The People’s Budget—Prosperity not Austerity. It builds on recent CPC budget alternatives in setting the following priorities: near-term job creation, financing economic policy analysis pdf investments, strengthening low- and middle-income families’ economic security, raising adequate revenue to meet budgetary needs while restoring fairness to the tax code, strengthening social insurance programs, and ensuring long-run fiscal sustainability. C, visualizing The People’s Budget’s impacts on deficits, debt, and nondefense discretionary funding compared with current law, the president’s budget, and historical averages, appear in the body of the report.
1 through 4 depicting budget totals as well as comparisons with the current law baseline, appear at the end of the report. The People’s Budget aims to improve the economic well-being of low- and middle-income families by finally closing the persistent jobs gap that has plagued the U. The budget would close the output gap and target genuine full employment by pushing the unemployment rate down to 4 percent. This paper details the budget baseline assumptions, policy changes, and budgetary modeling used in developing and scoring The People’s Budget, and it analyzes the budget’s cumulative fiscal and economic impacts, notably its near-term impacts on economic recovery and employment. We find that The People’s Budget would have significant, positive impacts. 3 percent and employment by 3. 6 million jobs in the near term.
This would both close the CBO estimate of the output gap and further push unemployment down, to 4 percent, our estimate of genuine full employment. This fiscal expansion is consistent with the amount of fiscal support needed to rapidly reduce labor market slack and restore the economy to full health. By expanding tax credits and other programs for low- and middle-wage workers, boosting public employment, and offering incentives for employers to create new jobs, The People’s Budget aims to boost economic opportunity for all segments of the population. The People’s Budget strengthens the social safety net and proposes no benefit reductions to social insurance programs—in other words, it does not rely on simple cost-shifting to reduce the budgetary strain of health and retirement programs. The budget also expands and extends emergency unemployment benefits and increases funding for education, training, employment, and social services as well as income security programs in the discretionary budget. The budget focuses on modern security needs by repealing sequestration cuts and spending caps that affect the Defense Department but replacing them with similarly sized funding reductions that are less front-loaded and will allow more considered cuts. FY2017 and beyond, and ensures a slow rate of spending growth for the Defense Department for the remainder of the decade.
The budget restores adequate revenue and pushes back against income inequality by adding higher marginal tax rates for millionaires and billionaires, equalizing the tax treatment of capital income and labor income, restoring a more progressive estate tax, eliminating inefficient corporate tax loopholes, levying a tax on systemically important financial institutions, and enacting a financial transactions tax, among other tax policies. The budget increases near-term deficits to boost job creation, but reduces the deficit in FY2017 and beyond relative to CBO’s current law baseline. Hunter Blair, the author of this year’s analysis, would like to acknowledge former EPI Policy Center staff members Thomas Hungerford, Joshua Smith, Andrew Fieldhouse, and Rebecca Thiess, whose analyses of previous CPC budgets served as the template for this report. The People’s Budget is focused on both short- and long-term economic objectives. In the short run, The People’s Budget targets a rapid and durable return to genuine full employment through the use of expansionary fiscal policy.
In the long run, The People’s Budget pushes back on decelerating productivity growth by making necessary and sustained public investments. The budget was developed from the evidence-based conclusion that the present economic challenge of joblessness results from a continuing shortfall of aggregate demand—the result of the Great Recession and its aftermath—and that the depressed state of economic activity is largely responsible for elevated budget deficits and the recent rise in public debt. Labor market slack resulting from this continuing demand shortfall is in turn exacerbating the decade-long trend of falling working-age household income and the three-decades-long trend of markedly increasing income inequality. Expansionary fiscal policy can help ensure a prompt and durable return to a full-employment economy which will in turn spur rising wages. Accelerating and sustaining economic growth, promoting economic opportunity, and pushing back against the sharp rise in income inequality remain the most pressing economic challenges confronting policymakers. To directly address these issues, The People’s Budget invests heavily in front-loaded job-creation measures aimed not only at putting people back to work, but also at addressing the deficit in physical infrastructure and human capital investments.
In stark contrast to the current austerity trajectory for fiscal policy, The People’s Budget substantially increases near-term budget deficits to finance a targeted stimulus program that would include infrastructure investment, aid to state and local governments, targeted tax credits, and public works programs. These types of investments would yield enormous returns—particularly by reducing the long-run economic scarring caused by the underuse of productive resources—and raise national income and living standards. 2 trillion of much needed infrastructure investments and in part through returning NDD spending to historical levels of 3. 5 percent of GDP by 2021 and keeping it there. Beyond improving middle-class living standards, using expansionary fiscal policy to ensure a rapid return to full employment is fiscally responsible. Higher levels of economic activity will also decrease near-term budget deficits and public debt as a share of GDP. Ensuring a rapid return to full employment hedges against many downside fiscal risks, notably slower-than-projected economic recovery, larger-than-projected cyclical budget deficits, and decreased long-run potential GDP due to economic scarring, long-lasting damage to individuals’ economic situations, and the economy more broadly.
This means that worries that increased deficits in The People’s Budget would put upward pressure on interest rates are misplaced. Interest rate pressure is normally thought to stem from anticipated future budget deficits run while the economy is forecast to be at full employment. After increasing near-term borrowing to restore full employment, the budget easily meets the key benchmark of sustainability: stabilizing the debt-to-GDP ratio at full employment. In fact, under The People’s Budget, the future debt-to-GDP ratio will decline in years the economy is at full employment. More than eight years have passed since the onset of the Great Recession in December 2007, but the economic context for The People’s Budget remains unequivocally tied to the recession for the following reasons.
5 years since the recession’s official end has been too sluggish to restore the economy to prerecession conditions, let alone to genuine full employment. While the unemployment rate as of January 2016 stands at 4. 9 percent, it likely overstates the extent of labor market recovery. 54 with a job—which fell an unprecedented 5. Great Recession—is now still just 77. Further, nominal wage growth has failed to accelerate over the recovery.
The pace of economic growth since the economy emerged from recession in July 2009 has been too sluggish to restore the economy to full health, and this slow pace of growth can be entirely explained by the drag from fiscal policy since 2011. Contractionary fiscal measures aside from the BCA—the expiration of the payroll tax cut in January 2013, the expiration of federal emergency unemployment benefits in December 2013, and two rounds of benefit cuts in the Supplemental Nutrition Assistance program—have also intensified fiscal drags. The sheer size of the contraction of government spending over the current recovery is unprecedented. Instead of making recovery the priority, the Washington budget debate remains entirely focused on the one policy intrinsically at odds with spurring near-term economic growth: reducing budget deficits. And deficits will remain high as long as the economy is depressed. It is safe to say that by now the Budget Control Act has been an antistimulus substantially larger than the stimulus provided by the ARRA. This still-present slack in the labor market means that fiscal expansion could return the economy to genuine full employment.