Davison, Laura. 2018. “Trump’s Tax Law Failed to Kill Off Corporate America’s
Prized Dodge.” Bloomberg, October 15, 2018.
https://www.bloomberg.com/news/articles/2018-10-15/trump-tax-law-fails-to-kill-offcorporate-america-s-prized-dodge; see also, Setser, Brad. 2019. “The Global Con
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2019. https://www.nytimes.com/2019/02/06/opinion/business-economics/trump-taxreform-state-of-the-union-2019.html.
40 Marr, Chuck, and Chye-Ching Huang. 2014. “Repatriation Tax Holiday Would Lose
Revenue and is a Proven Policy Failure.” Center on Budget and Policy Priorities, June

213

20, 2014. https://www.cbpp.org/research/repatriation-tax-holiday-would-lose-revenueand-is-a-proven-policy-failure.
41 Gordon, Tracy. 2018. “The Price We Pay for Capping the SALT Deduction.” Urban
Institute, February 15, 2018. https://www.taxpolicycenter.org/taxvox/price-we-paycapping-salt-deduction.
42 National Conference of State Legislatures. 2010. “NCSL Fiscal Brief: State
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http://www.ncsl.org/documents/fiscal/StateBalancedBudgetProvisions2010.pdf.
43 Urban Institute. “State and Local Expenditures.” Accessed April 17, 2019.
https://www.urban.org/policy-centers/cross-center-initiatives/state-local-financeinitiative/projects/state-and-local-backgrounders/state-and-local-expenditures.
44 Congressional Budget Office. 2018. “The Budget and Economic Outlook: 2018 to
2028.” April 9, 2018. https://www.cbo.gov/publication/53651.
45 Golshan, Tara. 2017. “Top Republicans are Already Talking About Cutting
Medicare and Social Security Next.” Vox, December 20, 2017.
https://www.vox.com/policy-and-politics/2017/12/18/16741730/gop-agenda-medicaresocial-security; see also, Golshan, Tara. 2019. “Trump Said he Wouldn’t Cut
Medicaid, Social Security, and Medicare. His 2020 Budget Cuts all 3.” Vox, March 12,
2019. https://www.vox.com/policy-and-politics/2019/3/12/18260271/trump-medicaidsocial-security-medicare-budget-cuts.
46 Romer, Christina D. and David H. Romer. 2017. “Why Some Times are Different:
Macroeconomic Policy and the Aftermath of Financial Crises.” National Bureau of
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47 Gale, William, Hilary Gelfond, Aaron Krupkin, Mark Mazur, and Eric Toder. 2018.
“Effects of the Tax Cuts and Jobs Act: A Preliminary Analysis.” Tax Policy Center,
June 13, 2018. https://www.brookings.edu/wpcontent/uploads/2018/06/ES_20180608_tcja_summary_paper_final.pdf.
48 Congressional Budget Office. 2019 “The Budget and Economic Outlook – January
2019.” Page 32. https://www.cbo.gov/system/files?file=2019-03/54918-Outlook-3.pdf.
49 Office of Management and Budget. 2017. “2017 Draft Report to Congress on the
Benefits and Costs of Federal Regulations and Agency Compliance with the Unfunded
Mandates Reform Act.” https://www.whitehouse.gov/wpcontent/uploads/2017/12/draft_2017_cost_benefit_report.pdf.
50 Goldschlag, Nathan and Alex Tabarrok. 2018. “Is Regulation to Blame for the
Decline in American Entrepreneurship?” Economic Policy, January 10, 2018.
https://academic.oup.com/economicpolicy/article/33/93/5/4833996?guestAccessKey=3
0b0a3f7-9dff-4bd9-95e9-e3ffad1691b5.
51 Berman, Eli and Linda T.M. Bui. 1999. “Environmental Regulation and Labor
Demand: Evidence from the South Coast Air Basin.” Journal of Public Economics.
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52 Interview with Richard D. Morgenstern. “How Does Regulation Affect
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https://www.resourcesmag.org/archives/how-does-regulation-affect-employment-aninterview-with-richard-morgenstern/.
53 Kullgren, Ian. 2018. “Trump Rolls Back Worker Safety Rules.” Politico, September
3, 2018. https://www.politico.com/story/2018/09/03/trumps-worker-safety-regulationsprotections-unions-806008.
54 Economic Policy Institute. “Trump’s Overtime Pay Cut Tracker.” Accessed April
17, 2019. https://www.epi.org/multimedia/overtime-pay-cut/.

214

Environmental Protection Agency. 2016. “Fact Sheet: Clean Power Plan by the
Numbers.” https://19january2017snapshot.epa.gov/cleanpowerplan/fact-sheet-cleanpower-plan-numbers_.html.
56 Friedman, Lisa. 2018. “Cost of New E.P.A. Coal Rules: Up to 1,400 More Deaths a
Year.” The New York Times, August 21, 2018.
https://www.nytimes.com/2018/08/21/climate/epa-coal-pollution-deaths.html.
57 Economic Policy Institute. “Fiduciary Rule.” Accessed April 17, 2019.
https://www.epi.org/research/fiduciary-rule/.
58 Investopedia. “The DOL Fiduciary Rule Explained.” March 1, 2019.
https://www.investopedia.com/updates/dol-fiduciary-rule/.
59 Autor, David H., David Dorn, and Gordon H. Hanson. 2016. “The China Shock:
Learning from Labor-Market Adjustment to Large Changes in Trade.” The Annual
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60 Meltzer, Joshua P. and Neena Shenai. 2019. “The US-China Economic Relationship:
A Comprehensive Approach.” Brookings Institution, February 28, 2019.
https://www.brookings.edu/research/the-us-china-economic-relationship-acomprehensive-approach/.
61 Congressional Budget Office. 2019 “The Budget and Economic Outlook – January
2019.” https://www.cbo.gov/system/files?file=2019-03/54918-Outlook-3.pdf.
62 Fajgelbaum, Pablo D., Pinelopi K. Goldberg, Patrick J. Kennedy, and Amit K.
Khandelwal. 2019. “The Return to Protectionism.”
http://www.econ.ucla.edu/pfajgelbaum/RTP.pdf; see also, Amiti, Mary, Stephen J.
Redding, and David Weinstein. “The Impact of the 2018 Trade War on U.S. Prices and
Welfare.” International Trade and Regional Economics.
http://www.princeton.edu/~reddings/papers/CEPR-DP13564.pdf.
63 Leng, Sidney. 2018. “China Hits Retaliation Button, Launching Tariffs as Trade War
with U.S. Starts.” Politico, July 6, 2018.
https://www.politico.com/story/2018/07/06/china-retaliation-us-tariffs-672127.
64 JEC calculations based on data from the U.S. Department of Agriculture.
https://www.ers.usda.gov/data-products/foreign-agricultural-trade-of-the-united-statesfatus/us-agricultural-trade-dataupdate/#Top%2010%20U.S.%20agricultural%20export%20markets%20for%20wheat,
%20corn,%20soybeans,%20and%20cotton,%20by%20volume.
65 Beddor, Christopher. 2019. “Bean Fighting.” Reuters, February 20, 2019.
https://www.breakingviews.com/considered-view/u-s-soy-farmers-will-suffer-tradewar-shell-shock/.
66 Franck, Thomas. 2018. “White House Economic Advisors Clash: Kudlow Says
Navarro’s China Comments are “Way Off Base.”” CNBC, November 13, 2018.
https://www.cnbc.com/2018/11/13/kudlow-says-navarros-china-comments-were-notauthorized.html.
67 Kelleher, Kevin. 2018. “Tariff Man Trump’s China Tweets and Investors’ Recession
Fears, Push Dow Down 800 Points.” Fortune, December 4, 2018.
http://fortune.com/2018/12/04/tariff-man-trump-tweets-twitter-china-recession-stockmarket-today/.
68 JEC calculations based on data from Economic Policy Uncertainty. Accessed April
17, 2019. http://www.policyuncertainty.com/.
69 Belsie, Laurent. 2018. “One Cost of Trade Tensions: Economic Uncertainty.”
Christian Science Monitor, May 17, 2018.
55

215

https://www.csmonitor.com/Business/2018/0517/One-cost-of-trade-tensionseconomic-uncertainty.
70 Altig, David, Nick Bloom, Steven J. Davis, Brent Meyer, and Nick Parker. 2019.
“Tariff Worries and U.S. Business Investment, Take Two.” Federal Reserve Bank of
Atlanta, Macroblog, February 25, 2019.
https://macroblog.typepad.com/?mod=article_inline.
71 Posen, Adam. 2018. “The Cost of Trump’s Economic Nationalism: A Loss of
Foreign Investment in the United States.” Peterson Institute for International
Economics, July 24, 2018. https://piie.com/blogs/trade-investment-policy-watch/costtrumps-economic-nationalism-loss-foreign-investment-united.
72 Congressional Budget Office. 2019. “The Effects of the Partial Shutdown Ending in
January 2019.” https://www.cbo.gov/publication/54937.
73 Frazee, Gretchen and Lisa Desjardins. 2018. “How the Government Shutdown
Compared to Every Other Since 1976.” PBS, December 28, 2018.
https://www.pbs.org/newshour/politics/every-government-shutdown-from-1976-tonow.
74 Bureau of Economic Analysis. 2019. “Gross Domestic Product First Quarter of 2019
(Advance Estimate).” April 26, 2019. https://www.bea.gov/system/files/201904/tech1q19_adv_0.pdf.
75 Bureau of Labor Statistics. Retrieved via Federal Reserve Bank of St. Louis FRED
webpage. Accessed June 12, 2019. https://fred.stlouisfed.org/series/CIVPART.
76 Congressional Budget Office. 2019 “The Budget and Economic Outlook – January
2019.” https://www.cbo.gov/system/files?file=2019-03/54918-Outlook-3.pdf.
77 Congressional Budget Office. 2019 “The Budget and Economic Outlook – January
2019.” https://www.cbo.gov/system/files?file=2019-03/54918-Outlook-3.pdf.
78 Bureau of Labor Statistics. “Foreign-born Workers: Labor Force Characteristics –
2017.” https://www.bls.gov/news.release/pdf/forbrn.pdf.
79 Gordon, Robert J. 2018. “Why Has Economic Growth Slowed When Innovation
Appears to be Accelerating.” National Bureau of Economic Research.
https://www.nber.org/papers/w24554.
80 Gordon, Robert J. 2018. “Why Has Economic Growth Slowed When Innovation
Appears to be Accelerating.” National Bureau of Economic Research.
https://www.nber.org/papers/w24554.
81 Furman, Jason. 2018. “Market Concentration – Note by Jason Furman.” OECD, June
7, 2018. https://one.oecd.org/document/DAF/COMP/WD(2018)67/en/pdf; see also,
Adalet McGowan, Muge, Dan Andrews, Chiara Criscuolo, and Guiseppe Nicoletti.
2015. “The Future of Productivity.” OECD. https://www.oecd.org/eco/OECD-2015The-future-of-productivity-book.pdf; see also, Federal Reserve Bank of St. Louis.
2018. “The Baby Boom and the U.S. Productivity Slowdown.” March 5, 2018.
https://www.stlouisfed.org/on-the-economy/2018/march/baby-boom-productivityslowdown.
82 Aiyar, Shekhar and Christian H. Ebeke. 2019. “Inequality of Opportunity, Inequality
of Income and Economic Growth.” International Monetary Fund, February 15, 2019.
https://www.imf.org/en/Publications/WP/Issues/2019/02/15/Inequality-of-OpportunityInequality-of-Income-and-Economic-Growth-46566.
83 JEC calculations based data from Bureau of Economic Analysis. Retrieved via
Federal Reserve Bank of St. Louis FRED webpage. Accessed July 12, 2019.
https://fred.stlouisfed.org/series/GDPC1. Real GDP is in chained 2012 dollars.
84 Ibid. Real GDP is in chained 2012 dollars.

216

Donovan, Sarah A. and David H. Bradley. 2018. “Real Wage Trends, 1979 to 2017.”
Congressional Research Service. https://fas.org/sgp/crs/misc/R45090.pdf; Hourly wage
and annualized figures are in 2017 dollars. Annualized figures are JEC Democratic
Staff calculations based on hourly wage estimates in the CRS Report and are
annualized by assuming 2,000 hours of work.
86 Economic Policy Institute. 2018. “The Productivity-Pay Gap.”
https://www.epi.org/productivity-pay-gap/; Productivity growth shows the cumulative
percent change in output per hour of work since 1948, net of depreciation; wage
growth shows the cumulative percent change in hourly compensation of private sector
production and nonsupervisory workers since 1948.
87 Guvenen, Faith, Kaplan, Greg, Song, Jae and Weidner, Justin. 2018. “Lifetime
Incomes in The United States over Six Decades.”
https://fguvenendotcom.files.wordpress.com/2018/11/gks_lifetime_history_2018_v101
_fg.pdf.
88 Cooper, David. 2019. “Raising the federal minimum wage by $15 by 2024 would lift
pay for nearly 40 million workers.” Economic Policy Institute.
https://www.epi.org/publication/raising-the-federal-minimum-wage-to-15-by-2024would-lift-pay-for-nearly-40-million-workers/ ; Shambaugh, Jay and Nunn Ryan.
2018. Revitalizing Wage Growth. The Hamilton Project.
89 Gould, Elise. 2019. “State of Working America Wages 2018.” Economic Policy
Institute, February 20, 2019. https://www.epi.org/publication/state-of-american-wages2018/.
90 Donovan, Sarah A. and David H. Bradley. 2018. “Real Wage Trends, 1979 to 2017.”
Congressional Research Service. https://fas.org/sgp/crs/misc/R45090.pdf.
91 Piketty, Thomas, Saez, Emmanuel, and Zucman, Gabriel. 2018. “Distributional
National Accounts: Methods and Estimates for the United States.” http://gabrielzucman.eu/files/PSZ2018QJE.pdf.
92 Guvenen, Faith and Kaplan, Greg. 2017. “Top Income Inequality in the 21st Century:
Some Cautionary notes.” Federal Reserve Bank of Minneapolis, Quarterly Review.
https://fguvenendotcom.files.wordpress.com/2014/04/guvenen-kaplan-mplsfedquarterlyreview-2017.pdf; Incomes are in 2012 dollars.
93 Ibid.
94 Piketty, Thomas, Saez, Emmanuel, and Zucman, Gabriel. 2018. “Distributional
National Accounts: Methods and Estimates for the United States.” http://gabrielzucman.eu/files/PSZ2018QJE.pdf ; Leonhardt, David. 2019. “How the Upper Middle
Class is Really Doing.” New York Times.
https://www.nytimes.com/2019/02/24/opinion/income-inequality-upper-middleclass.html.
95 Donovan, Sarah A. and David H. Bradley. 2018. “Real Wage Trends, 1979 to 2017.”
Congressional Research Service. https://fas.org/sgp/crs/misc/R45090.pdf.
96 The Federal Reserve. 2017. “Changes in U.S. Family Finances from 2013 to 2016:
Evidence from the survey of Consumer Finances.” Federal Reserve Bulletin.
https://www.federalreserve.gov/publications/files/scf17.pdf.
97 Zucman, Gabriel. 2019. “Global Wealth Inequality.” http://gabrielzucman.eu/files/Zucman2019.pdf.
98 Chetty, Raj et al. 2016. “The Fading American Dream: Trends in Absolute Income
Mobility Since 1940.” National Bureau of Economic Research. http://www.equalityof-opportunity.org/papers/abs_mobility_paper.pdf.
85

217

Karpman, Michael, Gonzalez, Dulce, and Zuckerman, Stephen. 2018. “Material
Hardship among Nonelderly Adults and Their Families in 2017.” Urban Institute.
https://www.urban.org/research/publication/material-hardship-among-nonelderlyadults-and-their-families-2017.
100 The Federal Reserve. 2019. “Report on the Economic Well-Being of U.S.
Households in 2018.” https://www.federalreserve.gov/publications/files/2018-reporteconomic-well-being-us-households-201905.pdf.
101 Bureau of Labor Statistics. 2019. “Unemployment Rate: Black: 16 Years + (SA,
%).” Haver Analytics, USECON. ; Bureau of Labor Statistics. 2019. “Unemployment
Rate: White: 16 Years + (SA, %).” Haver Analytics, USECON.
102 Cajner, Tomaz, Radler, Tyler, Ratner, David, and Vidangos, Ivan. 2017. “Racial
Gaps in Labor Market Outcomes in the Last Four Decades and over the Business
Cycle.” The Federal Reserve.
https://www.federalreserve.gov/econres/feds/files/2017071pap.pdf.
103 Bivens, Josh and Zipperer, Ben. 2018. “The Importance of Locking in Full
Employment for the Long Haul.” Economic Policy Institute.
https://www.epi.org/publication/the-importance-of-locking-in-full-employment-forthe-long-haul/ ; Aaronson, Stephanie, Daly, Marc, Wascher, William, and Wilcox,
David. 2019. “Okun Revisited: Who Benefits Most From a Strong Economy?”
Brookings Institution. https://www.brookings.edu/wp-content/uploads/2019/03/OkunRevisited-Who-Benefits-Most-From-a-Strong-Economy.pdf.
104 Donovan, Sarah A. and David H. Bradley. 2018. “Real Wage Trends, 1979 to
2017.” Congressional Research Service. https://fas.org/sgp/crs/misc/R45090.pdf.
105 U.S. Census Bureau. 2018. “Table A-1 Households by Total Money Income, Race,
and Hispanic Origin of Householder: 1967 to 2017.” Current Population Survey,
Annual Social and Economic Supplement.
https://www.census.gov/data/tables/2018/demo/income-poverty/p60-263.html; Black =
Black Alone or in Combination for 2002-2017; Black for 1967-2001. Income in 2017
CPI-U-RS adjusted dollars. Households of March of the following year.
106 Dettling, Lisa et al. 2017. “Recent Trends in Wealth-Holding by Race and
Ethnicity: Evidence from the Survey of Consumer Finances.” The Federal Reserve.
https://www.federalreserve.gov/econres/notes/feds-notes/recent-trends-in-wealthholding-by-race-and-ethnicity-evidence-from-the-survey-of-consumer-finances20170927.htm.
107 U.S. Census Bureau. 2019. “Housing Vacancies and Homeownership.”
https://www.census.gov/housing/hvs/index.html.
108 Dettling, Lisa et al. 2017. “Recent Trends in Wealth-Holding by Race and
Ethnicity: Evidence from the Survey of Consumer Finances.” The Federal Reserve.
https://www.federalreserve.gov/econres/notes/feds-notes/recent-trends-in-wealthholding-by-race-and-ethnicity-evidence-from-the-survey-of-consumer-finances20170927.htm.
109 Kochhar, Rakesh, Fry, Richard, and Taylor, Paul. 2011. “Hispanic Household
Wealth Fell by 66% from 2005 to 2009.” Pew Research Center.
http://www.pewhispanic.org/2011/07/26/the-toll-of-the-great-recession/; Wolff,
Edward. 2018. “The Decline of African-American and Hispanic Wealth Since the
Great Recession.” VOXEU. https://voxeu.org/article/decline-african-american-andhispanic-wealth-great-recession.
110 Fontenot, Kayla, Semega, Jessica, and Kollar, Melissa. 2018. “Income and Poverty
in the United States: 2017.” U.S. Census Bureau.
99

218

https://www.census.gov/content/dam/Census/library/publications/2018/demo/p60263.pdf.
111 U.S. Census Bureau. 2018. “Table 3. Poverty Status of People, by, Age, Race, and
Hispanic Origin.” Historical Poverty Tables: People and Families - 1959 to 2017.
https://www.census.gov/data/tables/time-series/demo/income-poverty/historicalpoverty-people.html.
112 Aron, Lauden et al. 2015. “How are Income and Wealth Linked to Health and
Longevity?” The Urban Institute.
https://www.urban.org/sites/default/files/publication/49116/2000178-How-are-Incomeand-Wealth-Linked-to-Health-and-Longevity.pdf; Ratcliffe, Caroline. 2015. “Child
Poverty and Adult Success.” The Urban Institute.
https://www.urban.org/sites/default/files/publication/65766/2000369-Child-Povertyand-Adult-Success.pdf.
113 Chetty, Raj, Hendren, Nathaniel, Jones, Maggie, and Porter, Sonya. 2018. “Race
and Economic Opportunity in the United States: an Intergenerational Perspective.”
http://www.equality-of-opportunity.org/assets/documents/race_paper.pdf.
114 U.S. Census Bureau. 2018 “Table P-38 Full-Time, Year-Round All Workers by
Median Earnings and Sex: 1960 to 2017.” Current Population Survey, Annual Social
and Economic Supplement. https://www.census.gov/data/tables/timeseries/demo/income-poverty/historical-income-people.html; U.S. Census Bureau. 2018
“Table P-40 Women's Earnings as a Percentage of Men's Earnings by Race and
Hispanic Origin.” Current Population Survey, Annual Social and Economic
Supplement. https://www.census.gov/data/tables/time-series/demo/incomepoverty/historical-income-people.html.
115 U.S. Census Bureau. 2018 “Table P-40 Women's Earnings as a Percentage of Men's
Earnings by Race and Hispanic Origin.” Current Population Survey, Annual Social and
Economic Supplement. https://www.census.gov/data/tables/time-series/demo/incomepoverty/historical-income-people.html.
116 Rho, Hye Jin. 2019. “Understanding Challenges of AAPI Women to Achieve Equal
Pay.” Center for Economic and Policy Research. http://cepr.net/blogs/ceprblog/understanding-challenges-of-aapi-women-to-achieve-equal-pay.
117 U.S. Census Bureau. 2018 “Table P-38 Full-Time, Year-Round All Workers by
Median Earnings and Sex: 1960 to 2017.” Current Population Survey, Annual Social
and Economic Supplement. https://www.census.gov/data/tables/timeseries/demo/income-poverty/historical-income-people.html; U.S. Census Bureau. 2018
“Table P-40 Women's Earnings as a Percentage of Men's Earnings by Race and
Hispanic Origin.” Current Population Survey, Annual Social and Economic
Supplement. https://www.census.gov/data/tables/time-series/demo/incomepoverty/historical-income-people.html.
118 JEC Democratic Staff calculations based on data from U.S. Census Bureau. 2018
“Table P-38 Full-Time, Year-Round All Workers by Median Earnings and Sex: 1960
to 2017.” Current Population Survey, Annual Social and Economic Supplement.
https://www.census.gov/data/tables/time-series/demo/income-poverty/historicalincome-people.html.
119 Rose, Stephen J. and Hartmann, Heidi. 2018. “Still a Man’s Labor Market: The
Slowly Narrowing Gender Wage Gap.” Institute for Women’s Policy Research.
https://iwpr.org/publications/still-mans-labor-market/.
120 JEC Democratic Staff analysis based on Current Population Survey, Annual Social
and Economic Supplement data from 1993 to 2017.

219

Anderson, Julie. 2016. “Breadwinner Mothers by Race/Ethnicity and State.”
Institute for Women’s Policy Research. https://iwpr.org/wpcontent/uploads/wpallimport/files/iwpr-export/publications/Q054.pdf; Breadwinner
mothers are defined as single mothers who head a household or married mothers who
generate at least 40 percent of a household’s joint income.
122 Institute for Women’s Policy Research. 2018. “Women Earn Just Half of What Men
Earn Over 15 Years.” https://iwpr.org/women-earn-just-half-of-what-men-earn-over15-years/.
123 Black, Sandra, Schazenchack, Diane, and Breitwieser, Audrey. 2017. “The Recent
Decline in Women’s Labor Force Participation.” The Hamilton Project.
https://www.brookings.edu/wpcontent/uploads/2017/10/es_10192017_decline_womens_labor_force_participation_bl
ackschanzenbach.pdf.
124 Blau, Francine D. and Kahn, Lawrence M. 2017. “Women and Paid Work: Is the
U.S. Falling Behind?” Econofact. https://econofact.org/women-and-paid-work-is-theu-s-falling-behind.
125 JEC Democratic Staff analysis based on data from the Bureau of Labor Statistics
and OECD, using methodology from the Department of Labor.
https://www.dol.gov/wb/resources/cost-of-doing-nothing.pdf. Economic activity left
on the table is defined as the foregone economic activity if the prime-age (age 25-54)
female labor force participation rate were as high as Canada or Germany’s. See
footnote 154 in Department of Labor report for more information.
126 Lusardi, Annamaria and Mitchell, Olivia. 2016. “Older Women’s Labor Market
Attachment, Retirement Planning, and Household Debt.” National Bureau of
Economic Research. http://www.nber.org/papers/w22606.
127 JEC Democratic Staff analysis based on data from the U.S. Census Bureau, “PINC08. Source of Income-People 15 Years Old and Over, by Income of Specified Type,
Age, Race, Hispanic Origin, and Sex. (Both Sexes, 65 Years and Over, All Races).”
https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-pinc/pinc08.html.
128 JEC Democratic Staff Calculations based on data from U.S. Census Bureau, POV01. Age and Sex of All People, Family Members and Unrelated Individuals Iterated by
Income-to-Poverty Ratio and Race. (Below 100% of Poverty, All Races)
https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-pinc/pinc08.html.
129 Fonseca, Raquel, Mullen, Kathleen, Zamarro, Gema, and Zissimopoulas, Julie.
2012. “What Explains the Gender Gap in Financial Literacy? The Role of Household
Decision Making.” https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3462438/.
130 Gault, Barbara, Hartmann, Heidi, Milli, Jessica, and Reichlin, Lindsey. 2014. “Paid
Parental Leave in the United States.” Institute for Women’s Policy Research.
https://www.dol.gov/wb/resources/paid_parental_leave_in_the_united_states.pdf.
131 Bureau of Labor Statistics. 2019. “What data does the BLS Publish on Family
Leave?” https://www.bls.gov/ncs/ebs/factsheet/family-leave-benefits-fact-sheet.htm.
132 Livingston, Gretchen. 2016. “Among 41 Nations, U.S. is the Outlier When it comes
to Paid Parental Leave.” Pew Research Center. http://www.pewresearch.org/facttank/2016/09/26/u-s-lacks-mandated-paid-parental-leave/.
133 Council of Economic Advisers. 2014. “The Economics of Early Childhood
Investments.”
121

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https://obamawhitehouse.archives.gov/sites/default/files/docs/the_economics_of_early
_childhood_investments.pdf.
134 Economic Innovation Group. 2016. “The New Map of Economic Growth and
Recovery.” https://eig.org/recoverymap.
135 Economic Innovation Group. 2018. “From Great Recession to Great Reshuffling:
Charting A Decade of Change Across American Communities.” https://eig.org/wpcontent/uploads/2018/10/2018-DCI.pdf.
136 Economic Innovation Group. 2018. “From Great Recession to Great Reshuffling:
Charting A Decade of Change Across American Communities.” https://eig.org/dci.
137 Nunn, Ryan, Parsons, Jana, and Shambaugh, Jay. 2018. “The Geography of
Prosperity.”
http://www.hamiltonproject.org/assets/files/PBP_FramingChapter_compressed_20190
307.pdf.
138 Economic Research Services, US Department of Agriculture. “Rural America At A
Glance: 2017 Edition.” 2017.
https://www.ers.usda.gov/webdocs/publications/85740/eib-182.pdf?v=43054.
139 Weingarden, Alison. 2017. “Labor Market Outcomes in Metropolitan and NonMetropolitan Areas: Signs of Growing Disparities.” The Federal Reserve.
https://www.federalreserve.gov/econres/notes/feds-notes/labor-market-outcomes-inmetropolitan-and-non-metropolitan-areas-signs-of-growing-disparities-20170925.htm.
140 Economic Innovation Group. 2018. “From Great Recession to Great Reshuffling:
Charting A Decade of Change Across American Communities.” https://eig.org/dci.
141 Weingarden, Alison. 2017. “Labor Market Outcomes in Metropolitan and NonMetropolitan Areas: Signs of Growing Disparities.” The Federal Reserve.
https://www.federalreserve.gov/econres/notes/feds-notes/labor-market-outcomes-inmetropolitan-and-non-metropolitan-areas-signs-of-growing-disparities-20170925.htm;
Economic Research Services, US Department of Agriculture. “Rural America At A
Glance: 2018 Edition.” 2018.
https://www.ers.usda.gov/webdocs/publications/90556/eib-200.pdf.
142 Weingarden, Alison. 2017. “Labor Market Outcomes in Metropolitan and NonMetropolitan Areas: Signs of Growing Disparities.” The Federal Reserve.
https://www.federalreserve.gov/econres/notes/feds-notes/labor-market-outcomes-inmetropolitan-and-non-metropolitan-areas-signs-of-growing-disparities-20170925.htm.
143 Chetty, Raj, Friedman, John, Hendren, Nathaniel, Jones, Maggie, and Porter, Sonya.
2018. “The Opportunity Atlas, Mapping the Childhood Roots of Social Mobility.”
Opportunity Insights. https://opportunityinsights.org/wpcontent/uploads/2018/10/atlas_summary.pdf.
144 U.S. Census Bureau. 2018. “Income and Poverty in the United States: 2017.”
https://www.census.gov/library/publications/2018/demo/p60-263.html; Fontenot,
Kayla, Semega, Jessica, and Kollar, Melissa. 2018. “Income and Poverty in the United
States: 2017.” U.S. Census Bureau.
https://www.census.gov/content/dam/Census/library/publications/2018/demo/p60263.pdf; The poverty line was $24,858 in 2017 for a family of four with two children
under 18.
145 Cellini, Riegg, McKernan, Signe-Mary, Ratcliffe, Caroline. 2008. “The Dynamics
of Poverty in the United States: A Review of Data, Methods, and Findings.” Journal of
Policy Analysis and Management.
https://www.urban.org/sites/default/files/publication/30656/411960-The-Dynamics-ofPoverty-in-the-United-States-A-Review-of-Data-Methods-and-Findings.PDF.

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McLaughlin, Michael and Rank, Mark. 2018. “Estimating the Economic Cost of
Childhood Poverty in the United States.” Social Work Research.
https://academic.oup.com/swr/articleabstract/42/2/73/4956930?redirectedFrom=fulltext.
147 Council of Economic Advisers. 2019. “Economic Report of the President.”
https://www.whitehouse.gov/wp-content/uploads/2019/03/ERP-2019.pdf.
148 Council of Economic Advisers. 2019. “Economic Report of the President.”
https://www.whitehouse.gov/wp-content/uploads/2019/03/ERP-2019.pdf.
149 Refundable tax credits include the EITC and the refundable portion of the CTC.
150 Wagnerman, K. 2017. “Medicaid is a Smart Investment in Children.” Georgetown
Center for Children and Families. https://ccf.georgetown.edu/wpcontent/uploads/2017/03/MedicaidSmartInvestment.pdf.
151 Hardy, Bradley. 2016. “Race and Income Volatility: A Discussion with Bradley
Hardy.” Brookings Institution. https://www.brookings.edu/blog/upfront/2016/09/13/race-and-income-volatility-a-discussion-with-bradley-hardy/.
152 Economic Research Services, US Department of Agriculture. “Supplemental
Nutrition Assistance Program (SNAP) Linkages with the General Economy.”
https://www.ers.usda.gov/topics/food-nutrition-assistance/supplemental-nutritionassistance-program-snap/economic-linkages/.
153 Hoynes, Hilary, and Patel, Ankur. 2015. “Effective Policy for Reducing Inequality?
The Earned Income Tax Credit and the Distribution of Income.” National Bureau of
Economic Research. http://www.nber.org/papers/w21340.pdf.
154 Chetty, Raj, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca,
and Jimmy Narang. 2017. “The Fading American Dream: Trends in Absolute Income
Mobility since 1940.” Science 356(6336):398–406.
https://www.nber.org/papers/w22910.pdf. Millennials are defined as anyone born
between 1981 and 1996, according to the Pew Research Center.
https://www.pewresearch.org/fact-tank/2019/01/17/where-millennials-end-andgeneration-z-begins/.
155 Bialik, Kristen and Richard Fry. 2019. Millennial Life: How Young Adulthood
Today Compares with Prior Generations. Pew Research Center.
https://www.pewsocialtrends.org/essay/millennial-life-how-young-adulthood-todaycompares-with-prior-generations/; Fuller, Joseph B. and Manjari Raman. 2017.
Dismissed By Degrees. Accenture, Grads of Life, Harvard Business School.
http://www.hbs.edu/managing-the-future-of-work/Documents/dismissed-bydegrees.pdf.
156 Mishel, Lawrence. 2015. Causes of Wage Stagnation. Economic Policy Institute.
https://www.epi.org/files/2013/causes_of_wage_stagnation.pdf; Tolentino, Jia. 2017.
“Where Millennials Come From.” The New Yorker.
https://www.newyorker.com/magazine/2017/12/04/where-millennials-come-from.
157 Benenson, Robert. 1984. “Social Welfare under Reagan.” CQ Press, March 9.
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Daniel L. Rubinfeld. 1996. “Federalism and Reductions in the Federal Budget.”
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158 Benenson, Robert. 1984. Social welfare under Reagan. Editorial research reports,
Vol. I. Washington, DC: CQ Press.
http://library.cqpress.com/cqresearcher/cqresrre1984030900.
146

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Ladd, Helen F., and Edward B. Fiske, eds. 2012. Handbook of Research in
Education Finance and Policy. Routledge; US Bureau of the Census and NCES
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https://www.hsdl.org/?view&did=752738.
160 CQ Almanac. 1987. “Congress Clears Massive Anti-Drug Measure.” Congressional
Quarterly. http://library.cqpress.com/cqalmanac/cqal86-1149752; Lopez, German.
2016. “The War on Drugs, Explained.” Vox, May 8.
https://www.vox.com/2016/5/8/18089368/war-on-drugs-marijuana-cocaine-heroinmeth; National Research Council 2014. The Growth of Incarceration in the United
States: Exploring Causes and Consequences. https://doi.org/10.17226/18613.
161 Bureau of Labor Statistics, US Department of Labor. 2009. “Women in the Labor
Force: A Databook.” Table 23. Married-couple families by number and relationship of
earners, 1967-2007” http://www.bls.gov/cps/wlf-databook-2012.pdf; Bureau of Labor
Statistics, U.S. Department of Labor. 2014. Working Wives in Married-Couple
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162 Associated Press. 2007. “U.S. Divorce Rate Falls to Lowest Level since 1970.”
NBC News, May 11. http://www.nbcnews.com/id/18600304/ns/us_news-life/t/usdivorce-rate-falls-lowest-level/#.XNHek6R7mUl; Elwell, Craig K. 2012. Double-Dip
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163 Berrick, Jill Duerr. 1996. “From Mother’s Duty to Personal Responsibility: The
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164 Schäfer, Axel R. 2019. “Social Policy and Welfare Reform in the United States —
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165Ziliak, James P., Bradley Hardy, and Christopher Bollinger. 2010. “Earnings and
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DP 2010-05.” University of Kentucky Center for Poverty Research.
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166 Dimock, Michael. 2019. “Defining Generations: Where Millennials End and
Generation Z Begins.” Pew Research Center. https://www.pewresearch.org/facttank/2019/01/17/where-millennials-end-and-generation-z-begins/.
167 Fry, Richard. 2018. “Millennials projected to overtake Baby Boomers as America’s
largest generation.” Pew Research Center. https://www.pewresearch.org/facttank/2018/03/01/millennials-overtake-baby-boomers/.
168 Ernst & Young. 2016. “The Millennial Economy 2018.”
https://www.ey.com/us/en/services/tax/ey-the-millennial-economy-2018.
169 Frey, William H. 2018. “The millennial generation: A demographic bridge to
America’s diverse future,” Jan. 2018. The Brookings Institution.
https://www.brookings.edu/research/millennials.
170 Ibid.
171 Cohn, D’Vera. 2019. It’s Official: Minority Babies Are the Majority Among the
Nation’s Infants, But Only Just. Pew Research Center. http://pewrsr.ch/28UIGZG.
172 Democratic Staff of the JEC (author’s calculations). 2019. “Projected Population
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Varathan, Preeti. 2017. “Millennials Are Set to Be the Most Unequal Generation.”
Quartz, November 19. https://qz.com/1130126/millennials-will-face-worse-incomeinequality-than-previous-generations-according-to-credit-suisse/.
174 The Federal Reserve. Survey of Consumer Finances. 2016.
https://www.federalreserve.gov/publications/files/scf17.pdf.
175 Hanson, Andrew R. and Artem Gulish. 2016. “From to College to Career: Making
Sense of the Post: Millennial Job Market.” Georgetown University Center on
Education and the Workforce (CEW) 21(1). https://cew.georgetown.edu/wpcontent/uploads/The-Post-Millennial-Job-Market.pdf.
176 Chaykowski, Kathleen. 2019. “The World’s Youngest Billionaires In 2019: Meet
The 71 Under Age 40.”
https://www.forbes.com/sites/kathleenchaykowski/2019/03/05/the-worlds-youngestbillionaires-in-2019-meet-the-71-under-age-40/#1335f9f3411e.
177 Ibid.
178 Goldin, Claudia and Lawrence F. Katz. 2007. “Long-Run Changes in The U.S.
Wage Structure: Narrowing, Widening, Polarizing.” National Bureau of Economic
Research, Working Paper 13568, November. http://www.nber.org/papers/w13568.
179 Frey, William H. 2018. “The Millennial Generation: A Demographic Bridge to
America’s Diverse Future”. The Brookings Institution. https://www.brookings.edu/wpcontent/uploads/2018/01/2018-jan_brookings-metro_millennials-a-demographicbridge-to-americas-diverse-future.pdf.
180 Fry, Richard. 2017. “5 Facts about Millennial Households.” Pew Research Center,
September 6. https://www.pewresearch.org/fact-tank/2017/09/06/5-facts-aboutmillennial-households/.
181 Cohen, Cathy J., Matthew D. Luttig, and Jon C. Rogowski. 2017. A Report on the
Lived Economic Lives of Millennials. GenForward.
https://genforwardsurvey.com/assets/uploads/2017/06/Millennials-EconomicLives.pdf.
182 Ibid.
183 Frey, William H. 2018. “The Millennial Generation: A Demographic Bridge to
America’s Diverse Future”. The Brookings Institution. https://www.brookings.edu/wpcontent/uploads/2018/01/2018-jan_brookings-metro_millennials-a-demographicbridge-to-americas-diverse-future.pdf.
184 Cohen, Cathy J., Matthew D. Luttig, and Jon C. Rogowski. 2017. A Report on the
Lived Economic Lives of Millennials. GenForward.
https://genforwardsurvey.com/assets/uploads/2017/06/Millennials-EconomicLives.pdf.
185 Bureau of Labor Statistics. “37 percent of May 2016 employment in occupations
typically requiring postsecondary education.” June 28, 2017.
https://www.bls.gov/opub/ted/2017/37-percent-of-may-2016-employment-inoccupations-typically-requiring-postsecondary-education.htm.
186 Georgetown University Center on Education and the Workforce. 2013. “Recovery:
Job Growth and Education Requirements through 2020.”
https://cew.georgetown.edu/recovery2020.
187 Fry, Richard, Ruth Igielnik, and Eileen Patten. 2018. “How Millennials Today
Compare with Their Grandparents 50 Years Ago.” Pew Research Center. Retrieved
May 9, 2019. https://www.pewsocialtrends.org/essay/millennial-life-how-youngadulthood-today-compares-with-prior-generations/.
173

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Ryan, Camille L. and Kurt Bauman. 2016. Educational Attainment in the United
States: 2015. Population Characteristics. US Census Bureau, March.
https://www.census.gov/content/dam/Census/library/publications/2016/demo/p20578.pdf.
189 National Center for Education Statistics. n.d. “Table 104.20. Percentage of Persons
25 to 29 Years Old with Selected Levels of Educational Attainment, by Race/Ethnicity
and Sex: Selected Years, 1920 through 2017.” Digest of Education Statistics. Retrieved
May 9, 2019. https://nces.ed.gov/programs/digest/d17/tables/dt17_104.20.asp.
190 The College Board. n.d. “Tuition and Fees and Room and Board over Time Trends in Higher Education - The College Board.” Retrieved May 13, 2019.
https://trends.collegeboard.org/college-pricing/figures-tables/tuition-fees-room-andboard-over-time.
191 Cilluffo, Anthony. 2017. “5 Facts about U.S. Student Loans.” Pew Research
Center, August 24. http://www.pewresearch.org/fact-tank/2017/08/24/5-facts-aboutstudent-loans/.
192 Friedman, Zack. 2019. “Student Loan Debt Statistics In 2019: A $1.5 Trillion
Crisis.” Forbes, February 25.
https://www.forbes.com/sites/zackfriedman/2019/02/25/student-loan-debt-statistics2019/#6dd1fe62133f.
193 Federal Reserve System. 2019. “Consumer Credit - G.19.” Retrieved May 9, 2019.
https://www.federalreserve.gov/releases/g19/HIST/cc_hist_memo_levels.html;
Schmidt, Erik. 2018. Postsecondary Enrollment Before, During, and Since the Great
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https://www.census.gov/content/dam/Census/library/publications/2018/demo/P20580.pdf.
194 Kurz, Christopher, Geng Li, and Daniel J. Vine. 2018. “Are Millennials Different?”
Finance and Economics Discussion Series 2018-080. Washington: Board of Governors
of the Federal Reserve System, https://doi.org/10.17016/FEDS.2018.080.
195 Maldonado, Camilo. 2018. “Price Of College Increasing Almost 8 Times Faster
Than Wages.” Forbes, July 24.
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196 Abel, Jaison R. and Richard Deitz. n.d. “Do the Benefits of College Still Outweigh
the Costs?” Federal Reserve System 20(3).
https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci20-3.pdf;
Bureau of Labor Statistics. 2018. “Unemployment Rate 2.1 Percent for College Grads,
3.9 Percent for High School Grads in August 2018.” The Economics Daily, September
12. https://www.bls.gov/opub/ted/2018/unemployment-rate-2-1-percent-for-collegegrads-3-9-percent-for-high-school-grads-in-august-2018.htm?view_full; Karageorge,
Eleni. 2014. “Is a College Degree Still Worth It?: Monthly Labor Review: U.S.
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197 Petersen, Anne Helen. 2019. “How Millennials Became The Burnout Generation.”
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198 Williams, Alex. 2018. “Are You Ready for the Financial Crisis of 2019?” The New
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188

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Kreighbaum, Andrew. 2018. “DeVos Restores Recognition of For-Profit Accreditor
Terminated by Obama Administration.” Inside Higher Ed, April 4.
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200 Smith, Ashley A. 2019. “Missing Federal Aid Payments.” Inside Higher Ed, March
4. https://www.insidehighered.com/news/2019/03/04/argosy-students-lose-outmillions-dollars-federal-aid-goes-missing.
201 Cowley, Stacy and Erica L. Green. 2019. “A College Chain Crumbles, and Millions
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202 Winter, Tom and Dartunorro Clark. 2018. “Federal Court Approves $25 Million
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203 Kreighbaum, Andrew. 2018. “Education Department Misses Deadline for Its
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204 Gallup. 2016. “How Millennials Want to Work and Live.”
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205 Dews, Fred. 2014. “Brookings Data Now: 75 Percent of 2025 Workforce Will Be
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206 Kahn, Lisa B. 2010. “The Long-Term Labor Market Consequences of Graduating
from College in a Bad Economy.” Labour Economics 17(2):303–316; Oreopoulos,
Philip, Till Von Wachter, and Andrew Heisz. 2012. “The Short-and Long-Term Career
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Economics 4(1):1–29.
207 Schmidt, Erik. 2018. Postsecondary Enrollment Before, During, and Since the Great
Recession. US Census Bureau.
https://www.census.gov/content/dam/Census/library/publications/2018/demo/P20580.pdf.
208 Taylor, Paul et al. 2012. Young, Underemployed and Optimistic. Pew Research
Center. https://www.pewresearch.org/wp-content/uploads/sites/3/2012/02/youngunderemployed-and-optimistic.pdf.
209 Claudia Goldin & Lawrence F. Katz. 2007. "Long-Run Changes in the Wage
Structure: Narrowing, Widening, Polarizing," Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 38(2007-2), pages 135168. https://www.nber.org/papers/w13568; Vedder, Richard, Christopher Denhart, and
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199

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Vedder, Richard, Christopher Denhart, and Jonathan Robe. 2013. “Why Are Recent
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211 Ibid.
212 Gallup. 2016. “How Millennials Want to Work and Live.”
https://www.gallup.com/workplace/238073/millennials-work-live.aspx.
213 Few Millennials Are Engaged at Work. August 30. Brandon Rigoni and Bailey
Nelson. https://news.gallup.com/businessjournal/195209/few-millennials-engagedwork.aspx.
214 Gallup. 2016. “How Millennials Want to Work and Live.”
https://www.gallup.com/workplace/238073/millennials-work-live.aspx.
215 Fry, Richard. “5 facts about Millennial households,” Pew Research Center. 6
September, 2017. http://www.pewresearch.org/fact-tank/2017/09/06/5-facts-aboutmillennial-households/.
216 Federal Reserve System. 2018. The Demographics of Wealth, 2018 Series: How
Education, Race and Birth Year Shape Financial Outcomes.
https://www.stlouisfed.org/household-financial-stability/the-demographics-of-wealth.
217 Young, Cheryl. 2018. “The American Starter Home: Expensive, Small, Broken
Down, and Hard to Find.” Trulia. Accessed 03 May 2019.
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218 US Census Bureau. n.d. “Historical Census of Housing Tables Home Values.”
Retrieved May 13, 2019.
219 Davidson, Paul. 2018. “From Their Parents’ Basements to Dream Homes:
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220 Fry, Richard, Ruth Igielnik, and Eileen Patten. 2018. “How Millennials Today
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221 Ernst & Young. 2016. “The Millennial Economy 2018.”
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222 Ernst & Young. 2016. “The Millennial Economy 2018.”
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223 Federal Reserve. “Consumer & Community Context: A series examining economic
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224 Mezza, Alvaro and Ringo, Daniel and Sherland, Shane and Sommer, Kamila,
Student Loans and Homeownership 2016. FEDS Working Paper No. 2016-10.
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225 Vespa, Jonathan. 2017. The Changing Economics and Demographic s of Young
Adulthood: 1975-2016. US Census Bureau.
https://www.census.gov/content/dam/Census/library/publications/2017/demo/p20579.pdf. Here, “roommates” include nonrelatives or other relatives beside a spouse,
such as siblings or grandparents.
210

227

Ibid.
Ibid.
228 Ibid.
229 Cohn, D’vera and Jeffrey S. Passel. 2019. “Record 64 Million Americans Live in
Multigenerational Households.” Pew Research Center, April 5.
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230 Ibid.
231 Ibid.
232 Richard Fry and Jeffrey S. Passel. 2014. In Post-Recession Era, Young Adults
Drive Continuing Rise in Multi-Generational Living. Pew Research Center, July 17.
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233 Vespa, Jonathan. 2017. The Changing Economics and Demographic s of Young
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https://www.census.gov/content/dam/Census/library/publications/2017/demo/p20579.pdf.
234 Federal Reserve System. 2018. “Report on the Economic Well-Being of U.S.
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235 Vespa, Jonathan. 2017. The Changing Economics and Demographic s of Young
Adulthood: 1975-2016. US Census Bureau.
https://www.census.gov/content/dam/Census/library/publications/2017/demo/p20579.pdf.
236 Gallup, 2016. “How Millennials Want to Work and Live.” Accessed 03 May 2019
https://www.gallup.com/workplace/238073/millennials-work-live.aspx; Vespa,
Jonathan. 2017. The Changing Economics and Demographic s of Young Adulthood:
1975-2016. US Census Bureau.
https://www.census.gov/content/dam/Census/library/publications/2017/demo/p20579.pdf.
237 Vespa, Jonathan. 2017. The Changing Economics and Demographic s of Young
Adulthood: 1975-2016. US Census Bureau.
https://www.census.gov/content/dam/Census/library/publications/2017/demo/p20579.pdf.
238 US Census Bureau. 2018. “Historical Marital Status Tables.” Table MS-2.
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239 Copen, Casey E., Kimberly Daniels, Jonathan Vespa, and William D. Mosher.
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240 Fry, Richard. 2010. The Reversal of the College Marriage Gap. Pew Research
Center. https://www.pewresearch.org/wp-content/uploads/sites/3/2010/11/767-collegemarriage-gap.pdf.
226
227

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Copen, Casey E., Kimberly Daniels, Jonathan Vespa, and William D. Mosher.
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242 Vespa, Jonathan. 2017. The Changing Economics and Demographic s of Young
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243 Bureau of Labor Statistics. 2018. “BLS Reports: Women in the labor force: a
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244 Child care Aware of America. 2018. “The U.S. and the High Cost of Child care: A
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245 Westermann King, Danielle. 2018. “Dual-Career Couples Demand Flexible Work.”
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246 Wang, Wendy. 2017. “A Record Share of Men Are ‘Marrying Up’ Educationally.”
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247 Jeremy Greenwood, Nezih Guner, Georgi Kocharkov and Cezar Santos. 2014.
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248 Chetty, Raj, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca,
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249 Strauss, William and Neil Howe 1991. Generations. New York: Quill; Goldin,
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250 Da Costa, Pedro Nicolaci. 2014. “Bernanke: 2008 Meltdown Was Worse Than
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252 Associated Press. 2010. “Lax Regulation Contributed to 2008 Crisis, Fed Official
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253 Merle, Renae and Tracy Jan. 2018. “Trump Is Systematically Backing off
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254 Egan, Matt. 2017. “Janet Yellen Debunks Trump’s Case for Killing Dodd-Frank.”
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255 Congressional Research Service. 2017. “The Dodd-Frank Wall Street Reform and
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256 The White House, President Barack Obama Archives. n.d. “Consumer Financial
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257 Becker, Amanda. 2017. “Factbox: Sweeping U.S. Dodd-Frank Financial Law
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258 Stackhouse, Julie. 2017. “Did the Dodd-Frank Act Make the Financial System
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259 The Federal Reserve System. n.d. “Federal Reserve Board - Living Wills (or
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260 Goodwin, Keith. 2010. “Dodd-Frank Wall Street Reform and Consumer Protection
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261 Webel, Baird. 2017. “The Dodd-Frank Wall Street Reform and Consumer
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262 Anon. 2018. “A Decade After the Great Recession, Is the Global Financial System
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263 Stackhouse, Julie. 2017. “Did the Dodd-Frank Act Make the Financial System
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264 Webel, Baird. 2017. “The Dodd-Frank Wall Street Reform and Consumer
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265 Congressional Research Service. 2017. “The Dodd-Frank Wall Street Reform and
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266 Gelzinis, Gregg, Michela Zonta, Joe Valenti, and Sarah Edelman. 2017. “The
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267 Gerding, Erick. 2009. “The Subprime Crisis and the Link between Consumer
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268 Congressional Research Service. 2017. “The Dodd-Frank Wall Street Reform and
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269 Consumer Financial Protection Bureau. 2016. “CFPB Halts Student Loan Debt
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270 Martinez, Zixta Q. 2017. Six Years Serving You.” Consumer Financial Protection
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271 Consumer Financial Protection Bureau. 2011. “Building the CFPB”
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272 Confessore, Nicholas. 2019. “Mick Mulvaney’s Master Class in Destroying a
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273 Merle, Renae. 2018. “Mick Mulvaney Fires All 25 Members of Consumer
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274 Stewart, Emily. 2018. “Equifax Compromised Half of the Country’s Information.
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275 Confessore, Nicholas. 2019. “Mick Mulvaney’s Master Class in Destroying a
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Vockrodt, Steve. 2018. “CFPB drops Kansas payday lending case, stoking fears
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277 Confessore, Nicholas. 2019. “Mick Mulvaney’s Master Class in Destroying a
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278 Ibid.
279 Hiltzik, Michael. 2018. “A slap on CashCall's wrist signals there's no downside to
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280 White, Gillian B. 2018. “Mulvaney Is Quickly Deregulating the Financial Industry.”
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281 Davidson, Joe. 2019. “Perspective | Waters Backs ‘Undermined’ Protection Staff
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282 Harrow Jr., Robert O’, Shawn Boburg, and Renae Merle. 2018. “Trump AntiDiscrimination Official Once Called Most Hate Crimes Hoaxes.” Washington Post,
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283 Davidson, Joe. 2018. “Report Shows Sharp Drop in Federal Employee Morale
under Trump.” The Washington Post, December 12.
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284 Finkle, Victoria. 2017. “How House Bill Would Dismantle an Array of Dodd-Frank
Reforms” The New York Times, June 8.
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285 Sullivan, Emily. 2018. “Senate Confirms Kathy Kraninger As CFPB Director.”
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286 Kraninger, Kathleen L. 2019. “The Consumer Financial Protection Bureau’s SemiAnnual Report to Congress.” Testimony before the Committee on Banking, Housing
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287 Tsosie, Claire. 2017. “The Credit Card Act of 2009: What It Does and Doesn’t Do.”
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276

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Consumer Financial Protection Bureau. 2013. “CARD Act Report.”
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290 Consumer Financial Protection Bureau. 2015. “The Consumer Credit Card Market.”
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in Credit Card Fees.” Money, December 3. http://money.com/money/4133783/cardact-credit-card-fees/; Williams, Fred O. 2015. “US Report: CARD Act Saved
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291 Consumer Financial Protection Bureau. 2013. “CFPB Study of Overdraft
Programs.” https://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraftpractices.pdf; Bakker, Trevor, Nicole Kelly, Jesse Leary, and Éva Nagypál. 2014.
“CFPB Finds Small Debit Purchases Lead to Expensive Overdraft Charges.”
Consumer Financial Protection Bureau. https://www.consumerfinance.gov/aboutus/newsroom/cfpb-finds-small-debit-purchases-lead-to-expensive-overdraft-charges/.
292 Maloney, Carolyn B. 2014. “Maloney: CFPB can and should do more to stop
overdraft abuses” Press Release, Sep 10.
https://maloney.house.gov/media-center/press-releases/maloney-cfpb-can-and-shoulddo-more-to-stop-overdraft-abuses.
293 Federal Reserve Bank of New York. 2019. “Quarterly Report on Household Debt
and Credit.” Released February.
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_
2018q4.pdf; Haughwout, Andrew F., Donghoon Lee, Joelle Scally, Lauren Thomas,
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Merle, Renae. 2018. “A Guide to the Financial Crisis — 10 Years Later.” Washington
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294 Alvarez, Lizette. 2008. “New Veterans Hit Hard by Economic Crisis.” The New
York Times, November 17. https://www.nytimes.com/2008/11/18/us/18vets.html;
Costa, Pedro Nicolaci da. 2017. “The Housing Collapse Hit Minorities Hardest — and
the Impact Is Still Being Felt across America.” Business Insider, July 25.
https://www.businessinsider.com/blacks-and-hispanics-saw-even-more-of-theirwealth-evaporate-with-housing-crash-2017-7; Hart, Kim. 2018. “The Wildly Uneven
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443ae369-17a9-4e09-aef3-42ffe48e6cf1.html; Hendey, Leah, Signe-Mary McKernan,
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https://www.urban.org/sites/default/files/publication/25686/412626-weathering-therecession-the-financial-crisis-and-family-wealth-changes-in-low-incomeneighborhoods.pdf; Hoynes, Hilary W., Douglas L. Miller, and Jessamyn Schaller.
2012. Who Suffers During Recessions? Working Paper. 17951. National Bureau of
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“Millennials Born in the 1980s May Never Recover from the Great Recession.”
CNNMoney, May 23, 2018. https://money.cnn.com/2018/05/22/news/economy/1980smillennials-great-recession-study/index.html; Summerville, Abigail. 2017. “A Decade
after Great Recession, 1 in 3 Americans Still Haven’t Recovered.” CNBC, July 13.
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295 Federal Reserve System. 2017. “2016 SCF Chartbook.”
https://www.federalreserve.gov/econres/files/BulletinCharts.pdf.
296 Federal Deposit Insurance Corporation. 2018. 2017 FDIC National Survey of
Unbanked and Underbanked Households.
https://www.fdic.gov/householdsurvey/2017/2017report.pdf.
297 Scarbrough, Michele. 2016. “Who Are the Credit Invisible?” Consumer Financial
Protection Bureau, December 12. https://www.consumerfinance.gov/aboutus/blog/who-are-credit-invisible/; Federal Deposit Insurance Corporation. 2018. 2017
FDIC National Survey of Unbanked and Underbanked Households.
https://www.fdic.gov/householdsurvey/2017/2017report.pdf.
298 Federal Deposit Insurance Corporation. 2018. 2017 FDIC National Survey of
Unbanked and Underbanked Households.
https://www.fdic.gov/householdsurvey/2017/2017report.pdf.
299 Ibid.
300 Ibid.
301 The Federal Reserve. 2019. “Report on the Economic Well-Being of U.S.
Households in 2018.” https://www.federalreserve.gov/publications/files/2018-reporteconomic-well-being-us-households-201905.pdf.
302 Federal Deposit Insurance Corporation. 2018. 2017 FDIC National Survey of
Unbanked and Underbanked Households.
https://www.fdic.gov/householdsurvey/2017/2017report.pdf.
303 Ibid.
304 Ibid.
305 Stavins, Joanna. 2018. “Credit Card Debt and Payment Use.” Federal Reserve Bank
of Boston. https://www.bostonfed.org/publications/research-department-workingpaper/2018/credit-card-debt-and-consumer-payment-choice.aspx. Analysis based on an
analysis of combined administrative data from the Equifax credit bureau and selfreported data from the Survey of Consumer Payment Choice.
306 Ibid.
307 Mulhere, Kaitlin. 2018. “This Is the Average Credit Score for Every Age.” Money,
January 23. http://money.com/money/5112478/average-credit-score-by-age/.
308 In Figures 4-2 and 4-3, “HELOC” refers to “Home Equity Line of Credit.”
309 National Adult Protective Services Association (NAPSA). n.d. “Elder Financial
Exploitation.” Retrieved April 29, 2019. http://www.napsa-now.org/policyadvocacy/exploitation/; The John Marshall Law School. n.d. “Protecting Seniors from

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Financial Exploitation.” https://www.jmls.edu/clinics/fairhousing/pdf/seniorsfinancial-exploitation.pdf; Consumer Financial Protection Bureau. 2012. “Reverse
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https://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage
_Report.pdf; National Association of Consumer Advocates. n.d. “Predatory Lending.”
Retrieved April 29, 2019. https://www.consumeradvocates.org/forconsumers/predatory-lending.
310 Guerin, Jessica. 2018. “Former Head of FHA and MBA David Stevens Blasts
Reverse Mortgages.” Housing Wire, November 29.
https://www.housingwire.com/articles/47522-former-head-of-fha-and-mba-davidstevens-blasts-reverse-mortgages.
311 Guerin, Jessica. 2018. “Former Head of FHA and MBA David Stevens Blasts
Reverse Mortgages.” Housing Wire, November 29.
https://www.housingwire.com/articles/47522-former-head-of-fha-and-mba-davidstevens-blasts-reverse-mortgages; Podkul, Cezary. 2018. “Inflated Home Appraisals
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312 Consumer Financial Protection Bureau. 2012. “Reverse Mortgages: Report to
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https://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage
_Report.pdf.
313 “National Retirement Risk Index Shows Modest Improvement in 2016.” Center for
Retirement Research at Boston College (CRR) 1:10. https://crr.bc.edu/specialprojects/national-retirement-risk-index/.
314 Ghilarducci, Teresa. 2019. “Reverse Mortgages Are A Bust Partly Because Average
Home Equity Is $80,000.” Forbes, January 17.
https://www.forbes.com/sites/teresaghilarducci/2019/01/17/reverse-mortgages-are-abust-partly-because-average-home-equity-is-80000/#1292f9fb383d.
315 U.S. Government Accountability Office. 2019. “Retirement Security: Most
Households Approaching Retirement Have Low Savings, an Update.” March 26.
https://www.gao.gov/products/GAO-19-442R.
316 Consumer Financial Protection Bureau. 2019. Suspicious Activity Reports on Elder
Financial Exploitation: Issues and Trends.
https://files.consumerfinance.gov/f/documents/cfpb_suspicious-activity-reports-elderfinancial-exploitation_report.pdf.
317 Rothacker, Rick and David Ingram. 2012. “Wells Fargo to Pay $175 Million in
Race Discrimination Probe.” Reuters, July 12. https://www.reuters.com/article/uswells-lending-settlement/wells-fargo-to-pay-175-million-in-race-discrimination-probeidUSBRE86B0V220120712; Rothstein, Richard. 2012. “A Comment on Bank of
America/Countrywide’s Discriminatory Mortgage Lending and Its Implications for
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https://www.epi.org/publication/bp335-boa-countrywide-discriminatory-lending/.
318 Gross, Terry. 2017. “A ‘Forgotten History’ of How the U.S. Government
Segregated America.” NPR, May 3. https://www.npr.org/2017/05/03/526655831/aforgotten-history-of-how-the-u-s-government-segregated-america.
319 Rothacker, Rick and David Ingram. 2012. “Wells Fargo to Pay $175 Million in
Race Discrimination Probe.” Reuters, July 12. https://www.reuters.com/article/us-

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wells-lending-settlement/wells-fargo-to-pay-175-million-in-race-discrimination-probeidUSBRE86B0V220120712.
320 Anon. 2018. “Community Reinvestment Act: Advance Notice of Proposed
Rulemaking.” Retrieved April 29, 2019. https://www.occ.gov/newsissuances/bulletins/2018/bulletin-2018-24.html.
321 National Community Reinvestment Coalition (NCRC). “Manual: CRA 101.”
https://ncrc.org/wp-content/uploads/2017/11/CRA-101_b.pdf.
322 Ibid.
323 US Financial Crisis Inquiry Commission. 2011. “The Financial Crisis Inquiry
Report: Causes of the Financial and Economic Crisis in the United States.” http://fcicstatic.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf.
324 Bloomberg. 2019. “JPMorgan Leads Banks’ Retreat from Lower-Income Areas.”
Crain’s New York Business, March 6.
https://www.crainsnewyork.com/finance/jpmorgan-leads-banks-retreat-lower-incomeareas.
325 Ensigh, Rachel and Tracy, Ryan. “Bankers vs. Activists: Battle Lines Form Over
Low-Income Lending Rules,” Wall Street Journal. 25 September, 2018.
https://www.wsj.com/articles/mnuchins-fight-with-activists-inspired-communityreinvestment-act-revamp-1537885753.
326 Sherman, Erik. “Big Banks J.P. Morgan, Wells Fargo, and Bank of America Are
Pulling Out of Lower-Income Neighborhoods,” Fortune. 6 Mar 2019.
https://fortune.com/2019/03/06/jp-morgan-wells-fargo-locations/.
327 Consumer Financial Protection Bureau. 2013. “Payday Loans and Deposit Advance
Products.” https://files.consumerfinance.gov/f/201304_cfpb_payday-dapwhitepaper.pdf.
328 Davis, Delvin, Diane Standaert and Charla Rios, 2019. “Payday and Car Title
Lenders Drain $8 Billion in Fees Every Year.” Center for Responsible Lending.
https://www.responsiblelending.org/sites/default/files/nodes/files/researchpublication/crl-statebystate-fee-drain-apr2019.pdf.
329 Consumer Financial Protection Bureau. 2013. “Payday Loans and Deposit Advance
Products.” https://files.consumerfinance.gov/f/201304_cfpb_payday-dapwhitepaper.pdf.
330 Ibid.
331 Consumer Financial Protection Bureau. 2017. “CFPB Finalizes Rule To Stop
Payday Debt Traps.” https://www.consumerfinance.gov/about-us/newsroom/cfpbfinalizes-rule-stop-payday-debt-traps/.
332 Consumer Financial Protection Bureau. 2017. “CFPB finalizes rule to stop payday
debt traps.” https://files.consumerfinance.gov/f/documents/201710_cfpb_factsheet_payday-loans.pdf.
333 Consumer Financial Protection Bureau. 2019. “Consumer Financial Protection
Bureau Releases Notices of Proposed Rulemaking on Payday Lending.”
https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protectionbureau-releases-notices-proposed-rulemaking-payday-lending/; Cowley, Stacy. 2019.
“Consumer Protection Bureau Cripples New Rules for Payday Loans.” The New York
Times, February 6. https://www.nytimes.com/2019/02/06/business/payday-loans-rulescfpb.html.
334 Consumer Financial Protection Bureau. 2019. “Consumer Financial Protection
Bureau Releases Notices of Proposed Rulemaking on Payday Lending.”

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https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protectionbureau-releases-notices-proposed-rulemaking-payday-lending/.
335 Orem, Tina. 2019. “Overdraft Revenue Up at CUs, Down at Banks & Thrifts.”
Credit Union Times, April 2. https://www.cutimes.com/2019/04/02/overdraft-revenueup-at-cus-down-at-banks-thrifts/?slreturn=20190403153509.
336 Bakker, Trevor, Nicole Kelly, Jesse Leary, and Éva Nagypál. 2014. “CFPB Finds
Small Debit Purchases Lead to Expensive Overdraft Charges.” Consumer Financial
Protection Bureau. https://www.consumerfinance.gov/about-us/newsroom/cfpb-findssmall-debit-purchases-lead-to-expensive-overdraft-charges/.
337 Burnette, Margarette. 2018. “Overdraft Protection Law.” NerdWallet.
https://www.nerdwallet.com/blog/banking/faq-overdraft-protection-law-overdraft-fees;
Consumer Financial Protection Bureau. 2015. “CFPB Finds CARD Act Helped
Consumers Avoid More Than $16 Billion in Gotcha Credit Card Fees.” Press Release,
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338 Loizos, Connie. 2018. “This Young Lending Startup Just Secured $70 Million to
Lend $2 at a Time.” TechCrunch. Retrieved April 29, 2019.
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339 Burnette, Margarette. 2018. “Overdraft Protection Law.” NerdWallet.
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340 Federal Reserve System. 2009. “Rules and Regulations.” Federal Register 74(220).
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341 Consumer Financial Protection Bureau. 2014. “Data Point: Checking Account
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342 Consumer Financial Protection Bureau. 2016. “Consumer Financial Protection
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343 Gelzinis, Gregg. 2017. “The Trump Administration Is Quietly Slashing Financial
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344 Stewart, Emily. 2018. “Trump Doesn’t Respect the Independence of Any Institution
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345 Moen, Jon R. and Ellis W. Tallman. 2015. “The Panic of 1907.” Federal Reserve
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346 Federal Reserve History. n.d. “Banking Act of 1933 (Glass-Steagall) | Federal
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347 U.S. Securities and Exchange Commission. 2013. “The Laws That Govern the
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ibl.

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ASPE Issue Brief. 2016. “Observations on Trends in Prescription Drug Spending.”
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349 “What Are the Recent and Forecasted Trends in Prescription Drug Spending?”
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350 Truven Health Analytics – NPR. 2017. “Health Poll: Prescription Drugs.”
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rugs_FINAL.pdf.
351 Bishop, Sarnak Squires Kuzmak. 2017. “Paying for Prescription Drugs Around the
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352 Emanuel, Ezekiel J. 2019. “Big Pharma’s Go-To Defense of Soaring Drug Prices
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353 Bishop, Sarnak Squires Kuzmak. 2017. “Paying for Prescription Drugs Around the
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354 Radcliffe, Shawn. 2017. “Have High Drug Prices Finally Reached a Tipping
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355 Iuga, Aurel O. and Maura J. McGuire. 2014. “Adherence and Health Care Costs.”
Risk Management and Healthcare Policy 7:35–44.
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356 Viswanathan, Meera, Carol E. Golin, Christine D. Jones, Mahima Ashok, Susan J.
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348

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Truven Health Analytics – NPR. 2017. “Health Poll: Prescription Drugs.”
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358 CMS. 2017. “National Health Expenditures 2017 Highlights.”
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359 ASPE Issue Brief. 2016. “Observations on Trends in Prescription Drug Spending.”
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360 Bishop, Sarnak Squires Kuzmak. 2017. “Paying for Prescription Drugs Around the
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https://www.commonwealthfund.org/publications/issue-briefs/2017/oct/payingprescription-drugs-around-world-why-us-outlier.
361 Bishop, Sarnak Squires Kuzmak. 2017. “Paying for Prescription Drugs Around the
World: Why Is the U.S. an Outlier?”
https://www.commonwealthfund.org/publications/issue-briefs/2017/oct/payingprescription-drugs-around-world-why-us-outlier.
362 Aitken, Murray. 2019. “The Global Use of Medicine in 2019 and Outlook to 2023.”
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363 “10 Essential Facts About Medicare and Prescription Drug Spending.” The Henry J.
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364 “10 Essential Facts About Medicare and Prescription Drug Spending.” The Henry J.
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https://www.kff.org/infographic/10-essential-facts-about-medicare-and-prescriptiondrug-spending/. Refers to enrollees not receiving low-income subsidies.
365 JEC Democratic Staff calculations based on data from the Agency for Healthcare
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366 Fuglesten Biniek, Jean and William Johnson. 2019. “Spending on Individuals with
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367 Bishop, Sarnak Squires Kuzmak. 2017. “Paying for Prescription Drugs Around the
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368 Bishop, Sarnak Squires Kuzmak. 2017. “Paying for Prescription Drugs Around the
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369 Lakdawalla, Darius and Dana Goldman. 2018. “The Global Burden of Medical
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370 Bishop, Sarnak Squires Kuzmak. 2017. “Paying for Prescription Drugs Around the
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357

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372 Yu, Nancy L., Zachary Helms, and Peter B. Bach. 2017. “R&D Costs For
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373 Emanuel, Ezekiel J. 2019. “Big Pharma’s Go-To Defense of Soaring Drug Prices
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374 Stevens, Ashley J., Jonathan J. Jensen, Katrine Wyller, Patrick C. Kilgore, Sabarni
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375 Toole, Andrew A. 2011. “The Impact of Public Basic Research on Industrial
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376http://www.crs.gov/Reports/R44832?source=search&guid=0eeabeec06324830921b3
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377 Aitken, Murray. 2019. “The Global Use of Medicine in 2019 and Outlook to 2023.”
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378 GAO. 2017. “Drug Industry Profits, Research and Development Spending, and
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379 Transcript at http://docs.house.gov/meetings/IF/IF14/20170302/105631/HHRG115-IF14-Transcript-20170302.pdf.
380 House Oversight Committee press release at https://democratsoversight.house.gov/sites/democrats.oversight.house.gov/files/documents/Table%20on
%20Generic%20Drug%20Price%20Increases%20FINAL.pdf.
381 Special Committee on Aging United States Senate. “Sudden Price Spikes in OffPatent Prescription Drugs: The Monopoly Business Model that Harms Patients,
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382 Feldman, Robin. 2018. May Your Drug Price Be Evergreen. SSRN Scholarly Paper.
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383 Leibowitz, Jon. 2009. “Pay-for-Delay Settlements in the Pharmaceutical Industry:
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