Why Big Salary Raises May Be Gone for Good
If you’re hoping for a big raise this year, prepare to be disappointed. Sure, you might be among the lucky people who get a healthy bump in salary, but a recent survey by professional services firm Towers Watson found that companies are planning pay raises of 3 percent on average for workers.
A new survey by human resources and management consultancy Aon Hewitt confirms that forecast: Even as the job market continues to improve, salaried employees can expect their base pay to increase 3 percent, or about a percentage point smaller than the raises employers were handing out 20 years ago.
Related: Full Employment Alone Won’t Solve Problem of Stagnating Wages
From 1996 through 2000, salaries went up by about 4.1 percent a year, according to Aon Hewitt data. From 2011 through 2015, annual raises have averaged about 2.8 percent. And even as we get further away from the recession, that downward shift appears to be permanent, as companies look to keep a lid on their fixed costs.
"The modest increases we've seen over the past 20 years are an indication that employers have changed their compensation strategies for good, and we shouldn't expect to see salary increases revert back to 4 percent or higher levels that were commonplace in the past," said Aon Hewitt’s Ken Abosch.
Related: Obama Moves Toward Executive Action on Overtime Pay
On the bright side, at least for some workers, employers are planning on doling out more money in the form of bonuses, cash awards and other so-called variable pay. Aon Hewitt’s survey found that workers will see their variable pay rise by 12.9 percent this year.
That shift favors higher-level white-collar workers, since companies have been cutting back on bonus and incentive pay for clerical or technical workers. In 2011, only 43 percent of companies gave bonuses or other cash incentives to those hourly workers eligible for overtime pay, down from 61 percent in 2009, according to data Aon Hewitt shared with The Washington Post. On the other hand, 93 percent of companies offer incentive programs to employees with a fixed salary.
As Abosch told the Post: “It’s the haves and the have nots.”
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Chart of the Day: A Buying Binge Driven by Tax Cuts
The Wall Street Journal reports that the tax cuts and economic environment are prompting U.S. companies to go on a buying binge: “Mergers and acquisitions announced by U.S. acquirers so far in 2018 are running at the highest dollar volume since the first two months of 2000, according to Dealogic. Thomson Reuters, which publishes slightly different numbers, puts it at the highest since the start of 2007.”
Number of the Day: 5.5 Percent
Health care spending in the U.S. will grow at an average annual rate of 5.5 percent from 2017 through 2026, according to new estimates published in Health Affairs by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS).
The projections mean that health care spending would rise as a share of the economy from 17.9 percent in 2016 to 19.7 percent in 2026.
Trump Clearly Has No Problem with Debt and Deficits
A self-proclaimed “king of debt,” President Trump has produced a budget that promises red ink as far as the eye can see. With last year's $1.5 trillion tax cut reducing revenues, the White House gave up even trying to pretend that its budget would balance anytime soon, and even the rosy economic projections contained in the budget couldn’t produce enough revenues, however fanciful, to cover the shortfall.
The Trump budget spends as much over 10 years as any budget produced by President Barack Obama, according to Jim Tankersley of The New York Times. And it projects total deficits of more than $7 trillion over the next decade — "a number that could double if the administration turns out to be overestimating economic growth and if the $3 trillion in spending cuts the White House has floated do not materialize in Congress,” Tankersley says.
Trump — who once promised to both balance the budget and pay down the national debt — isn’t the only one throwing off the shackles of fiscal restraint. Republicans as a whole appear to be embracing a new set of economic preferences defined by lower taxes and higher spending, in what Bloomberg describes as a “striking turnabout” in attitudes toward deficits and the national debt.
But some conservatives tell Tankersley that the GOP's core beliefs on spending and debt remain intact — and that spending on Social Security and Medicare, the primary drivers of the national debt, are all that matters when it comes to implementing fiscal restraint.
“They know that right now, a fundamental reform of entitlements won’t happen," John H. Cochrane, an economist at Stanford University’s Hoover Institution, tells Tankersley. "So, they have avoided weekly chaos and gotten needed military spending through by opening the spending bill, and they got an important reduction in growth-distorting marginal corporate rates through by accepting a bit more deficits. They know that can’t be the end of the story.”
Democrats, of course, have warned that the next chapter in the tale will involve big cuts to Social Security and Medicare. Even before we get there, though, Tankersley questions whether the GOP approach stands up to scrutiny: "This is a bit like saying, only regular exercise will keep America from having a fatal heart attack, so, you know, it's ok to eat a few more hamburgers now."
Part of the Shutdown-Ending Deal: $31 Billion More in Tax Cuts
Margot Sanger-Katz and Jim Tankersley in The New York Times: “The deal struck by Democrats and Republicans on Monday to end a brief government shutdown contains $31 billion in tax cuts, including a temporary delay in implementing three health care-related taxes.”
“Those delays, which enjoy varying degrees of bipartisan support, are not offset by any spending cuts or tax increases, and thus will add to a federal budget deficit that is already projected to increase rapidly as last year’s mammoth new tax law takes effect.”
IRS Paid $20 Million to Collect $6.7 Million in Tax Debts
Congress passed a law in 2015 requiring the IRS to use private debt collection agencies to pursue “inactive tax receivables,” but the financial results are not encouraging so far, according to a new taxpayer advocate report out Wednesday.
In fiscal year 2017, the IRS received $6.7 million from taxpayers whose debts were assigned to private collection agencies, but the agencies were paid $20 million – “three times the amount collected,” the report helpfully points out.
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