2013-06-19T03:44:05-04:00 Andrew Fieldhouse http://www.huffingtonpost.com/author/index.php?author=andrew-fieldhouse Copyright 2008, HuffingtonPost.com, Inc. HuffingtonPost Blogger Feed for Andrew Fieldhouse Good old fashioned elbow grease. tag:www.huffingtonpost.com,2012:/theblog//3.2059207 2012-11-05T12:00:00-05:00 2013-01-05T05:12:01-05:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ The Washington Post recently, former Sens. Pete Domenici (R-N.M.) and Sam Nunn (D-Ga.) argued that enacting a bipartisan deficit reduction "grand bargain" could be instrumental in addressing the so-called "fiscal cliff" of legislated spending reductions and expiring tax cuts scheduled for the beginning of 2013. A grand bargain could theoretically mitigate the sizable pending fiscal headwinds, but a deal could also close deficits too quickly, pushing the economy into an austerity-induced recession. Nothing in their op-ed or the two grand bargains it references demonstrates how such a compromise could successfully clear the "fiscal cliff."

At its core the "fiscal cliff" represents the macroeconomic reality that budget deficits closing too quickly -- and public debt accumulating too slowly -- will push the U.S. economy back into recession. The scheduled spending cuts and tax increases comprising the legislated fiscal tightening are separable policies, all with varying budgetary costs and a wide range of economic impacts; we decomposed these à la carte in our recent paper, "A fiscal obstacle course, not a cliff." "Cliff" is a terrible metaphor, as it implies a binary choice, whereas each policy should be weighed on its economic impacts and budgetary costs. Government spending cuts are more economically damaging than tax increases, particularly for upper-income households and businesses, but tax increases will drag on growth to varying degrees. Collectively, the legislated fiscal tightening would shave 3.7 percentage points from real GDP growth, and the U.S. would experience a 2.9-percent contraction in the first half of 2013, pushing unemployment back above 9 percent, according to the Congressional Budget Office (CBO) -- if the legislated path is unexpectedly followed.

The two grand bargains Domenici and Nunn point to are the "Moment of Truth" report by National Commission on Fiscal Responsibility and Reform co-chairs Alan Simpson and Erskine Bowles and the "Restoring America's Future" report by the Bipartisan Policy Center's Debt Reduction Task Force, co-chaired by Domenici and former Office of Management and Budget and CBO director Alice Rivlin. But how would either of these plans or a similar congressional grand bargain help sustain recovery?

The only way a deficit reduction grand bargain could successfully navigate the fiscal obstacle course is if it substantially moderates the pace of deficit reduction while the economy remains depressed. But these two plans -- implied to be model remedies -- prematurely proposed austerity measures for a depressed economy, and the economy remains about as depressed today, relatively speaking. Fiscal contraction --particularly government spending cuts -- is highly damaging in a depressed economy, and U.S. economic output is currently depressed about $973 billion (5.8 percent of potential GDP) below potential economic output (the level of activity associated with full but non-inflationary levels of resource utilization; e.g., labor, industrial capacity, financial capital). When the Bowles-Simpson and Domenici-Rivlin reports were released in the fourth quarter of 2010, this "output gap" stood at 6 percent of potential GDP, roughly where it stands today. And as demonstrated across Europe, particularly by the United Kingdom, austerity cuts in a depressed economy are very much capable of counterproductively inducing a return to recession and deeper depression.

The Simpson-Bowles report in particular failed to acknowledge the prevailing economic context or budget for sustained economic recovery. One of the guiding principles of the co-chairs' plan reads: "Don't Disrupt a Fragile Economic Recovery." Their main recommendation in this section, however, was to delay spending cuts from December 2010 (when the report came out) until October 2011, at which point the unemployment rate was 8.9 percent -- far from the robust recovery that could accommodate deep fiscal retrenchment. Not only did their plan propose premature spending cuts, but it would not have accommodated the deficit-financed payroll tax cuts, emergency unemployment benefits and expansion of refundable tax credits that Congress enacted for 2011 and 2012. Earlier this year we calculated that this fiscal retrenchment would reduce economic output by 1.3 percent in fiscal year 2012 and 2 percent in fiscal year 2013, reducing nonfarm payroll employment by 1.6 million jobs in fiscal year 2012 and 2.4 million jobs in fiscal year 2013 (relative to the path Congress took and current budget policies).

The Domenici-Rivlin report earns higher marks for acknowledging the need for fiscal stimulus, but their policy prescription also fails to adequately moderate the pace of deficit reduction. They proposed completely waiving the Social Security payroll tax -- both the employer and employee sides -- for 2011, setting up an earlier "fiscal cliff" by pumping $641 billion of disposable income into the economy in 2011 and then immediately withdrawing it as spending cuts ramped up. Relative to their then-current policy baseline, spending cuts would be ratcheting up from $43 billion in the fiscal year just ended to $112 billion in fiscal year 2013, and tax increases -- less harmful per dollar, but contractionary nonetheless -- would have total non-interest deficit reduction ramping up to $324 billion for the fiscal year that just started (considerably more for calendar year 2013, the present focus of the fiscal obstacle course). And like Simpson-Bowles, emergency unemployment benefits -- among the highest "bang-per-buck" job creation measures and a crucial policy response to the persisting long-term unemployment crisis -- would have ended after December 2010, when the unemployment rate stood at 9.4 percent.

Domenici and Nunn are certainly correct that the U.S. faces a serious long-term fiscal sustainability challenge, one driven by rising health care costs, the aging of the baby boomers and inadequate revenue. But reading their op-ed, one would naturally and wrongly conclude that reducing deficits is the foremost challenge posed by the "fiscal cliff," whereas the challenge is reducing the pace of deficit reduction currently scheduled in order to sustain the recovery.

A grand bargain could successfully navigate the fiscal obstacle course, but only if it injects hundreds of billions of dollars of stimulative spending (e.g., unemployment benefits, infrastructure spending, aid to state governments and targeted tax cuts) into the economy for years to come and delays government spending cuts until the economy emerges from depression. However, that would require a substantial overhaul of either the Bowles-Simpson or Domenici-Rivlin reports. Contrary to what Domenici and Nunn imply, these are not shelf-ready templates for navigating the fiscal obstacle course; they fail the test of adequately moderating the pace of deficit reduction, even if their implementation were delayed to next year.]]> tag:www.huffingtonpost.com,2012:/theblog//3.1893137 2012-09-19T15:34:51-04:00 2012-11-19T05:12:02-05:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ double-dip recession in the first half of 2013 if they all materialize. The "fiscal cliff," however, is a terrible metaphor -- it implies an all-or-nothing choice between continuing all current budget policies and running smack into the legislated trajectory for fiscal policy. As explained in our new briefing paper, a better framework for understanding the impending drags is a "fiscal obstacle course." Running into certain hurdles would all but guarantee a double-dip recession, whereas some other policies would only act as speed bumps moderately slowing growth -- and policymakers can choose à la carte how to navigate this path. More critically, policymakers can fully (or more than) offset any of the adverse economic impacts associated with implementing long-term deficit reduction, particularly tax increases, with more efficient temporary fiscal support.

Economic growth will largely be determined by fiscal policy over the next few years, but currently, fiscal policy is poised to stifle recovery. The Congressional Budget Office projects that the economy will shrink 0.5 percent in 2013 under current law, weighed down by a 2.9 percent contraction in the first half of the year. The Federal Reserve has exhausted its conventional policy levers and is no position to cushion fiscal economic headwinds of this magnitude. Growth is paramount to both economic recovery and fiscal sustainability, but the economy must expand at a sufficient clip -- 2.5 percent annually as a rule of thumb -- to lower the unemployment rate and alleviate the persisting jobs crisis. So how can policymakers best keep fiscal policy from sparking a double-dip recession and instead help restore full employment?

Understanding the economic, rather than budgetary, impacts of the fiscal choices ahead of Congress is critical for sustaining economic recovery, but expensive policies are regrettably being assumed to be effective policies. Much of the fiscal cliff discourse is narrowly focused on the expiration of the Bush-era tax cuts and the automatic "sequestration" spending cuts scheduled to be triggered in 2013 by the Budget Control Act (BCA), i.e., last summer's debt ceiling deal. Concern with the economic impact of the former is unfounded and overhyped while concern with the latter is merited but insufficient; meanwhile, warranted concern is ill-advisedly missing from several substantial fiscal drags, notably expiring fiscal stimulus. Avoiding a double-dip recession does not necessitate extending the Bush tax cuts; despite their huge budgetary cost, the tax cuts offer minimal economic support, were never designed as fiscal stimulus, and have a dismal economic track record.

Maintaining the remaining ad hoc fiscal stimulus -- the payroll tax cut, emergency unemployment benefits, and recent expansions of refundable tax credits -- would add 1.4 percentage points to growth relative to current law. This would be enough to mitigate roughly half the economic slide projected for the first half of 2013. Reversing the spending cuts from the BCA would add another 1.1 percentage points to growth, but it's important to note that more than one-third of this impact comes from the (widely ignored) discretionary spending caps rather than the higher-profile looming automatic sequestration cuts. These parts of the fiscal obstacle course have the biggest economic impacts per dollar, and we project that collectively dodging them would sustain real GDP growth of 2.0 percent for 2013 -- a faster pace than the 1.8 percent annualized growth rate for the first half of 2012.

Maintaining the Bush-era tax cuts, on the other hand, would add only a meager 0.5 percentage points to growth, most of which comes from more targeted provisions for lower-income households (the 10 percent bracket and refundable credits). Allowing the upper-income tax provisions and estate and gift tax cuts to expire on schedule would shave a trivial tenth of a percentage point from growth (while saving $1.4 trillion over the next decade). The other handful of current budget policies typically renewed on an annual basis (patching the alternative minimum tax, extending business tax cuts, and preventing Medicare physician reimbursement cuts) would similarly add 0.5 percentage points to growth. Continuing only the Bush tax cuts and these other routinely renewed budget policies would produce anemic growth of just 0.5 percent for the year, with a likely contraction of 1.9 percent for the first half of the year.

This menu, however, is in no way exhaustive of the fiscal choices ahead of Congress. Enacting more targeted fiscal stimulus, such as infrastructure investments and aid to state governments, could smooth over any of these fiscal drags -- particularly the smaller headwinds from the pending expiration of tax cuts. Well-targeted fiscal stimulus can deliver more than four times the economic boost per dollar as poorly targeted economic policies (e.g., Bush income tax cuts). Consequently, well-targeted fiscal stimulus could produce the same economic benefit of dodging all of these fiscal obstacles for roughly $318 billion (43 percent) less than their budgetary cost.

There are three major takeaways from this decomposed fiscal obstacle course. First, extending the upper-income Bush-era tax cuts would do next to nothing in terms of avoiding a double-dip recession -- yet expiration would produce substantial savings over the coming decade. Second, the expiration of temporary, targeted stimulus and the implementation of BCA spending cuts both pose substantial impediments to growth that should be mitigated as cost effectively as possible. Lastly, various fiscal drags from implementing long-term deficit reduction, particularly on the tax side, can easily be offset with efficient temporary fiscal support.

The current law fiscal trajectory would, if followed, induce a recession in 2013. However, panic over this scenario (which nobody thinks will come to pass) should not be allowed to be exploited politically to maintain tax policies that provide only minimal support to the economy while turning a blind eye to the real threats to economic and employment growth over the coming year.]]> tag:www.huffingtonpost.com,2012:/theblog//3.1527781 2012-05-20T19:03:16-04:00 2012-07-20T05:12:15-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ fiscal 2013 budget resolution proposed by House Budget Committee Chairman Paul Ryan (R-Wis.), which passed the U.S. House of Representatives on a party-line vote, and the Budget for All proposed by the Congressional Progressive Caucus (CPC). The most salient difference between these competing visions is their efficacy in addressing vital economic challenges, such as restoring full employment, rebuilding the middle class, curbing national health care expenditure, and stabilizing the long-term fiscal outlook. Simply put, the Ryan budget would largely exacerbate such challenges, whereas the Budget for All takes a grounded approach in diagnosing problems and proposing serious, evidence-based solutions.

A budget is much more than numbers and a bottom line; a budget should reflect national priorities, which first and foremost compel addressing joblessness. Unfortunately, the Ryan budget instead prioritizes sharply reducing spending and cutting taxes on the wealthy -- at the expense of good economic stewardship. Roughly 10 million jobs are needed to restore pre-recession unemployment and labor force participation rates. The Ryan budget would nevertheless immediately enact aggressive spending cuts -- particularly to the social safety net -- which would reduce employment by 1.3 million jobs in fiscal 2013 and 2.8 million jobs in fiscal 2014, relative to current budget policies. The Budget for All instead proposes increasing spending for job creation and public investments over the next two and a half years (by $786 billion relative to current law). All told, the Budget for All would boost employment by 2.1 million jobs in fiscal 2013 and 1.2 million jobs in fiscal 2014, relative to current budget policies. Employment would be roughly 3.4 million jobs higher by the end of fiscal 2013 and four million jobs higher by the end of fiscal 2014 if Congress adopted the Budget for All instead of the Ryan budget. And by sacrificing near-term deficit reduction that would have gained them Beltway applause, the CPC prioritized economics and public welfare over the approval of Washington's Very Serious People, who have abandoned job creation for deficit reduction.

Restoring full employment is paramount to rebuilding the middle class, but much more will be required. Median income for working-age households has fallen 10 percent over the last decade (after adjusting for inflation). This reflects not just the effects of the recession (though these were large), but also anemic income growth over the 2001-2007 economic expansion -- the weakest income growth on record. To address the challenges facing middle-income families that were apparent even before the Great Recession, the Budget for All would finance $2.1 trillion worth of investments in the nondefense discretionary budget -- areas including education, workforce training, infrastructure, and scientific research -- to promote economic opportunity, mobility, and competitiveness. The Ryan budget would reduce nondefense discretionary spending -- which houses 90 percent of nondefense public investments -- to 2.1 percent of GDP by 2022, down from 2.7 percent projected under current policy, whereas the Budget for All would increase it to 3.5 percent, back toward the historical levels of investment needed to maintain the public capital stock.

Beyond defunding public investments, the Ryan budget would deeply cut economic security programs. Medicare's guarantee of health coverage in old age would be replaced with a voucher, the value of which would not keep pace with spiraling health care costs. By 2050, federal spending on Medicaid, the Children's Health Insurance Program, and targeted subsidies to expand insurance coverage would be cut by more than 75 percent. The Ryan budget would merely shift costs from the federal budget to households, businesses, and state governments -- which would do nothing to lower overall health care costs and likely increase national health expenditure. Conversely, the Budget for All would honor existing commitments to ensure retirement and health security by strengthening Medicare, Medicaid, and the Affordable Care Act. Specifically, the Budget for All would harness the purchasing power of Medicare to negotiate lower pharmaceutical prices and establish a public insurance option, both of which would lower national health care expenditure -- the real long-term fiscal problem facing the country.

Contrary to public perception, the $5.3 trillion in nondefense spending cuts proposed by the Ryan budget are not earmarked simply for deficit reduction; instead, they would effectively help finance tax cuts for upper-income households. The Ryan budget would continue all of the costly, regressive Bush-era tax cuts and then cut taxes by another $4.5 trillion over the next decade. Ryan's plan claims that these additional cuts would be financed with unspecified (and implausibly hefty) broadening of the tax base, but much would necessarily be deficit financed. Millionaires would receive an average tax cut of $265,000 in addition to a $141,000 tax cut from extending current temporary tax policies. Overall, 71 percent of Ryan's tax cuts would go to the 5 percent of households earning more than $200,000, while only 6 percent would go to households earning $75,000 or less (accounting for 71 percent of households). Lower-income households would see the only tax increase, relative to current policies, because refundable tax credits would be scaled back. (This is in addition to Ryan's deep nondefense budget cuts, 62 percent of which would come from programs for low-income households, according to the Center on Budget and Policy Priorities.)

In contrast, the Budget for All would adequately fund priorities with progressive tax reforms, largely by asking more from the highest-income households, who have enjoyed the lion's share of income growth over the past decade. In light of growing inequality and concentration of wealth, the Budget for All would add new tax brackets for millionaires and billionaires, eliminate the preferential tax treatment of unearned income, and add a small surcharge on high-net-worth individuals (those with wealth exceeding $10 million). The Budget for All would also let the upper-income Bush tax cuts expire on schedule and phase out the middle two rate cuts as the economy strengthens, maintaining only those credits and provisions that predominantly aid working families. The budget would price carbon, thereby addressing global climate change, and tax financial speculation and leverage of "too big to fail" banks, thereby curbing systemic financial risk. Collectively, these policies would raise more revenue and restore a higher degree of progressivity to the tax code, pushing back against inequality and ensuring that deficit reduction is not shouldered by the poor.

The Budget for All and the Ryan budget purportedly reach the same debt level by the end of the decade, but Ryan only gets there with a $4.5 trillion budget gimmick. The Ryan budget would entrench Gilded Age-levels of inequality and double down on tax cuts for the affluent, exacerbating budget deficits and unemployment in the process. The Budget for All demonstrates that dismantling our commitments to the vulnerable is a policy choice rather than a necessity, but choosing an alternative course requires revitalizing progressive taxation and taking comprehensive approaches to real-world problems. Contrary to the claims of many pundits, the Ryan budget simply is not credible; the more intellectually rigorous and fiscally responsible Budget for All, on the other hand, offers serious solutions to the near- and long-term economic challenges we face.]]> tag:www.huffingtonpost.com,2012:/theblog//3.1244809 2012-01-31T18:16:21-05:00 2012-04-01T05:12:01-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ State of the Union address, President Obama defined the Buffett Rule aggressively: "If you make more than $1 million a year, you should not pay less than 30 percent in taxes." The Buffett Rule, of course, was inspired by Warren Buffett urging policymakers to "stop coddling the super-rich" with a tax code that favors capital income over labor income in ways that can lower a certain billionaire's effective tax rate (17.4 percent of taxable income in 2010) below that of his secretary. Just hours before Obama's speech, presidential candidate Mitt Romney released his 2010 tax returns and unveiled a 13.9 percent effective tax rate paid on $21.7 million of income, epitomizing the need for the Buffett Romney Rule.
The administration's previously floated rule that "no household making over $1 million annually should pay a lower share of its income in taxes than middle-class families pay" left some ambiguity as to how much progressivity should be restored by comprehensive tax reform. (Progressivity has declined markedly since the 1960s, as demonstrated by economists Emmanuel Saez and Thomas Piketty.) There's the trick of defining the middle class. More contentiously, would millionaires have to pay a higher effective tax rate than the average middle class tax rate or the highest middle class tax rate? Effective tax rates vary widely across all cash income levels. A professional athlete with tens of millions of dollars in annual wage and salary income pays the top marginal 35 percent tax rate plus the 1.45 percent Medicare payroll tax on most of their earnings. Not so for Mr. Romney or Mr. Buffett.

As a co-founder of private equity firm Bain Capital, Romney's work income was reclassified as "carried interest," which is treated as investment income and taxed at the preferential 15 percent long-term capital gains rate. (See Howard Gleckman's overview of this insidious tax preference.) The carried interest loophole helped Romney accrue his fortune, currently estimated somewhere between $190 million to $250 million. The vast majority of his current income is in the form of capital gains and dividends (including $7.4 million reclassified as such through the carried interest loophole in 2010) and taxed at the preferential 15 percent rate. The tax code favors capital income over work income in other ways, too: Capital income is not part of the income base for payroll taxes, the biggest component of which -- the Social Security payroll tax -- is only charged on the first $110,100 in wages and salaries. (About 94 percent of households' entire earnings fall under this taxable maximum.) Hence the 13.9 percent tax rate that many find so infuriating.

As my colleague Ethan Pollack depicts in this post, it didn't always work this way -- the long-term capital gains rate sits at a rock-bottom historical low. The 1986 Tax Reform Act enacted by President Reagan equalized the tax rates for capital income and work income at a 28 percent rate. In horse-trading with the House GOP, President Clinton agreed to lower the capital gains rate to 20 percent in 1997, although dividends were taxed as ordinary income up to the top rate of 39.6 percent. Then the Bush-era tax cuts undermined tax progressivity in a myriad of ways, including dropping the capital gains and qualified dividends rates to 15 percent, thereby making the carried interest loophole oh so much more valuable. (The estate tax -- the most progressive federal tax -- was also thoroughly gutted and even repealed for a year, with the hopes it would never return.) It could be worse: Under Newt Gingrich's budget-busting tax plan, these investments would be tax free, leaving Mr. Romney with an effective tax rate closer to zilch.

Unfortunately, reversing the unaffordable and unfair Bush-era tax cuts is proving devilishly hard. President Obama has proposed eliminating the carried interest loophole and returning the top capital gains rate to 20 percent in every one of his budget requests. (The administration would, however, keep the dividends rate at 20 percent instead of taxing it as ordinary income, at a loss of $96 billion over a decade.) Senate Democrats have repeatedly proposed repealing the carried interest loophole to finance job creation bills (most recently as an offset for the American Jobs Act), but all have been blocked by Senate Republicans. Sadly, the pocketbook interests of the 1 percent are much better entrenched by Senate procedural rules than those of the vast majority.

Romney's outlandish tax rate, however, makes the plutocratic interests vested in the tax code much more difficult to defend, particularly for Romney. According to Romney's policy adviser Lanhee Chen, the candidate would consider scrapping the carried interest loophole as part of comprehensive tax reform. That represents incremental progress, but scrapping wouldn't come close to adequately restoring progressivity or meeting the Romney Rule.

In recent testimony before the Senate Finance Committee, tax expert Leonard Burman rightly identified that "treating carried interest like other wage and salary income is one approach to diminishing this inequity, but a better and more consistent one would be to tax all capital gains the same as other income." Tax neutrality across income types is at the core of meeting the Romney Rule because capital income is so heavily concentrated at the top of the earnings distribution and because those at the top can easily reclassify work income as capital income. As my colleague Greg Anrig at The Century Foundation points out, the distribution of capital income is so skewed that 72 percent of the revenue collected by taxing capital gains as ordinary income would come from millionaires (those above the Romney Rule threshold).

Inseparable from questions of tax fairness and revenue collections are income inequality trends. A recent Congressional Research Service report noted that "changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality [between 1996 and 2006]. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006." The capital gains rate was lowered twice in this period. With inequality returning to Gilded Age-levels, tax policy should temper rather than exacerbate inequality.

The most fitting way to fulfill the Romney Rule would be once again equalizing the tax treatment of capital income and work income, and correspondingly physical capital and human capital. Doing so would restore fairness to the tax code, temper income inequality, and raise much needed revenue from those who can best afford it. Romney's income could easily be restructured to keep his tax rate in the ballpark of 15 percent even without the carried interest loophole; his tax rate would unequivocally rise, however, if capital gains and dividends tax rates increased. In my book, annual income of $21.7 million and net worth close to a quarter-billion dollars lands anyone squarely in the super-rich category. For those truly lucky duckies, a 30 percent tax rate seems much more appropriate than the tax code coddling lavished upon them over the last decade. For the sake of an equitable society and an adequately funded social contract, it's time for Congress to implement President Obama's Buffett Romney Rule.]]> tag:www.huffingtonpost.com,2011:/theblog//3.1135590 2011-12-08T17:25:55-05:00 2012-02-07T05:12:01-05:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ speech Tuesday, President Obama issued a damning critique of trickle down economics and a stark defense of social insurance and public investments funded by progressive taxation. The president's speech in Osawatomie, Kan., addressed the challenges of rebuilding the middle class and tempering income inequality, making the case that doubling down on the supply-side experiment of the last decade will fail the needs of the vast majority.

The president aptly characterized conservative economic policy as a two-pronged approach of cutting regulations and cutting taxes for the wealthy. (Note conservatives' glaring lack of enthusiasm for refundable tax cuts or even an across-the-board payroll tax cut -- tax cuts that would be pretty broad-based.) This is, of course, exactly the economic nostrum being preached by the GOP presidential field and Republican leadership on Capitol Hill. See, for instance, how the tax plans of presidential candidate Rick Perry or House Budget Committee Chairman Paul Ryan (R-Wisc.) belie any concern about income inequality, or how regulatory uncertainty is used as a phony explanation for the jobs crisis.

This supply-side snake oil is peddled on the premise that when the wealthy do well, income gains trickle down to the middle class and everyone benefits from a growing economy. But that hasn't happened -- real median income has sharply decoupled from productivity gains in recent decades (particularly since 2000) and income gains have been incredibly concentrated at the top of the earnings distribution. The president made the following salient point on the supply-side experiment:

"Now, it's a simple theory... And that theory fits well on a bumper sticker. But here's the problem: It doesn't work. It has never worked. It didn't work when it was tried in the decade before the Great Depression. It's not what led to the incredible post-war booms of the '50s and '60s. And it didn't work when we tried it during the last decade. I mean, understand, it's not as if we haven't tried this theory."

The record of the Bush-era tax cuts, also invoked by the president, indeed speaks volumes: "Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history. And what did it get us? The slowest job growth in half a century." That and the slowest economic growth, non-residential fixed investment growth, compensation growth, and wage and salary growth. Imagine if we had instead used the $2.6 trillion these tax cuts added to the public debt over 2001-2010 to undertake investments in areas like education, infrastructure, and scientific research -- investments that would have produced much better job-growth and that have actually demonstrated high economic returns.

Since the 2001 and 2003 tax cuts didn't generate much in the way of jobs or incomes, they failed (by miles -- or should we say trillions of dollars) to fulfill the mendacious claim often made by conservatives that tax cuts pay for themselves. (Note that this assertion continues to surface despite being flatly rejected by the Bush administration's own economists.)

Based on this abject policy failure and the clear dysfunction of a tax code that allows a quarter of millionaires to pay lower effective tax rates than middle class families, President Obama made the case for tax reform -- including allowing the top individual income tax rate to revert from 35 percent to the 39.6 percent rate implemented by President Clinton (which would still be well below tax rates for most of the post-World War II era).

Since most Republicans will clearly scream about the onerousness of this proposal, it's worth noting that the optimal taxation literature calls for a steeper schedule of marginal tax rates and a considerably higher top rate than 39.6 percent. In their recent paper on the case for progressive taxation, economists Peter Diamond and Emmanuel Saez peg the optimal top income tax rate at 73 percent, up from 42.5 percent today (taking into account Medicare payroll taxes and average state income and sales taxes). This would imply a top federal marginal income tax rate of 65.5 percent -- more than 25 percentage points higher than that proposed by the president. The current top tax rate is "is optimal only if the marginal consumption of very high income earners is highly valued," note Diamond and Saez.

Of course, the value that policymakers put on the happiness of the very rich is exactly what stands behind the failure to enact job creation measures that would be financed by a surtax on millionaires and the repeated collapse of long-term deficit reduction negotiations because of conservative intransigence over raising more revenue from upper-income households.

I applaud the president for making the case for the progressive alternative against regressive tax cuts as the lodestar of economic policy. America's low- and moderate income families should, too. As a nation, we cannot afford to double down on the failed, plutocratic pipe dream that is trickle down economics. Another round of tax cuts for the highest-income households will not restore full employment but will exacerbate widening income inequality, blow a bigger hole in the budget deficit, and defund needed public investments and economic security programs. Any policymaker genuinely concerned with the fate of the middle class, inequality and immobility, or the budget deficit, should be focused on rolling back the last round of inequitable and ineffective tax cuts rather than digging us deeper and deeper into a new Gilded Age.
]]> tag:www.huffingtonpost.com,2011:/theblog//3.1126215 2011-12-04T15:10:13-05:00 2012-02-03T05:12:01-05:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ rolled out their proposal for financing an extension of the Social Security payroll tax cut scheduled to expire at the end of December. Disappointingly, the conservative counteroffer is to pay for this job creation measure by cutting federal employees' jobs and wages. The "pay-for" proposed by Senate Democrats -- a 3.25 percent surtax on the 1-in-500 households earning over $1 million -- for an expansion of the payroll tax cut is anathema to conservatives; Senate Republicans have already filibustered a litany of job-creation proposals that would be financed by varying millionaire surtaxes. Last night, the Senate Republicans filibustered yet another such jobs package -- both the proposed extension and expansion were rejected in the Senate.

The Senate Republican proposal would limit federal agencies to hiring only one replacement employee for every three full-time employees leaving the agency until employment has fallen by 10 percent. This would result in roughly 280,000 job losses -- ironic, given that the purpose of the payroll tax cut is to create jobs. Someone should remind the GOP that the purpose of a pay-for is to offset the cost of a policy, not its impact.

Laying off hundreds of thousands of federal workers is terrible policy for reasons beyond causing job loss during a jobs crisis. First, it ignores the need to keep up with a growing population. These civil service jobs deemed unnecessary by Senate Republicans include one out of 10 federal judges, FBI agents, Veterans Affairs doctors, National Institutes of Health cancer researchers, food safety inspectors, and air traffic controllers, to name just a few.

Second, haphazardly cutting certain agencies' payroll would in many cases actually increase the budget deficit. Fewer Internal Revenue Service auditors would mean less tax enforcement and revenue. (In fiscal year 2010, 22,710 full-time IRS enforcement officers brought in $58 billion -- an average of over $2.5 million per employee.) Fewer Medicare fraud investigators would mean more erroneous payments and unprosecuted fraudulent claims. Fewer employees at the Security and Exchange Commission would mean less enforcement of insider trading laws and greater incidences of financial fraud. As Brad Plumber points out, the SEC lost 10 percent of its staff between 2005 and 2007, even as the financial system's rise in complexity would have justified a larger workforce. Small wonder the agency was unable to adequately identify financial institutions at risk of collapse or uncover Bernard Madoff's multi-billion-dollar Ponzi scheme.

The Republican proposal would also freeze federal employees' pay through 2015, extending a two-year freeze by another three years. Based on the Congressional Budget Office's economic projections that would mean an 8.3 percent real wage cut for all federal employees over five years. The bill also symbolically proposed barring millionaires from receiving unemployment insurance and food stamps, and, less symbolically, would raise Medicare premiums for millionaires. (These mandatory savings account for only four percent of the proposed spending cut -- the real money comes at the expense of federal workers, not millionaires.)

The proposal would book "savings" for this reduction in federal payroll be downwardly revising the discretionary spending caps for the second phase of the Budget Control Act (i.e., the debt ceiling deal) by $222 billion. If Congress allows the automatic sequestration cut to be triggered for 2013, the $109 billion cut for fiscal 2013 would come from this lower spending baseline. The unbalanced, spending-cuts-only approach to deficit reduction set in place by the Budget Control Act would be made even more lopsided.

The Senate Democratic proposal would raise $265 billion for an expanded payroll tax cut, leading to accelerated GDP growth going into 2012. Employees' payroll tax rates would fall from 4.2 percent in 2011 to 3.1 percent in 2012 (instead of reverting to 6.2 percent as scheduled) and businesses would see reduced payroll tax rates for the first $5 million in payroll and limited expansions of payroll. The Senate Republican proposal would finance a $120 billion extension of the existing two percentage point payroll tax cut, which would leave the GDP accounts unchanged relative to current budget policy, with $231 billion in spending cuts. This would create an unnecessary drag on economic growth for two reasons. First, it would cut spending by significantly more than needed to offset the cost of the tax cuts. Second, while permanent tax increases on upper-income houses have relatively little impact on near-term economic activity, government spending cuts have a very adverse impact on growth and employment during periods of depressed economic activity.

The dog and pony show that was the super committee made clear that the 112th Congress is incapable of breaching a deep ideological rift over taxation and how to address the long-term budget deficit. If Democrats and Republicans can only agree that temporarily increasing middle-class paychecks is good for a weak economy, there is a third option for Congress: it should simply pass the tax cut without any offsets. After all, Congress didn't pay for last year's $858 billion tax deal that extended the Bush tax cuts for high-earners (tax cuts averaging $22,000 for households making more than $200,000). So why must we now insist on paying for an extension of a significantly cheaper middle-class tax cut? The only compelling reason to negotiate a payroll tax cut pay-for is to set the precedent that the Bush-era tax cuts only get extended if fully paid for. And voters didn't seem to like the $4.5 trillion pay-for proposed in the House Republican budget.
]]> tag:www.huffingtonpost.com,2011:/theblog//3.981868 2011-09-28T14:07:50-04:00 2011-11-28T05:12:01-05:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ budget framework for the Super Committee, President Obama has drawn a much needed line in the sand over the need for progressive taxation and certain government programs. This framework for job creation and deficit reduction called for more revenue from the most fortunate citizens and rejected a spending-cuts-only approach to the budget (backed by a veto threat).

Progressive tax modernization can and should raise significant revenue to finance job creation and public investments, shrink deficits, and ease pressure elsewhere in the budget. It can moderate recent and persistent trends toward widening income inequality and hyper-concentration of wealth, helping to restore a society of shared prosperity. Progressive taxation is a palatable approach to deficit reduction embraced by the public -- unlike nearly every other deficit reduction approach. Simply put, progressive taxation is fiscally responsible, economically sensible, and politically viable.

President Obama proposed that Congress reform the tax code while raising $1.5 trillion in new revenue over the next decade. The president also outlined principles for tax reform, including the "Buffet Rule" that middle class Americans shouldn't be paying a higher tax rate than some millionaires.

Looking to millionaires, and to high-income households generally, for more revenues is an appropriate response given recent trends in income and tax policy (see the EPI Issue Brief "The facts support raising revenues from the highest-income households" for a full discussion). At 17.4%, Warren Buffet's average tax rate is equal to the average rate for households with earnings between $50,000 and $75,000 in 2007, indicating that his average rate is less than many of these middle-income households. Average income tax rates typically peak between $1 million and $2 million in adjusted gross income, and then fall as households collect a greater share of income from capital gains and dividends, currently taxed at a 15% rate.

Buffet's call to Washington to "stop coddling the super-rich" could be directly answered by ending the preferential tax treatment of investment income over work income. More than half the benefit of preferential capital gains treatment goes to the top tenth of one percent of households, according to the Tax Policy Center. Reinstating higher tax brackets for millionaires would also help: the income cutoff for the top marginal tax bracket for married joint filers has fallen precipitously from roughly $3 million in the early 1950s (adjusted to current dollars) to $1 million in 1970, to $379,000 today.

The president also underscored the broad principal that tax reform should produce more revenue. The tax code's design inadequately funds today's needs, let alone the demands of an aging population and spiraling health care costs. The president threatened to veto any deficit reduction package that does not include new revenue.

This call for balanced deficit-reduction through more tax revenues is entirely appropriate. A spending-cuts-only approach is regressive in that it forces the brunt of deficit reduction on the backs of poor and working families while ignoring a prime culprit of the budget deficit: the expensive, ineffective, and unfair Bush-era tax cuts. These top-heavy tax cuts added $2.6 trillion to the public debt over 2001-10 and will add $3.8 trillion to deficits over the next decade if fully continued. Because most of these tax cuts are assumed to continue, the president's framework leaves revenue $2.7 trillion below the levels scheduled under current law (or $3.4 trillion if Congress also maintains a slew of business tax credits, such as the research and experimentation credit). Congress is now paying for sweeping tax cuts with deep spending cuts, including roughly $1 trillion in discretionary spending cuts enacted earlier this year.

Beyond defunding government, the Bush-era tax cuts presided over the worst post-World War II economic expansion -- measured in terms of GDP, investment, employment, or wages and salaries. We cannot afford to double-down on the "cut taxes for the wealthy and the rest will benefit" economic fallacies of the last decade; the money never trickled down. Instead, those tax policies reinforced trends of ever-widening income inequality; the top 1% of earners captured 65% of all income gains during the Bush economic expansion while the top 1% also received 38% of the value of the Bush-era tax cuts in 2010, according to TPC. Because the big money has accumulated to the top sliver of earners and because regressive tax cuts are responsible for much of the budget deficit, progressive taxation should be the core of any serious deficit-reduction proposal.

The economy is not working for the middle class, as demonstrated by persistently high unemployment, falling median income, rising poverty, and decades of widening income inequality, among other indicators. In this context, it is unsurprising that voters favor progressive tax increases but overwhelmingly reject cuts to economic security programs such as Social Security, Medicare, and Medicaid.

Those doubting the viability of the president's proposals need only look to the polls. A March 2011 NBC/Wall Street Journal poll on options for reducing the deficit found that 81% of participants endorsed a surtax on individuals earning over $1 million; this was the only option ranked "totally acceptable" by a majority of respondents. More than three out of four respondents supported eliminating tax subsidies for oil and gas industries, while two out of three supported ending the Bush tax cuts for households earning more than $250,000 a year, both steps proposed by the president's new framework. Supply side apostate Bruce Bartlett recently compiled a litany of polls showing that deficit plans containing new revenue are favored roughly two-to-one over plans without revenue.

On the other hand, the NBC/Wall Street Journal poll found 67% of participants opposed cutting Medicaid and a resounding 76% opposed cutting any Medicare benefits. A majority also opposed replacing Medicare with a voucher. Armed with public opinion on their side, the administration and congressional Democrats must hold their line on progressive taxation and the positive role of government rather than cave to the conservatives' "my way or the highway" attempts to dismantle the legacies of the New Deal and Great Society.

The House Republican 2012 budget embodies the spending-cuts-only approach. Medicare is turned into a voucher, thereby undermining the commitment to provide seniors with comprehensive health care, while federal Medicaid spending is halved over the next two decades. The Center on Budget and Policy Priorities estimated that roughly two-thirds of the spending cuts from this budget approach would come from programs for lower-income households, particularly Medicaid, Pell Grants, and food stamps. This approach turns the concept of "shared sacrifice" on its head and more closely fits the label of "class warfare" than the president's proposal to collect more revenue from high-income households, who by definition are best able to contribute, and over time have seen their incomes skyrocket and taxes fall sharply.

In his recent address to the joint session of Congress, President Obama rightfully rejected any campaign to "dismantle government, refund everybody's money, and let everyone write their own rules, and tell everyone they're on their own." There are worse things than paying taxes -- just ask any one of the 25 million un- and underemployed Americans. There are also goods and services that the private sector will never provide or will underinvest in, such as transportation, education, clean air and water, or health insurance for seniors and the disabled. Fiscal responsibility does not require eviscerating social programs and public investments that promote economic security and generate growth. Fiscal responsibility means paying for the popular economic security programs and investments people widely value. Reforming the tax system in a progressive manner that increases revenues is an essential step toward achieving this fiscal responsibility.
]]> tag:www.huffingtonpost.com,2011:/theblog//3.913397 2011-07-29T15:13:29-04:00 2011-09-28T05:12:01-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ explaining the sharp deceleration in employment growth in May and June. As the U.S. Congress frantically debates an eleventh hour resolution to an artificial crisis of epic proportions, the real crisis in the labor market goes tragically ignored -- and it is about to be amplified by bad policy choices. Unfortunately, the only conceivable debt ceiling compromises will further slow economic growth and exacerbate the unyielding crisis in the labor market. Today's depressing GDP numbers should serve as a clarion call to refocus Washington's attention to jobs and the economy.

A month ago, it seemed possible, albeit unlikely, that a little more incremental economic support might be included to grease the wheels of a deficit reduction package, which has been forced onto the traditionally pro forma vote to increase the debt ceiling. Last December's tax cut and unemployment extension compromise had even set a precedent for such an outcome: the deal reduced payroll tax rates by two percentage points on the employee side and continued emergency unemployment insurance through 2011 in exchange for extending the Bush-era tax cuts for the top 2% of earners. Despite clear warning signs that the recovery is faltering and job gains are decelerating, no stimulus has been enacted since.

In a primetime speech on the debt ceiling impasse on July 25, President Obama explicitly endorsed extending the payroll tax cut for working families -- the only extra economic support seriously discussed this Congress. The president and Congress should seek more support for the economy, but the payroll tax cut is an inefficient and inequitable means to this end. A better way to create jobs would be to replace the payroll tax cut with a targeted tax rebate, similar to the one signed into law by President Bush in 2008. (Back then, the unemployment rate rising to 5.0% was enough to prompt $115 billion in tax stimulus.) Targeted tax rebates would do more to alleviate poverty than a payroll tax cut extension and end Social Security's politically risky dependence on general revenue, but it would also generate roughly 12% more economic activity and jobs per dollar.

At first blush this may seem trivial, but look at it this way: If Congress had passed the more efficient, targeted tax rebate instead of the payroll tax cut, we would be seeing roughly an additional 10,000 job gains a month -- a 55% increase relative to the dismal 18,000 jobs created in June. A targeted tax rebate is far too small to abate the unemployment crisis, but this would be a step in the right direction -- the first since December despite a steady stream of alarming economic data. Squeezing any additional economic support out of the federal budget -- the most direct policy lever for increasing employment -- has become a grueling exercise for those of us still fixated on the real economic challenge. While deficit-financed direct infrastructure investment and more state fiscal relief would certainly be far superior job creation policies to be complemented with additional tax stimulus, the national political conversation has strayed depressingly far from rational policymaking. Why?

Washington is instead focused on reducing government spending. And let's be clear, this partisan stalemate is not about the deficit -- if it were, House Republican leaders would not have walked away from negotiations -- not once, but three times -- over drawing slightly more tax revenue out of our antiquated system of deductions and preferences. This is about an ideological war on government's expenditure and role in society. To that end, conservatives have argued that spending cuts will actually help the economic recovery -- an assertion that private-sector forecasters find laughable. Between high unemployment and historically low interest rates (the result of anemic private-sector demand and Federal Reserve policy actions), there is zero scope for expansionary fiscal contraction. Indeed, the deep, near-term discretionary spending cuts in both the House and Senate debt ceiling plans will further undermine the faltering economic recovery.

Even if this were about the deficit, there is only one mechanism by which long-term deficit reduction will help the economic recovery: lower interest rates, thereby crowding-in private-sector investment. (As Paul Krugman repeatedly points out, there is no confidence fairy to magically lead our way onward to recovery.) There is no evidence of government crowding out private-sector borrowing, which makes sense because our economic woes stem from inadequate demand and abundance of unemployed labor and unused industrial capacity.

If this charade was meant to lower interest rates and convince the bond market that Washington's leaders are truly serious about addressing long-term fiscal imbalances, things could hardly have gone worse. Writing in yesterday's Washington Post, Mohamed El-Erian, CEO of PIMCO, warned that any benefits from long-term deficit reduction would be completely offset by how it was achieved, even if the United States avoids both a default and a credit rating downgrade. (Of course, the House Republican debt ceiling plan reportedly still risks a credit downgrade because it forces a repeat of this brinksmanship half a year from now.)

So what will Congress have accomplished through this debacle? Higher interest rates, a credit rating on review, lower employment, and public furor. Best case scenario: we will avoid an unnecessary credit downgrade, default, and financial crisis. Our national politics have become mind-bogglingly asinine; almost as insulting has been the deliberate effort to unlearn every Keynesian lesson from the Great Depression. It's still the economy, Congress -- not the concocted, phony debt crisis. Boosting the economy is not at odds with responsible long-term deficit reduction; indeed deficit reduction of any sort will be immensely difficult if economic output remains nearly a trillion dollars below potential and the recovery continues decelerating. We have the policy tools to restore full employment; we have the ability to service our debts and meet our obligations; we just lack the political will to prioritize policies for economic recovery and instead hope the economy somehow magically recovers all by itself.

]]> tag:www.huffingtonpost.com,2011:/theblog//3.871884 2011-06-06T14:26:51-04:00 2011-08-06T05:12:01-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ new Economic Policy Institute policy memorandum, these tax cuts were heavily targeted toward the wealthy at the expense of middle class families, poorly designed as an economic stimulus, and costly -- significantly more so than advertised.

Over the past 30 years, middle-class wages have stagnated despite robust productivity growth, while the wealthiest sliver of the population has captured greater shares of income growth and national wealth. Tax policy should be designed to promote economic fairness by pushing against the trend of ever-widening income inequality. Instead, the Bush-era (2001-08) tax changes actually increased inequality by delivering more than half of their benefits in 2010 to the top 10 percent of earners, who make over $170,000 a year. In fact, 38 percent of the dollar benefits went to the top 1 percent of earners (tax filers making over $645,000), who received tax breaks averaging over $100,000.

Working families, however, got the scraps. The bottom 60 percent of earners (making under $70,000 a year) received less than 20 percent of the benefits of these tax changes in 2010. And the tax cuts for the wealthy never trickled down to middle-class families: Inflation-adjusted median weekly earnings fell by 2.3 percent during the economic expansion from 2001Q4 to 2007Q4. While real wages fell for most Americans, the top 1 percent of earners captured a whopping 65 percent of all income gains, leaving just 13 percent for the bottom 90 percent.

These tax changes were no better for the overall economy than they were for middle-class paychecks. Between the end of the 2001 recession and the eve of the Great Recession in late 2007, the U.S. economy experienced the weakest economic expansion of the postwar era. Growth in investment, gross domestic product, and employment all posted their worst performance of any postwar expansion. Unemployment never returned to pre-recession levels. Contrary to conservative rhetoric, cutting taxes is not an economic cure-all.

Some policymakers, including Senate Minority Leader Mitch McConnell, would even have you believe that tax cuts don't cost the government a dime because, allegedly, they pay for themselves through higher economic growth. This is a wildly false claim -- one that has been disavowed by numerous Bush economic advisers and economists of nearly every ideological stripe. As previously noted, economic performance during the Bush-era expansion was relatively poor, income tax revenue immediately fell in response, and in real per capita terms tax revenue has never recovered. Federal tax revenue fell from 20.6 percent of GDP in FY2000 (the last year of the 1991-2000 expansion, when Clinton-era tax rates were in place) to 18.5 percent of GDP in FY2007 (the last year of the Bush economic expansion, when Bush-era tax rates were in place). The Clinton-era surpluses quickly turned to chronic structural budget deficits, largely due to repeated tax cuts and increased spending by the Department of Defense. From 2001 through 2010, these cuts added $2.6 trillion to the public debt, nearly half of the total debt accrued during this period.

Going forward, jobs must be the top national priority. Beyond creating hardship, reducing national output, and starving the government of revenue, the jobs crisis and persistently high unemployment also create downward wage pressures and threaten the living standards of working families. A deal last December extended all of the Bush-era tax changes through 2012, but soon Congress will once again have to decide whether to permanently extend all, part, or none of these tax changes. The dismal track record of the 2002-07 expansion suggests that a full extension, which would cost about $4.6 trillion over 2012-21, would fail to generate robust growth and thus wouldn't create the 11 million jobs currently needed to return unemployment to pre-recession levels. Furthermore, it would fail to meaningfully benefit working families or support America's vital but shrinking middle class.

Economic and tax policies must help to raise wages and foster shared prosperity, which means jettisoning tax cuts for the wealthy in favor of high-return public investments like education, infrastructure, and research spending. Unfortunately, the House Republican 2012 budget moves in the opposite direction, financing a full extension of the Bush tax cuts (and additional tax cuts) by slashing public investments, ending guaranteed Medicare, and eviscerating economic security programs such as Medicaid and food stamps. In this way, the Republican budget perfectly demonstrates that these tax cuts are not free, but rather come at a very high cost that our economy and our nation cannot afford.

After 10 years of a dismal economy, widening inequality, and squandered surpluses, it's time to apply the lessons of the Bush-era tax cuts to public policy; the opportunity cost of the cuts simply remains too high, particularly if the social contract of the last 80 years is further breached in return for more tax cuts for the privileged.]]> tag:www.huffingtonpost.com,2011:/theblog//3.870503 2011-06-02T17:55:19-04:00 2011-08-02T05:12:01-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ Taxpayer Protection Pledge, which unconditionally rejects any net reduction in tax credits, deductions, or rates unless matched dollar-for-dollar by some other tax reduction. Norquist has plenty of reason to gloat, but taxpayers should be livid. Adherence to this doctrinaire pledge would rule out anything remotely resembling a balanced approach to deficit reduction and instead force the dismantlement of the social contract of the last 80 years.

This anti-government agenda propagates two related falsehoods that preclude serious deficit reduction: that tax cuts pay for themselves, and that only spending cuts can reduce the deficit. Some leaders in Congress are more than happy to push this agenda, despite evidence to the contrary. Take, for instance, Senate Majority Leader Mitch McConnell, who recently claimed that the Bush-era tax cuts paid for themselves. A litany of former Bush administration economists soundly rejected this assertion, and McConnell's perpetuation of this falsehood damages sensible discourse. Similarly, Norquist boldly claims that "the only time the deficit comes down is when you refuse to raise taxes and you rein in spending." Contrary to this revisionist history, the only budget surpluses of the last 40 years resulted from tax increases enacted by President George H.W. Bush, followed by more tax increases enacted by President Bill Clinton.

Having taken revenue increases off the table, today's conservatives are pushing massive spending cuts paired, of course, with sweeping tax cuts. The House Republican budget demonstrates an unwillingness to pay for public investments, services, and a safety net, especially for the vulnerable and poor: their budget slashes more than $2.2 trillion from health programs, eliminates guaranteed Medicare within a decade, halves federal Medicaid spending by 2030, and by repealing the expansion of coverage in the Affordable Care Act, would increase the number of non-elderly uninsured Americans by some 34 million by the end of this decade. But the accompanying tax policies reveal this is a matter of unwillingness, not inability, to protect the poor, disabled, and elderly.

The Tax Policy Center estimates that the House Republican budget would reduce revenue by $2.9 trillion (ignoring elimination of unspecified tax preferences) on top of extending all current tax cuts at a cost of $4.6 trillion in lost revenue and an additional trillion in debt service over a decade. (Allowing any temporary tax cut to expire is considered a tax increase and a violation of Norquist's Pledge.) Despite eviscerating the non-security discretionary budget, Medicaid, and other health and low-income programs, the House Republican budget would not even achieve budget balance until close to 2040, according to a long-term analysis by the Congressional Budget Office, despite assuming an unrealistically high level of revenue specified by Budget Committee Chairman Paul Ryan's (R.-Wisc.) staff.

Modern conservatism has strayed far from the party of President Reagan, who would have violated Norquist's taxpayer protection pledge on numerous occasions. Tellingly, Reagan's old advisors are outspokenly appalled by the anti-government movement. In April, David Stockman, a former Office of Management and Budget director under Reagan, offered TPM's Brian Beutler the following criticism of the House Republican budget: "I think the biggest problem is revenues. It is simply unrealistic to say that raising revenue isn't part of the solution. It's a measure of how far off the deep end Republicans have gone with this religious catechism about taxes."

Fortunately there are senators such as Tom Coburn (R.-Ok.), who has recently begun sparring with Norquist over wasteful spending through the tax code, notably ethanol subsidies. When asked on Meet the Press whether supporting revenue-positive tax reform contradicted his Taxpayer Protection Pledge signature, Coburn as much as said that that our long-term fiscal challenges are too important to be held hostage by Norquist's agenda or pledges. Senator Coburn -- who is not running for reelection and so cannot be denounced as a heretic by a Tea Party challenger -- is absolutely correct. Our fiscal challenges necessitate more revenue.

But as Norquist explained to Ezra Klein in a rare moment of forthrightness, the conservative agenda is "to reduce the size and scope of government spending, not to focus on the deficit." Over a decade ago, he went further in saying, "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub." Americans should take him at his word. Norquist has spearheaded conservatives' true economic agenda: rolling back the New Deal and Great Society expansions of the federal government. They oppose anti-poverty programs protecting the less fortunate among us. They abhor risk-sharing social insurance, which they view as breeding dependency on government. We should not let them dismantle this foundation for the middle class in the guise of fiscal responsibility.

Any Member of Congress genuinely concerned with the deficit knows that revenue will have to increase; placing the entire burden on spending cuts is politically infeasible and the magnitude of those cuts would be too severe to be sustained. More revenue will require a break from current tax policies, not supply-side delusions of grandeur. Any viable, bi-partisan long-term deficit reduction plan will need to raise more revenue through tax reform and other new sources. For these reasons, the first step toward long-term deficit reduction must be jettisoning the Taxpayer Protection Pledge and anti-government zealots like Norquist.
]]> tag:www.huffingtonpost.com,2011:/theblog//3.845465 2011-04-06T18:50:20-04:00 2011-06-06T05:12:01-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ eviscerate Social Security, Medicare, and Medicaid, while eliminating all investment and corporate income taxes. A conservative agenda of redistributing wealth from the poorest to the privileged has been unveiled for all to see.

In recent months, conservative legislators have paved the way for the Ryan budget with a litany of misguided proposals -- all of which would place the entire burden of deficit reduction on spending cuts, with no thought given to the revenue side of the equation. As detailed in a new Economic Policy Institute briefing paper, Washington is adrift with economically misguided proposals to slash nondefense spending, slow job creation, and in some cases guarantee a double-dip recession.

When passed in February, the House Republican leadership budget would have cut $61.5 billion over the remaining months of this fiscal year; this reduction in government investment, transfers to states, and programmatic spending would cost roughly 600,000 jobs relative to the Congressional Budget Office January baseline, and roughly 800,000 jobs relative to the higher spending level requested in the president's budget. These estimates are consistent with a variety of other estimates, including those from Moody's Analytics and Goldman Sachs. But the February budget was just the opening salvo. Several even more draconian plans have since emerged.

First among these is the budget produced by the Republican Study Committee (RSC) that calls for even deeper spending cuts for the second half of this fiscal year and a rescission of stimulus funds that could cost upwards of 1.4 million jobs over the next year or two. The budget would then roll back the non-defense discretionary budget to its 2006 level (explicitly chosen because it's the last appropriations cycle enacted by Republicans, despite having no economic bearing). It would then freeze the budget at that level for a decade, ignoring the current economic context of high unemployment, a growing population, and future inflation.

Next is Representative Michele Bachmann's (R.-Minn.) plan, which would cut upwards of $430 billion over the next few years. Health care reform and financial regulatory reform would be repealed even though such actions would increase deficits, with repeal of health reform costing literally trillions in extra debt in coming decades. While it is difficult to estimate the savings that financial reform provides by helping to avoid another financial crisis, we do know that the old regulatory system's failure cost the country 8.8 million jobs and $16.9 trillion in lost household wealth (measured peak to trough). And with respect to tax dollars, the financial crisis and economic downturn will have added roughly $1.7 trillion to budget deficits over the 2008-11 period (relative to pre-recession, full-employment forecasts).

As for Senator Rand Paul's (R.-Kent.) budget, it would all but guarantee a double-dip recession by cutting $500 billion this fiscal year (which started last October). Immediate cuts of this magnitude would almost certainly throw the economy back into recession, and could increase the unemployment rate by as much as a couple of percentage points. Such cuts are particularly shortsighted: as much as half of the deficit reduction hoped for by these budget cuts would be lost as a result of a weakened economy and diminished tax revenues.

The Corker-McCaskill plan would ratchet down a spending cap, proposing cumulative cuts of $6.1 trillion by 2021 if current tax policies were continued. This would require a 24.6% across-the-board cut in all non-interest spending -- including Medicare and Social Security benefits. Future government spending on promised benefits to an aging population would be slashed to an average of historical spending, again ignoring economic context and common sense.

Most recently, Senate Republican leadership also proposed a balanced budget amendment accompanied by a much lower overall spending cap, which would unrealistically constrain federal outlays to 18% of recent economic activity. Bruce Bartlett, formerly an advisor to President Reagan, characterized it as a plan that could have been "drafted by a couple of interns on the back of a napkin."

These plans starkly contrast with last December's bipartisan $858 billion tax deal -- a deal in which the Democrats won more economic support (continuing unemployment insurance and cutting payroll taxes) and Republicans secured even bigger tax cuts for the wealthiest handful of families. The economy was in terrible shape, and bigger deficits were necessary to boost employment. While the politics have shifted, the labor market is still in terrible shape, and a willingness to run larger near-term deficits in order to invest in the economy remains the best policy lever to boost employment and strengthen the recovery.

Congress seems to be saying that deficits don't matter when it comes to tax cuts, but deficits trump all when it comes to non-defense spending. This non sequitur poses grave risks to both economic recovery and the besieged middle class. Tax cuts and revenue losses from the recession account for roughly two-thirds of the expanded deficits since the start of the recession. Regressive tax cuts also created much of the structural deficit and debt that accumulated before the economy cratered. If Congress fails to curb wasteful tax giveaways (such as the extension of the Bush-era tax cuts for the richest families), the budget will be irresponsibly balanced on the backs of the poor, disadvantaged, and working Americans.

But as the Ryan budget resolution demonstrates, that is the conservative agenda.
]]> tag:www.huffingtonpost.com,2011:/theblog//3.843124 2011-03-31T17:07:46-04:00 2011-05-31T05:12:01-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ Consensus Balanced Budget Amendment. It would limit federal spending to 18% of gross domestic product and require a two-thirds supermajority vote of both chambers to pass any tax increase or run a budget deficit (with lower parliamentary hurdles set for times of war and military conflict, but not recessions). The proposal is deeply flawed. Parliamentary restrictions on tax increases and budget deficits would amplify political gridlock, handicap fiscal policy, and undoubtedly intensify economic downturns by ruling out effective responses to both cyclical events and unforeseen emergencies. And notions of reducing government spending to 18% of the economy under the amendment's global spending cap are in the realm of the delusional.

The United States faces an aging population, spiraling health care costs, and the legacy of two unfunded foreign wars and a decade's worth of sweeping tax cuts. What would a balanced budget amendment that constrains federal spending to its lowest level since 1966 (just after Medicare was enacted) mean in this environment?

Based on a bare-bones extension of current policy, projected government spending over 2016-21 would average 23.9% of GDP (assuming a scheduled reduction in Medicare physician payments is prevented and the alternative minimum tax is patched, reflections of current policy not built into the Congressional Budget Office baseline). Under this current policy baseline, projected revenue would average 20.1% annually over 2016-21, so the 18% spending cap would not only cut spending by 24.8% ($7.6 trillion), but cut significantly more than needed to balance the budget entirely on the spending side of the ledger. (If enacted this fiscal year, the balanced budget amendment would become effective in fiscal 2016.) This proposed cap is not about deficit reduction; this is about locking in the unfair and costly Bush-era tax cuts.

Under an alternative scenario in which all the Bush tax cuts were extended, baseline revenue would fall to 18.3% of GDP and spending would jump to 24.4% of GDP over this same period (pushing deficits up by $3.0 trillion over 2016-21). Measured against this baseline, the balanced budget amendment would slash noninterest spending by $8.3 trillion over 2016-21, with annual cuts escalating from $1.1 trillion in 2016 to $1.7 trillion in 2021. By 2020, the requisite cut to noninterest spending would exceed the entire base discretionary budget (essentially everything but emergency supplemental appropriations for overseas contingency operations). Entire cabinet agencies, such as the departments of Education and Energy, and all of their programs, would have to be abolished.

The federal budget is a slow ship to turn. Changes to the major entitlement programs (Social Security, Medicare, Medicaid, and other health programs) would take years to generate savings, particularly if individuals over the age of 55 were protected from any changes to taxes or benefits (in order to allow those approaching retirement to plan accordingly).

Eliminating all other mandatory spending -- including veterans' benefits, federal and military retirement pay, and all income security programs--would reduce primary spending by only $3.6 trillion over 2016-21 -- covering less than half of the necessary savings, even if the Bush tax cuts are allowed to expire on schedule (the "bare-bones" current policy extension). Defaulting on interest payments, the remaining category of spending, is not an option.

It is unclear if anyone has given serious thought to how annual spending cuts ranging from $1.1 trillion to $1.7 trillion could be achieved. The balanced budget amendment itself does not detail any savings.

The most specific Republican long-term budget proposal, House Budget Committee Chairman Paul Ryan's Roadmap for America's Future -- which, like the balanced budget amendment, also places the entire burden of deficit reduction on spending cuts -- would violate this balanced budget amendment for at least half a century.

Ryan's Roadmap -- a draconian but detailed plan to partially privatize Social Security, voucherize Medicare, block grant Medicaid, and eliminate the Children's Health Insurance Program -- would not meet the 18% of GDP spending cap for more than half a century. According to CBO, primary spending under the Ryan Roadmap would total 19.3% in 2040, with total spending at 23.5%. (This CBO calculation assumes that the accompanying tax policies would generate revenue of 19.0% of GDP, whereas the Tax Policy Center estimates that revenue under the Ryan Roadmap would average only 16.3% of GDP over 2011-20). Again ignoring the regressive, budget-breaking tax policies in the Ryan Roadmap, total spending would equal 19.5% of GDP by 2060 -- a full 1.5 percentage points above the global spending cap in the balanced budget amendment.

In short, not even eviscerating Medicare, Medicaid, and Social Security would generate adequate savings to meet the balanced budget amendment global spending cap within 50 years.

This plan moves the goal post for the coming debt ceiling debate so far to the right that Republicans have left the stadium. Short of eliminating every cabinet agency, drastically defaulting on our obligations to our citizens (Social Security, Medicare, and Medicaid), or defaulting on our obligations to our creditors, this plan simply is not feasible. Even if it were feasible, cutting $1.1 trillion in federal spending by 2016 -- when the economy is projected to just be returning to potential output and full employment -- would be economically devastating. Budget process proposals are much easier to generate than budgets, but this one is totally detached from reality.

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Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ budget for the remaining months of the fiscal year. A new allocation cutting and capping appropriations levels will be entered into the Congressional Record early this week. There will be no vote on the magnitude of the cut; new House rules enacted in early January effectively approved this budget before it had been written.

Ryan's backdoor budget resolution would cut non-security discretionary (NSD) spending, which excludes Defense, Homeland Security, and Veterans Affairs and military construction appropriations, back to 2008 levels for the remaining seven months of the fiscal year. (After Senate Republicans filibustered an omnibus appropriations bill in December, Congress passed a continuing resolution holding funding roughly at 2010 levels through March 4.)

Relative to the President Obama's budget, the Ryan rollback would mean a $58 billion reduction in appropriations (seven-twelfths of the promised $100 billion cut). While $58 billion is not a large amount of savings compared to the deficit--only 4% of the 2011 deficit, and less than 2% of total spending as projected by the Congressional Budget Office -- it represents a larger 12% reduction to the small NSD budget. But even this understates the severity of the cut because it would only affect agency funding for seven months. The proper measure of a reduction to these funding levels is on an annualized basis, in which this cut actually represents a 21% reduction in spending relative to the president's NSD request.

Relative to 2010 enacted levels, the Ryan budget would cut $43 billion from NSD spending, an 18% cut for the remaining fiscal months. Yet programs have already seen a real funding cut, as appropriations have not kept up with inflation and population growth.

The cuts, however, are not evenly distributed, and cushioning some agencies from the budget ax means others will suffer even greater relative cuts. House Appropriations Chairman Rogers released 302(b) appropriations subcommittee allocations, which show how Ryan's funding cut would affect the 12 appropriation bills. Transportation, Housing and Urban Development, and related agencies face the biggest relative hit, with proposed funding at 17% below 2010 enacted levels. Relative to 2010 enacted non-emergency budget authority, transportation investment would see a $3.6 billion cut for the remainder of the year, assuming an across the board cut. Commerce, Justice, Science, and related agencies appropriations bill also got walloped with a 16% cut relative to 2010 enacted levels. If cuts are proportionally distributed, the Department of Justice and the National Science Foundation would see funding cut by $3.8 billion and $1 billion, respectively, for the remainder of the year. Freezing spending at 2008 levels in 2012 would require cuts almost twice as large.

Security spending is proposed at $635 billion, which falls $16 billion below the president's request but $8 billion above 2010 funding levels. Relative to 2010, only the Defense appropriations bill would see an increase in funding. Homeland Security would be held roughly at current funding levels, while the Veterans Affairs and military construction appropriations bill would be cut back by $2 billion. The security programs would collectively see an $81 billion boost (+15%) relative to 2008 enacted levels.

All told, the Ryan budget would reduce discretionary spending by $35 billion relative to 2010 enacted levels and $78 billion relative to the president's request. This symbolic gesture of fiscal responsibility would have devastating consequences in key public investments and human needs programs, and is dwarfed by the $374 billion added to this year's deficit from the tax deal enacted last December. The Center on Budget and Policy Priorities calculated that the two-year extension of the upper-income tax cuts and estate tax giveaway will cost $139 billion relative to the president's proposal -- roughly twice the budgetary impact of Ryan's spending cuts.

With unemployment still above 9%, employment 6% below pre-recession levels, an economy roughly 6% below potential, and grim forecasts of a slow recovery -- the very reasons given for passing tax stimulus in December -- immediate spending cuts would impede recovery. Yet even once the economy has regained its strength, the non-security discretionary spending cuts do not come close to offsetting the extensions of all Bush-era tax cuts. Indeed, Ryan's own comprehensive budget plan -- the Roadmap for America's Future -- would cause the public debt to soar for decades to come by pairing spending cuts with expensive tax cuts heavily tilted towards the rich (including the elimination of all taxes on corporate and investment income).

According to CBO's January baseline, making permanent the Bush-era income, estate, and gift tax provisions (as modified by the tax deal) and indexing the AMT to inflation would add $4.6 trillion to deficits over the 2012-21 period ($3.8 trillion outright, plus $795 billion in debt service), increasing cumulative deficits by 66% over this period. The bill of regularly enacted tax extenders would add another $950 billion (including debt service) to deficits over this period.

Massive unfunded tax cuts explain much of the accumulation of debt over the last decade; the non-security discretionary budget is not the culprit of today's deficit or the country's unsustainable long-term fiscal outlook. Until we break from these untenable tax policies, looking only to this narrow sliver of the budget for deficit reduction will be a fruitless exercise with painful consequences.
]]> tag:www.huffingtonpost.com,2011:/theblog//3.813183 2011-01-24T14:04:13-05:00 2011-05-25T18:25:24-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/ point man on the economy and the budget, with House Speaker John Boehner saying that he is "pleased that Paul will be outlining a common-sense vision for moving our country forward."

Ryan's plan, "A Roadmap for America's Future," was first released in January 2010 and outlines his vision for raising taxes on the middle class, privatizing Social Security, voucherizing Medicare, and allowing the national debt to explode in coming decades.

Not until recently, though, was Ryan's plan paid much heed. Embedded in the new rules passed at the beginning of the 112th Congress was a substantial empowerment of Ryan in his role as House Budget Committee Chairman. On Tuesday, House Republicans will vote to instruct Ryan to cut non-security discretionary spending back to fiscal year 2008 levels or less. The symbolic vote is meant to confer legitimacy; new House rules approved earlier this month gave Ryan "interim" authority to set committee allocations and revenue and spending levels for the remainder of FY2011 without any vote of approval. Using this power, Chairman Ryan is expected to slash the non-security discretionary budget for the remainder of this fiscal year by more than 20% relative to the president's budget request (the Departments of Defense, Veterans Affairs, and Homeland Security will be exempted).

How is that for transparent budgeting? No debate, no floor vote, no conference between the chambers -- just a unilateral decision from one member of one chamber of Congress. For all intents and purposes, the new rules approved a numberless budget resolution that had not been written. Senate appropriations bills exceeding the levels set by Ryan could be ruled out of order in the House, essentially allowing the House Budget Committee chairman to hold the government's operating budget hostage to his preferences or face a government shutdown.

The new rules included other provisions expanding the power of the House Budget Committee Chairman. For starters, the budget reconciliation process, a parliamentary procedure that limits debate and can thus circumvent filibuster votes in the Senate can now be used to move legislation that increases the deficit. Through the 1990s, reconciliation instructions (which originate from the budget committees) were intended and used as a tool to reduce deficits. In the early 2000s, the reconciliation process took a U-turn and was used to pass legislation first draining surpluses and the then increasing deficits. Notably, reconciliation was used to pass the unpaid for Bush-era tax cuts, which the Center on Budget and Policy Priorities notes added $2.6 trillion to the public debt between 2001 and 2010.

After watching surpluses turn to chronic deficits, the 110th Congress in 2007 ruled that budget resolutions would be out of order if they included reconciliation directives that would increase the deficit. But now that rule has been reversed, and Ryan has the power to pass a budget resolution instructing sweeping, unfunded tax cuts.

The budget committees also enforce Pay-As-You-Go (PAYGO) rules that were instituted to prevent new legislation from widening deficits or squandering surpluses. Until recently, any piece of legislation increasing mandatory spending or decreasing revenue had to be fully offset with spending cuts and/or tax increases to ensure deficit-neutrality (unless granted an emergency designation). Under the new House rules, PAYGO has been replaced with a bizarre Cut-As-You-Go (CUTGO) rule, which requires that new mandatory spending be offset only by spending decreases and explicitly exempts all tax cuts from requiring offsets. While Senate PAYGO rules and statutory PAYGO would still prove an obstacle for unpaid tax cuts, the recent tax compromise reminds us that these too can be circumvented for politically sensitive votes; the evisceration of the House PAYGO rules removes one of the few barriers protecting against larger structural deficits.

Democratic control of the Senate will check some of the new powers of Chairman Ryan (although we are in for an ugly fight with uncertain outcomes when it comes to appropriations levels), but it's a dangerous precedent to set and could spell disaster down the road. Under the new House rules and leadership of Chairman Ryan, it will be easier to pass massive unfunded tax cuts, easier to slash domestic investments, harder to pass routine legislation that tangentially increases mandatory spending, and impossible to use sensible reform of wasteful tax expenditures as offsets for public investments.

These new rules move us one step closer to Chairman Ryan's budget vision. A new Economic Policy Institute briefing paper "Paul Ryan's Plan for Millionaire's Gain and Middle-Class Pain" exposes that the Ryan Roadmap would dismantle social insurance programs, raise taxes on the middle class, and transfer wealth from the middle class to corporations and millionaires. The Roadmap veers back to the failed Bush-era economic policies of cutting taxes for the wealthy while neglecting the middle class and defunding national investments. It even proposes an increase in taxes on the middle class, the elimination of corporate taxes, privatization of Medicare, and the partial privatization of Social Security.

The Roadmap contains many unpalatable provisions unlikely to clear a 60-vote threshold in the Senate, so the reconciliation process provides an easier route for Ryan's drastic proposals to dismantle the major entitlement programs. Halving taxes on millionaires and eliminating corporate taxes would result in a significant drain on revenue, but that would not be a problem under the new House CUTGO rules. And rolling back non-security discretionary spending for the rest of the fiscal year was just made a lot easier. Welcome to Paul Ryan's House -- and budget.]]> tag:www.huffingtonpost.com,2011:/theblog//3.812177 2011-01-21T16:15:20-05:00 2011-05-25T18:25:24-04:00

Andrew Fieldhouse http://www.huffingtonpost.com/andrew-fieldhouse/
For all its misuse, the job-killing rhetoric underscores a very real anxiety felt by the American people: that there aren't enough jobs. If unemployment were down around 5%, the "job-killing" accusations would hold little traction. Instead, employment remains 5.2% below pre-recession levels, and the unemployment rate has been stuck above 9% for twenty months.

So what were the "job killers" that got us here? Look to the financial crisis and the Great Recession, which lowered private-sector employment by 8.5 million, peak to trough. Better oversight of Wall Street could have averted much of the economic pain inflicted, but that didn't prevent many of the "job-killing" firebrands from opposing financial reform legislation that will hopefully prevent more devastating financial meltdowns. Patchy financial regulation risks recessions and job loss.

To stop the economic free fall, Congress enacted the American Recovery and Reinvestment Act. The Recovery Act was first opposed and then decried a failure by conservatives, but the only failure was their inability to look at objective analysis. The nonpartisan Congressional Budget Office (CBO) estimates that the Recovery Act increased employment by up to 3.6 million jobs and lowered the unemployment rate by up to 2.0 percentage points by the third quarter of 2010. Alternatively, economists Alan Blinder and Mark Zandi estimate that without the aggressive monetary and fiscal stimulus used to combat the downturn, payroll employment would have been roughly 8.5 million jobs less than it was in 2010, and the economy could have slumped into depression. These stimulus policies saved millions of jobs, and accelerated job creation would not have been possible without widening the budget deficit. In times of depressed economic activity, deficit-financed fiscal stimulus unequivocally saves and creates jobs.

For all the talk about "job-killing" legislation, it's conservative policymaker's own economic proposals that would cost millions of jobs and jeopardize the economic recovery.

This week's symbolic vote for repealing health care reform belies any genuine concern about job creation. Health care reform is expected to slow the growth of insurance premiums and employers' benefit costs, making it easier for managers to hire new employees. Research by David Cutler and Neeraj Sood shows that slowing health care cost growth by the amount expected from health care reform will actually boost employment by 250,000 to 400,000 jobs a year. Separately, CBO estimates that repealing health care reform would add $230 billion to deficits over the next decade; larger savings on the order of half a percentage point of GDP would be forgone in the following decade. Speaker Boehner recently brushed aside this politically inconvenient budget assessment, remarking that the CBO is "entitled to their own opinion," demonstrating a total disregard for objective analysis. Health care reform is not a job killer, and expanding insurance coverage to 32 million Americans will unquestionably be a life saver.

Another symbolic cornerstone of conservative economic policy is the pledge to cut back discretionary spending by roughly $100 billion (exempting favored agencies such as the Departments of Defense, Veterans Affairs, and Homeland Security). Draconian cuts to the non-security discretionary budget (on the order of 22% for next fiscal year) would result in upwards of a million job loss and counteract much of the expected economic boost from the recent tax compromise. Slashing public investments in transportation, education, and basic scientific research will irrefutably decrease employment and erode long-term economic competitiveness.

Aside from the perennial calls for tax cuts for the wealthy, there is little appetite for actual job creation measures among conservative legislators. Trickle-down, supply-side snake oil was tried and failed; the Bush-era tax cuts presided over the worst post-war economic expansion in terms of economic growth, investment, employment, wages and salaries, and labor participation. The tax compromise--which extended the Bush tax cuts and some provisions of the Recovery Act--will turn the dial on employment in the right direction, but revised forecasts still show years of high unemployment and that more stimulus is needed. As for job-killing tax hikes, the biggest threat posed to employment was when Senate Republicans filibustered permanent middle-class tax relief.

On the other hand, we have seen conservatives attempt to rescind unobligated Recovery Act funds, scuttle continuation of unemployment insurance, and block funds to keep teachers in the classroom. Like proposals to slash the nonsecurity discretionary budget, these actions would weaken the economic recovery and put more Americans out of work.

Slapping the label "job-killer" onto a piece of legislation won't ease the crisis in the labor market. Any policymaker who cares about putting Americans back to work would support the Recovery Act, push for more fiscal stimulus, and defend public investments in the nonsecurity discretionary budget. It's time to turn the legislative agenda from obstructionist theatrics to proactive job creation.
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