Jane the Actuary General Interest

Arlington Heights School District 25’s $75 million referendum: Six reasons to vote no

Arlington Heights School District 25 is asking voters to approve $75 million in new spending over 20 years.  The money will be used

  • to add new classrooms to most elementary schools to provide all-day kindergarten, with the largest expansion 10 new classrooms at Westgate,
  • to expand gyms at Westgate and Dryden, and
  • to fund general building improvements, such as replacements of roofs, flooring, fire alarm systems, lighting, HVAC boilers, piping, parking lots, etc.

The district’s materials do not provide details on the split of costs among these three categories of expenditures.  What’s more, though I’ve seen additional details on such matters as future enrollment projections being shared by supporters, these are not available at the D25 website.

I am a parent in the district, and, though I (full disclosure) sent my children to the local Catholic school, I certainly believe that all children deserve a quality education — and that is already the case with D25 schools, which already offer a strong curriculum with many “extras,” provision of tech, fine arts and athletic activities.  In the run-up to the 2021 school board election, I discussed the district with parents and, outside of Covid-related decision-making, the only significant concerns I heard were a belief that kids with special needs were not being offered as high-quality an education as they should have received.

With that in mind, here are my objections to the bond proposal:

First, I do not believe that all-day kindergarten is a necessity for children educationally unless they have special needs, are at-risk due to their family situation, etc.  The regular outcry that “everyone else has it” fails to take into account the fact that SD25 is significantly different than its neighboring districts in its demographics; there are far fewer at-risk kids here in D25 than in neighboring areas with significantly more immigrant families.  When it comes to the dual-earner middle-class families which make up the largest part of the district, it is of course a cost savings to have one year less of daycare, and to avoid the logistical difficulties of half-days (day care centers typically provide transportation to nearby schools but there are challenges if one’s prior provider was located further away).  But when there are costs to be managed — and especially if special needs kids are already getting the short end of the stick, why is it more important to lighten parents’ cost burden in this one way, when other parents have costs around before/aftercare, summer care, and, of course, pre-kindergarten child care?

Second, the district’s materials vaguely reference “future enrollment growth.”  In an environment when birth rates are declining, I would be far more persuaded that D25 is an exception if they had provided concrete reasons to believe this.  There will be no enrollment growth due to new construction.  It is possible that housing cost increases may mean more families living in apartment complexes in units now occupied by singles or couples, but this is speculative.  There are no neighborhoods which are new enough for there to be a widescale turnover from original owners to new, young families — neighborhoods are established enough to be a mix of families of all types, and, if anything, family sizes are shrinking — homes which once housed a family with three kids now have two or one.  Are there reasons to believe that D25 is becoming more popular with young families and is an exception to the rule?  Maybe, but the district had the responsibility to demonstrate this rather than asking voters to take it on faith.

Third, the district plans to spend the money on a combination of new classrooms for all-day kindergarten as well as other building maintenance costs.  This is a serious red flag, and really, despite its appearance as #3 on the list, is really my top concern. These sorts of expenses should be covered by our ongoing tax money and should not require a separate referendum.  To ask for this raises a serious concern that the school district is not managing its money prudently, deferring expenses instead of planning for them.

Fourth, the district is planning to build these new classrooms without even having identified the source for the needed additional funds for the operational costs of an all-day kindergarten.  Again, this is a serious concern, especially since (no link here; I’ve been told this by a parent who has reviewed district finances) the district is already running a deficit and using reserves to cover $3 million in expenditures for the year.  Previous polling and surveys had discussed the possibility of a tuition-paying all-day extension — if that’s the case, why wouldn’t the projected tuition cover the construction costs over time?  And why wouldn’t the district share these plans?

Fifth, the district touts its status having the second-lowest tax rate of 8 neighboring districts, and the third-lowest operating expense.  But both of these will increase with the new referendum and the new kindergarten expansion, so it is misleading not to share how the tax increase will affect these.  Based on a review of our own tax bill, when it comes to tax rates, it looks like the district would become the third-highest of the eight comparator districts.  And, again, we don’t know what the operating expense will look like.

And finally, back to the educational question, my sixth concern:  I know that the “common core” demands for kindergarteners have escalated significantly even in the decade since my youngest was a kindergartner.  They are expected to be able to sound out words, and to have memorized sight words, and to be able to do “seatwork” as if they were first graders.  To reference my children’s experience, the school operated both half- and full-day programs, and I believe this expectation that the academic work for the full-day kids should not exceed half-day kept expectations in check.  Now I am seeing, from parents of D25 kids in local Facebook groups, discussions of tutoring help or summer school for children who aren’t reading at the end of kindergarten.  Pushing academics this early is especially a problem for boys, who are ready to sit down and do “seatwork” later, generally speaking, and end up medicated for ADHD when they aren’t ready for this.  Heck, many of the school systems that are touted as “top in the world” make a clear distinction and hold off on anything academic until first grade.  I am not an expert on what the district is doing, and perhaps these parents have indeed gotten this all wrong but if there’s any risk that all-day kindergarten becomes the new first grade, that’s a problem.

school bus
school bus, public domain, https://www.maxpixel.net/Bus-Vehicle-Education-Transport-School-Bus-School-4406479
Jane the Actuary General Interest, Retirement

Forbes post, “What’s Needed To Create A Wider Safety Net? More Trust”

Originally published at Forbes.com on December 21, 2021.

 

In late November, The Atlantic published an article titled, ominously, “The End of Trust.” The story sounds the alarm about an unexpected consequence of the pandemic, and, specifically, the shift towards working remotely that was its consequence for white-collar workers: a drop in trust among workers towards their remote colleagues, due to the lack of face-to-face interaction.

This is on top of an already existing drop in reported trust levels in the United States: the General Social Survey (GSS) has been asking participants, since 1972, the standard question of whether, generally speaking, people “can be trusted” or whether “you can’t be too careful.” In 1972, 46% said people “can be trusted”; in 2018 (the most recent available), that had dropped to only 31%.

And it matters — for many reasons, of course, but, in particular, it’s hard to have public support for social insurance systems if they don’t trust that they are being administered fairly and that their fellow citizens aren’t gaming the system in one way or another.

Consider, after all, the fights over the Child Tax Credit, or, specifically, the proposed extension of the expanded and refundable version, in the now (likely) failed Build Back Better bill. Senator Joe Manchin, among others, wanted the benefit restricted to those with some employment, out of a concern that, without this requirement, it would not be put to good use.

Or consider the expanded unemployment benefits which were offered based on a recipient’s assertion that he or she was unable to work due to child care needs, and the extended length of time that unemployment benefits were available without job search requirements in many states.

The proposed paid leave benefit? Its provisions were expansive, allowing workers to claim benefits for the caregiving of any person with a relationship that’s the “equivalent of a family relationship” to any degree that it is “in lieu of work.” It’s easy to see unscrupulous individuals taking advantage of such a benefit.

And even such benefits as the proposed “Social Security 2100” bill carry with it the opportunity for abusing the system: a guaranteed minimum benefit of 125% of the single-person poverty level takes away an incentive for self-employed individuals to fully report their income, if they can instead report only enough income to be credited with that year’s Social Security credits. The same would be true for other proposed benefits based on earnings: a child care benefit based on salary, for instance.

So let’s look at some details.

Some regional distinctiveness

Exactly how, and where, did trust decline?

The GSS divides up participants by region. In the early 70s, there were clear differences between the regions — the South had much lower levels of trust than the rest of the country, the Great Plains states had trust levels far higher than the rest of the country, and, of the rest, New England and the Mountain states took second and third. In the most recent years of the survey, the South remains lowest, New England is highest by a wide margin, and the remaining regions are all quite similar, with the Great Plains region in particular having lost its trust distinctiveness.

Globally, the most extensive data comes from 2009, in a World Values Survey (there exists a 2014 version, but with fewer countries). Here are two versions of that data.

What’s to be made of this? It’s clear that in many countries, the trust levels have shifted dramatically even in just a decade — but whether this is real or merely apparent based on the process of collecting survey data is not clear. (The survey also shows a clearly higher trust level for the US than does the GSS, possibly as a result of different answer choices.) What is more certain is that the three Nordic countries in the survey, Norway, Sweden, and Finland, have significantly higher trust levels than even Western/”WEIRD” countries. And, generally speaking, higher trust levels are positively correlated with higher GDP per capita, though which is cause and which is effect is not obvious.

(As a side comment, the book The WEIRDest People in the World by Joseph Henrich characterized the United States as scoring high in social trust, but to be more specific, Henrich examined the relative difference between our willingness to trust people in our in-group vs. strangers, and these studies look at social trust in general.)

Does that mean that we in the United States can just copy what the Nordic countries do, in order to boost our trust levels? Superficially, those countries are known for having generous social welfare systems — but that’s hardly what creates high trust levels and likely, instead, at least to an extent, the result of existing trust levels or underlying conditions.

An academic paper from 2004, “Social Trust: Global Pattern or Nordic Exceptionalism?” by Jan Delhey and Kenneth Newton, attempts to identify the underlying causes of high trust levels, not merely the characteristics correlated with high-trust societies.

First evaluating simple correlations, they found that higher GDP per capita correlates with higher trust and a large agricultural sector is associated with low levels of trust. Political characteristics such as political stability, political freedom, effective governement, and rule of law are associated with high trust, as is “public expenditure on health and education,” and, not surprisingly, corruption is associated with low trust. The degree to which voluntary associations are prevalent in a country (a longstanding concern in the United States since the publication of Bowling Alone by Robert Putnam) appeared unconnected and the particular religion prevalent in a country had no significance except that Protestant countries were higher-trust than Catholic countries.

But which is cause, and which is effect (or neither)? The paper attempts to solve this problem by looking at potential factors which might have preceded others in time. With respect to Protestantism, for instance, similar to Hendrick’s explanations of WEIRD countries,

“The argument is not that Protestant theology or beliefs necessary pervade countries than are labelled Protestant now, but that the religion has left a clear cultural imprint over the past centuries that has shaped a very wide range of present-day features from economic development and forms of government, to attitudes towards equality and corruption. The Protestant ethic facilitated the emergence of capitalism in the seventeenth century, and Protestant countries are still among the richest, the most democratic, and the least corrupt in the world today.”

Similarly, they examine the degree of ethnic homogeneity in a country because

“We are aware that wealthy countries that guarantee human rights for minority groups may attract immigrants, and therefore good government and wealth affect patterns of migration, but ethnic composition does not change greatly in the short run, even in the modern era of mass population movements.”

Based on these presuppositions, they then find these two factors are indeed drivers of such factors as good government and economic well-being, which in turn produce higher levels of social trust.

At the same time, however, “Nordic exceptionalism” appears to drive higher levels of social trust, as a sort of intensifier — but why that is, the authors don’t claim to know.

And that brings me back to the Atlantic article, which discouragingly concludes:

“A trust spiral, once begun, is hard to reverse. One study found that, even 20 years after reunification, fully half of the income disparity between East and West Germany could be traced to the legacy of Stasi informers. Counties that had a higher density of informers who’d ratted out their closest friends, colleagues, and neighbors fared worse. The legacy of broken trust has proved extraordinarily difficult to shake.”

We can’t, in the United States, become ethnically homogeneous — at least not as its traditionally understood. We can’t all convert to Protestantism to become more trusting. Whether there is, indeed, a path towards rebuilding trust, is not even clear — but perhaps the recognition of the issue is at least a first step.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary General Interest, Retirement

Forbes post, “No, The ‘Build Back Better Bill’ Is Not Fully Paid For – But Do Americans Care?”

Originally published at Forbes.com on October 29, 2021.

Yesterday, the Biden administration unveiled its new iteration of the “Build Back Better Bill,” proclaiming that it is “fully paid for.” But this is far from true.

While it has indeed reduced the overall scope of spending, eliminating such programs as paid leave and Medicare dental benefits, and trimming the scope of other benefits, the administration’s claims that the plan is “paid for” are not remotely credible for the simple fact that so many of its programs end after 6, 3, or even only 1 year, but are funded with 10 years’ worth of tax increases.   The Committee for a Responsible Federal Budget has compiled a list:

  • Universal preschool for 3 and 4 year-olds ends after 6 years (and with a 40% state cost-share by year 6).
  • Child care subsidies are phased in over 3 years, operate in full for another 3 years, and then end.
  • The child care tax credit and the expanded EITC end after a single year.
  • ACA/Obamacare expanded premium subsidies end after 3 years.
  • And the expansion of ACA credits to individuals in states which haven’t expanded Medicaid, ends after 4 years.

The CRFB calculated that expanding these benefits over the full 10 year window would more than double the real cost of the bill — but most news coverage fails to mention these expiration dates, or fails to remark on their significance, focusing instead on the political machinations or mentioning what’s in, what’s out in single-sentence reporting, such as in this coverage at the New York Times, which simply reports that

“provisions to provide universal preschool for more than six million 3- and 4-year-olds and subsidies to limit the costs of child care to no more than 7 percent of income for most families would offer a significant boost to the middle class.”

Are the Democrats taking it for granted that political pressure will keep these programs going, and that their successors will be obliged to either find new tax revenue or finance them with deficit spending, or are they simply indifferent to what happens one year or six years from now?

And what’s even more maddening is that the Democrats have treated this as something of a smorgasbord, in which they are loading up their plates for a first go-round now, but will go back up to the buffet later for the items they had to forego the first time around. Family leave, expanded Medicare benefits, Social Security expansion, SSI increases, and free community or four-year college are only the elements of the wishlist that come to mind, but there is, of course, more — and beyond this Democratic Party wishlist, there are key, fundamental budgetary issues that will need to be resolved, namely, the coming Medicare Part A Trust Fund depletion and, a bit later, the Social Security Trust Fund depletion.

Which matters more: providing $300 per month per child to nearly all taxpayers, or providing dental benefits to Medicare recipients?

Which should have greater priority: paying child care workers the same wages as elementary school teachers, or ensuring that Social Security is solvent?

And the poor design of some of these programs compounds the program. For example, in the subsidized child care program, each state would calculate a payment rate deemed to be equal to the “cost of child care” and providers may neither charge parents amounts in excess of their copay nor give them a discount or rebate. (In this respect, it’s quite different than the ACA for healthcare, where subsidies are based on the average “Silver” plan cost and recipients can shop around for the price and coverage that suits them best.) Will the state calculate the cost “correctly,” or will they overshoot and give providers unintended profits, or will they be stingy in their calculation because of state cost-share requirements, putting providers out of business? In any event, the legislation requires that child care workers with credentials and education similar to elementary school teachers be paid equivalently, which will cause costs to explode — along with other determinations of “quality,” this could more than double costs not just for parents who don’t qualify for subsidies, but for the government, where every dollar spent on these subsidies is a dollar that can’t be spent on some other program of equal importance.

And that’s just one program, which I happen to have read the full details on. What else is in there?

To be sure, there are far too many Democrats (and, yes, Republicans before them) who simply believe there are no trade-offs needed, except in the pragmatic, political sense of passing legislation, that we can indeed “have it all” — have all the social welfare spending programs they desire, funded through their “tax the rich” rallying cry or by ever-increasing deficits.

All of which means that we desperately need people to call the Biden administration out when they continually, preposterously, make this “fully paid for” claim, because the American people should not stand for being lied to — but the plan’s funding and its expiration dates seem to be the furthest thing from the minds of even those following the bill.

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary General Interest, Retirement

Forbes post, “Here’s Why, Actually, The IRS $600 Bank Reporting Proposal Is Entirely Reasonable

Originally published at Forbes.com on October 16, 2021.

 

Over the last several days, we’ve seen the Outrage Machine in action over a new Treasury proposal to require banks to report to the IRS new information on U.S. bank accounts, in addition to the existing reporting of interest payments. This proposal, as described at CBS News (among, of course, many other sites) would require banks to report the gross annual inflows and outflows in bank accounts, ostensibly to catch high-income tax-dodgers. Because the threshold for reporting was set at $600, skeptics are, well, skeptical of the assertion that this change would only affect, as the Biden administration claims, those earning over $400,000 per year.

At the Heritage Foundation, a commentary claims that this change would be “invading your privacy and putting more of your financial data at risk,” citing past leaks at and politicization of the IRS. A group of 40 banking/credit industry organizations likewise objected that Americans’ financial privacy was at risk and claimed that this new requirement would deter unbanked households from establishing accounts. And other politicians, as cited in fact checks, mischaracterizing the proposal, claim that it would result in the IRS examining the particulars of every $600 transaction. Whether the very low threshold is an indication that the administration is being dishonest in its claims that their objective is only to catch wealthy tax cheats when they are, in fact setting the stage for a wider pursuit, or whether this is more a matter of failing to think through the implications of such a low threshold, who can say.

But at the same time, the other day, while driving home, I listened to a fairly generic conservative radio talk show host angry about this proposal. He was not angry about privacy concerns, and certainly not about whether people at the margins would be deterred from opening bank accounts, nor about the cost to banks of compliance with the new regulations. No, what he was up in arms about was the fact that Americans would be obliged to pay tax on their moonlighting self-employment income.

So here’s the plain-and-simple reality: Americans owe FICA tax on all their income up to the ceiling, and are obligated to report all their income in calculating their income tax. There is no legal, moral, or ethical right to underreport just because your income came from some other source than a “real job.” A babysitter, an Ebay reseller, someone who picks up handyman jobs on the side — all these folks have an obligation to report their income. (As a parent and Band Mom, I’m personally learning the ropes here, as our group navigates sending Form 1099s to college students and local musicians who are hired periodically.)

And — without wishing to wade into the entirely separate issue of high-income tax cheats — the “shadow economy” in the United States is substantial. Estimates are hard to come by, but one guesstimate is that the underground economy amounted to 11 – 12% of US GDP in 2018. A 2012 survey indicated that 91% of nannies reported being paid under the table. Among all household workers, another estimate found rates of between 74% and 97%, depending on methodology. And of course, the under-the-table workforce extends far beyond household workers, though it gets harder to quantify when we’re talking about other sorts of self-employed people not reporting their income, or small employers paying under the table. (A brief perusal of reddit suggests this is not unusual for restaurants.)

But consider this: some time ago I discussed a book, Downhill from Here by Katherine S. Newman, which lamented gaps in the retirement system, such as multiemployer pension insolvencies and the retirees of Detroit, whose pensions were cut modestly with the city’s bankruptcy. I didn’t place too much credence in her arguments, lamenting as she did, for example, that the city of Detroit did not, in fact, sell art from the Detroit Institute of Arts to preserve pensioners’ benefits in full.

But in addition to these stories, she featured profiles of Americans who were working well past traditional retirement age, including Leslie, who ran a home daycare “off the books” and built up so little official employment history that her Social Security benefit was “almost nothing,” and Marissa, who was mostly paid under the table for housecleaning work and likewise had no meaningful Social Security benefit. In case case, Newman implies that it is a matter of unjust Social Security plan design that these women have no/few benefits rather than acknowledging that it was an intentional decision not to report their income.

In the same way, there are periodic sympathetic news reports of women formerly employed as nannies or housecleaners who became unemployed in the wake of the pandemic — but it doesn’t occur to those journalists that, to the extent that those women were employed, rather than self-employed, they should have qualified for unemployment benefits, or would have, had they been paid on the books. And, of course, again, people who are employed, rather than self-employed, under-the-table lose access to workers’ compensation should they be injured.

Yes it’s unpopular to talk about this. There’s a presumption that people working under the table are poor, so that it would be unfair to enforce the requirement to pay taxes. Certainly, many of these workers would have incomes low enough that they would not be obliged to pay income taxes, though payroll/FICA taxes apply to all income. But for others, this is a sideline, and in yet other cases, they are genuinely employed, not self-employed, and have an employer who profits from the ability to escape taxation on some of their payroll.

And it’s not just a matter of lost taxes, or lost Social Security benefits. There’s something more fundamental that’s lost in our society when we treat participating in taxation and social insurance systems as somehow optional.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary General Interest

The Biden Family Leave Plan: Good Intentions, Bad Policy, Worse Implementation Plan

Originally published at Forbes.com on September 23, 2021.

 

Parental leave has been on the agenda not merely of Democrats but also of moderate Republicans for quite some time. To be sure, Republican proposals have been far more restrained — Marco Rubio’s ill-fated 2018 proposal to allow parents to “borrow” from their Social Security benefits never went anywhere, but at about the same time, the Brookings Institute and AEI, two think tanks generally on opposite sides of the political spectrum collaborated on a paid leave proposal. And, yes, even the Heritage Foundation has a hard time saying, “no,” to the idea itself, suggesting instead that programs should be left to states and employers.

As with any social insurance program, there are bound to be winners and losers, and families who make the intentional decision that one parent will leave the workforce to care for children may grouse that wages are taken out of the wage-earner’s paycheck to support those making the opposite decision, but some level of grousing is pretty much unavoidable and the wider consensus seems to be that the idea is sound but the implementation must be done smartly.

Which means that when the Biden administration announced back in April that it was including Family Leave in its American Family Plan, I criticized the details, however limited they were at the time, for failing as a social insurance program because it did not have a dedicated payroll tax. The typical family leave program in a typical Western European country is funded based on a dedicated payroll tax, as was the case in the original “Family Act” (though even there, the proposed payroll tax was not sufficient to fully fund the benefit). Even in those countries where leave programs are provided through general tax revenues, the funding source is not a special “soak the rich” tax but an income tax system in which everyone pays more.

We now have more details on the Biden plan, which is now intended to be funded through the Reconciliation bill. The legislation itself contains many of the characteristics of the spring proposal — 12 weeks of paid leave to “qualified caregivers.” Specifically, the program would provide benefits for pretty much any sort of caregiving as long as it was “in lieu of work” and without compensation, for the equivalent of 12 weeks (all at once or spread out over time) per year, at a pay-replacement structure with bend-points similar to Social Security. This means that someone earning about $35,000 would get about 80%, someone earning $72,000 would get 67% of pay, and someone earning $100,000 would get about 55% of their pay by the benefit, with a de facto cap at that pay level but a trivial level of benefit up to $250,000. (This vaguely resembles proposals for hiking Social Security benefits, as if it was intended originally to be based on a payroll tax to $250,000.) In addition, benefits would be paid for any of the eligible reasons of the Family and Medical Leave Act, so not just for newborns or newly-adopted children but for medical caregiving as well, which suggests that in the case of long-term needs, individuals could collect benefits year after year.

And, indeed, not only is the program not funded by a payroll tax, but it is not really funded in any real way at all, since it is part of a spending plan with tax increases that are intended to cover only half of the new spending in the first place — $3.5 trillion in new spending with $1.75 trillion in new debt. In fact, the overall level of new debt is even worse when considering that many of the proposed spending programs in the Reconciliation bill, which include child tax credits, free preschool and community college and heavily subsidized child care, are nominally authorized for only a portion of the 10 years, so that the Committee for a Responsible Federal Budget has estimated that a true 10 year cost would be more like $5 – 5.5 trillion. The official “framework for the FY 2022 budget resolution” indicates, for every new spending proposal, that “the duration of each program’s enactment will be determined based on scoring and Committee input.” The very prospect that any of these programs would be implemented using the “10 year sunset” that is part and parcel of how Reconciliation works, is appalling. Once these programs are implemented, families should be able to reliably make future plans in a way that just isn’t possible when Congress plays games with sunsets and extensions. Implementing family leave through a Budget Reconciliation bill is the wrong way to create the program — and by that I do not just mean that it is an imperfect way, but that it would do more harm than good.

In a commentary at the Boston Globe last week, Vicki Shabo and Jacob S. Hacker said of this proposal, “Done right, paid leave could be Democrats’ Social Security for the 21st century” — a “social policy landmark that could cement the loyalties of a new generation of voters.” Yet they cite FDR’s famous quote that “no damn politician can ever scrap my social security program” while omitting the fact that this very quote is about FDR’s perception of the importance of financing the Social Security program through payroll taxes rather than general revenue.

The bottom line: yes on family leave as an extension of social insurance policies, if done right with appropriate plan design and funding. But by no means should it be debt-financed and certainly not with an expiration date to hide its cost.

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.