Business Day

January 20, 2012, 3:56 pm

Why Students Leave the Engineering Track

By CATHERINE RAMPELL

1/21/12 | Updated to correct Professor Babcock’s academic affiliation.

CATHERINE RAMPELL
CATHERINE RAMPELL

Dollars to doughnuts.

Amid broader discussions about the future of the American work force, the National Science Foundation has just released a comprehensive report on the state of engineering and science in America. There’s a lot of meat in the report, but I found this chart to be particularly striking:

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Perhaps swayed by statistics about the shortage (and correspondingly high wages) of engineers and scientists in the United States, in the last decade nearly one incoming freshman in 10 have said they expected to major in engineering. (Over all, about a third of incoming freshmen said they planned to major in any of the science and engineering fields.)

But the share who actually complete degrees in engineering has been about half that. Certain demographic groups planning to major in the natural sciences also had relatively high dropout rates.

What accounts for the high attrition rates? Maybe some of it has to do with aptitude, or encouragement, or good role models and mentors. But Philip Babcock, an economist at the University of California, Santa Barbara, suggests that a lot of it has to do with homework. Read more…

January 20, 2012, 6:00 am

Is U.S. Health Spending Finally Under Control?

By UWE E. REINHARDT

9:36 a.m. | Updated to correct reference to lines in Chart 3.

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Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

“Growth in U.S. health spending remains slow in 2010” was the headline of a news release on Jan. 9 by the Centers for Medicare and Medicaid Services, part of the Department of Health and Human Services. At an increase of 3.9 percent over national health spending in 2009, “the rates of health spending growth in 2009 and 2010 marked the lowest rate in the 51-year history of the National Health Expenditure Accounts,” the release said.

Today’s Economist

Perspectives from expert contributors.

The news was quickly picked up and disseminated by news organizations, including The New York Times.

What is one to make of this development? Is it evidence that we have finally “broken the back of the health care inflation monster,” as former Secretary of Health and Human Services Margaret Heckler famously put it in 1984. That was just after the Reagan administration had introduced the current prospective case-based payments for hospital inpatient care but two years before the health care inflation monster returned with a vengeance.
Read more…

January 19, 2012, 8:34 pm

More on Romney’s Tax Rate (and Everyone Else’s)

By DAVID LEONHARDT

There are any number ways to calculate a household’s tax rate. You can look at just the federal income tax and conclude that almost half of Americans don’t pay taxes, or look at all taxes and conclude that a vast majority of Americans do pay taxes.

DAVID LEONHARDT
DAVID LEONHARDT

Thoughts on the economic scene.

To my news analysis explaining that most households actually pay a lower federal tax rate than 15 percent — the rate Mitt Romney, the Republican presidential candidate, says that he pays — there are two postscripts worth adding:

First, I focused on direct taxes. If you also include indirect taxes — mainly corporate taxes, effectively paid by stockholders — Mr. Romney’s rate rises higher. On average, the top 1 percent of earners pay about 10 percent of their income in corporate taxes, according to the Congressional Budget Office.

Companies officially pay these taxes. But by reducing the after-tax earnings of the company, the taxes ultimately come out of the pockets of the company’s owners. Economists, with good reason, like to apportion all taxes to people, rather than to an entity like a corporation.

Second, most of the article focused on federal taxes, not state or local taxes (for which the data is thinner). Because Mr. Romney’s income is so high, he pays relatively little of it in state and local taxes. A middle-class or poor family would pay a greater proportion.

These two factors obviously point in different directions. So if you widened the lens beyond direct federal taxes — to all taxes, including indirect, state and local taxes — the conclusion would likely be similar. Mr. Romney does not pay a lower tax rate than most Americans. He also doesn’t pay a much higher tax rate, despite being much more affluent.

January 19, 2012, 1:54 pm

Signs of a Bottom in Housing

By BINYAMIN APPELBAUM

A reminder that there is a housing crash in progress:

Home builders started construction on just 428,600 single-family homes in 2011 and completed just 444,900 single-family homes, the Census Bureau reported Thursday. Both were the lowest totals since the bureau started keeping records in 1959. And the last few years have been much worse than any other stretch during that period.

Source: Census Bureau

It is even more striking to adjust the level of construction for population growth. In 1982, the previous nadir, builders started construction on one new home for every 350 United States residents. In 2011, one new home was started for every 727 residents.
Read more…

January 19, 2012, 5:00 am

Should We Trust Paid Experts on the Volcker Rule?

By SIMON JOHNSON
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Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

On Wednesday morning, two subcommittees of the House Financial Services Committee held a joint hearing on the Volcker Rule, which is named for the former chairman of the Federal Reserve, Paul Volcker, and is aimed at restricting certain kinds of “proprietary trading” activities by big banks. Its goal is to make it harder for these institutions to blow themselves up and inflict another deep recession on the rest of us.

Today’s Economist

Perspectives from expert contributors.

The Volcker Rule was passed as part of the Dodd-Frank financial reform legislation (it is Section 619), and regulators are currently requesting comments on their proposed draft rules to carry it out.

Part of the current issue is contentions by some members of the financial services industry that the Volcker Rule will restrict liquidity in markets, pushing up interest rates on corporate debt in particular and slowing economic growth.

This assertion rests in part on a report produced by Oliver Wyman, a financial consulting company. Oliver Wyman has a strong technical reputation and is definitely capable of producing high-quality analysis, but its work on this issue is not convincing, for three reasons. (The points below are adapted from my written testimony and verbal exchanges at the hearing.)
Read more…

January 18, 2012, 10:00 am

What the Top 1% of Earners Majored In

By ROBERT GEBELOFF and SHAILA DEWAN

12:21 p.m. | Updated to add a fuller list of majors at the bottom of the post.

We got an interesting question from an academic adviser at a Texas university: could we tell what the top 1 percent of earners majored in?

The writer, sly dog, was probably trying to make a point, because he wrote from a biology department, and it turns out that biology majors make up nearly 7 percent of college graduates who live in households in the top 1 percent.

According to the Census Bureau’s 2010 American Community Survey, the majors that give you the best chance of reaching the 1 percent are pre-med, economics, biochemistry, zoology and, yes, biology, in that order.

The 1 Percent

Looking at the top of the economic strata.

Below is a chart showing the majors most likely to get into the 1 percent (excluding majors held by fewer than 50,000 people in 2010 census data). The third column shows the percentage of degree holders with that major who make it into the 1 percent. The fourth column shows the percent of the 1 percent (among college grads) that hold that major. In other words, more than one in 10 people with a pre-med degree make it into the 1 percent, and about 1 in 100 of the 1 percenters with degrees majored in pre-med.

Of course, choice of major is not the only way to increase your chances of reaching the 1 percent, if that is your goal. There is also the sector you choose.
Read more…

January 18, 2012, 6:00 am

Testing for Need

By CASEY B. MULLIGAN
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Casey B. Mulligan is an economics professor at the University of Chicago.

One myth about the surge in federal government spending over the last four years is that it was an automatic response to the recession. But the “tests” that beneficiaries of various government safety-net programs are required to pass before they can participate have gotten easier since 2007.

Today’s Economist

Perspectives from expert contributors.

The government safety net is intended to help people in need. Because a lot of people don’t need the government’s help, a variety of tests have been designed to distinguish the needy from everybody else. These include employment tests, asset tests, income tests, earnings tests, retirement tests and age tests.

Two of the largest government programs are Social Security and Medicare. They administer essentially one test, for age. Once a person reaches age 65 (sometimes earlier), he or she can receive benefits from these programs regardless of income, assets or employment status.

In the past, and still today in most of Europe, Social Security required beneficiaries not only to be elderly but to be retired – the retirement test.

These days unemployment insurance is another major government expenditure, and its beneficiaries have to pass an employment test. That is, they have to be without a job and actively looking for one in order to receive benefits (a few states have small programs for employed but underemployed workers). Once a person passes the employment test, his or her assets or financial income are irrelevant for determining eligibility or benefits.
Read more…

January 17, 2012, 5:59 pm

Capital Gains: Romney and the 1%

By SHAILA DEWAN and ROBERT GEBELOFF

Few aspects of the division between the 1 percent and the 99 percent have proven so divisive as the fact that the rich often pay a lower tax rate than everybody else. That is because the top federal tax rate on capital gains income is 15 percent, compared with a top marginal tax rate of 35 percent on other taxable income, like wages and salaries, that exceeds $380,000 a year.

The 1 Percent

Looking at the top of the economic strata.

Mitt Romney, the Republican presidential candidate, who has declined to release his tax returns, acknowledged on Tuesday that his own tax rate was “probably closer to the 15 percent rate,” because much of what he earns is from investments. The rich earn far more from capital gains than everyone else. The percentages fluctuate from year to year, but in 2007, the top 1 percent of earners received 20 percent of their income from capital gains, while everyone else received, on average, 2 percent of their income from capital gains. In 2011, according to estimates by the nonpartisan Tax Policy Center, the top 1 percent paid 70 percent of the total federal tax on capital gains.

The center also estimates that the top 1 percent, of which Mr. Romney is a member, pays an effective income tax rate of 18.5 percent, compared to 9.5 percent for the population as a whole. But when it comes to payroll taxes, the rich pay a far lower effective rate than everyone else – 1.7 percent compared to 7 percent – because the income subject to payroll taxes is capped at $107,000.

Mr. Romney might manage to largely avoid payroll taxes, except for those on the $374,000 he makes in speaking fees, said Roberton Williams, a senior fellow at the Tax Policy Center, and he might deduct large amounts for charitable contributions. “Trying to figure out what taxes he actually pays without seeing his tax return is very difficult,” he said.

January 17, 2012, 3:51 pm

Measuring the Top 1% by Wealth, Not Income

By ROBERT GEBELOFF and SHAILA DEWAN
Chang W. Lee/The New York Times

After our demographic profile of the 1 percent appeared on Sunday, there were a lot of questions from readers about the top 1 percent by wealth, rather than the measure we used, the top 1 percent by income.

The 1 Percent

Looking at the top of the economic strata.

We used income because the Census measures income, not wealth, and the Census contains the most timely data along with a large sample size, making it possible to look at income across many geographic and demographic categories.

But we also examined wealth through the Federal Reserve’s 2007 Survey of Consumer Finances. This survey is much smaller in scope, and somewhat outdated (a release based on the 2010 survey is expected later this year).

But an analysis of the Fed data is still revealing in that it shows the wealth gap, as measured by net worth, is much more extreme than the chasm as measured by income.

The Times had estimated the threshold for being in the top 1 percent in household income at about $380,000, 7.5 times median household income, using census data from 2008 through 2010. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million, or 69 times the median household’s net holdings of $121,000.

Some readers wondered if the 1 percent by wealth weren’t an entirely different group of people from the 1 percent by income. But there is substantial overlap: the Fed data suggests that about half of the top 1 percent of earners are also among the top 1 percent in the net worth category.
Read more…

January 17, 2012, 6:00 am

The Pros and Cons of Obama’s Reorganization Plan

By BRUCE BARTLETT
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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of the forthcoming book “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

On Friday, President Obama announced plans to consolidate a number of federal agencies related to business and trade into a single agency in order to improve efficiency and the international competitiveness of American companies.

Today’s Economist

Perspectives from expert contributors.

The agencies to be combined are the Department of Commerce, the Small Business Administration, the Export-Import Bank, the Overseas Private Investment Corporation, the Trade and Development Agency, and the Office of the Trade Representative. A 2010 report from the Congressional Research Service provides a good overview of the functions of these organizations.

This is not a new idea. In 1983, President Reagan asked Congress for a similar reorganization. According to a New York Times article, the purpose of the new agency was to create an American version of Japan’s powerful Ministry of International Trade and Industry.
Read more…