The Economic Policy Institute Policy Center – 2017-10-26 00:48:24
https://cpc-grijalva.house.gov/uploads/FINAL%20CPC%20Budget%20FY18%20Executive%20Summary.pdf
The Peoples’ Budget: A Roadmap for Resistance
The Economic Policy Institute
(October 26, 2017) — While our economy is rebounding from the Great Recession, hardworking Americans are being left behind. Our economic and political system has lost sight of what matters most: We the People.
The 2018 Congressional Progressive Caucus’ Budget provides major reinvestments in our country through infrastructure, education, and wage growth to increase opportunity for all. The People’s Budget is a down payment on a brighter future for all Americans, ensuring every family struggling to make ends meet has a fair shot at the American Dream.
An investment in roads, bridges, and railways is an investment in the safety and prosperity of the American people.
Americans are facing a pivotal moment: Republicans are preparing massive cuts to our public schools, affordable health care, clean air and water, and family-sustaining jobs. A serious alternative that protects our communities and our planet has never been more urgent.
The People’s Budget: A Roadmap for the Resistance provides a practical, progressive vision for our country by investing in 21st century infrastructure and jobs, tackling inequality, making corporations pay their fair share, and strengthening essential public programs.
The People’s Budget will put millions of Americans back to work and will guarantee a strong economy for generations to come.
Public investment in 21 St century infrastructure built with American parts and labor creates jobs that cannot be outsourced, while improving the health of our children and the environment.
The People’s Budget invests $2 trillionin order to transform our fossil-fuel energy system, overburdened mass transit, deteriorating schools, lead-contaminated water systems, and crumbling roads and bridges. Through local hiring and livable wages, our infrastructure plan creates millions of dignified jobs for women and men of all backgrounds in both urban and rural America.
In order to make these bold, necessary investments in working families, we must rewrite the rules of a rigged economy that favors billionaires and big corporations. Our budget closes tax loopholes that corporations use to ship jobs overseas, and stops CEOs from receiving millions in tax-free bonuses. Our budget tackles inequality through fair tax rates for all Americans, leveling the playing field for working people.
Quality health care, childcare, schools and retirement for everyone: these are the pillars of a democratic society. And yet, in the world’s richest country, these essentials are painfully out of reach for tens of millions of our fellow Americans.
The People’s Budget funds universal childcare, increases access to health care, strengthens public schools and universities, provides for humane immigration reform, and expands Social Security.
The People’s Budget also lowers the price of prescription drugs so that families don’t have to choose between paying for medicines or their groceries.
The People’s Budget ensures that Veterans Affairs will not be privatized and that veterans receive the quality care and robust benefits they were promised for their service to the country.
The Republican agenda drastically cuts federal protection for working families, the environment and our healthcare, while giving massive tax cuts to big corporations and bloating the military budget beyond belief. The People’s Budget reinvests in American families, prioritizing funding for education, health care, jobs and clean air and water.
The Congressional Progressive Caucus’s People’s Budget: A Roadmap for the Resistance puts political and economic power back in the hands of the people.
Invest In America
* Invests $2 trillion to transition to a 21st Century Infrastructure to transform our energy, water and transportation systems
* Closes loopholes so our government agencies use materials made in America
* Expands our commitment to efficient renewable energy and green jobs
* Invest $100 billion to increase access to reliable, high-speed internet
Affordable Health Care
* Maintains critical coverage gains under Affordable Care Act
* Lowers costs of prescription drugs
* Allows states to transition to single-payer health care systems
* Expands access to mental health care and treatments for opioid and heroin addiction
* Repeals excise tax on high-priced healthcare plans for workers and replaces with public option
Fair Tax System for Working Families
* Ends corporate tax break for off-shoring American jobs and profits
* Stops companies from renouncing their American citizenship to dodge US taxes
* Closes wasteful corporate tax loopholes that cost billions of dollars
* Taxes Wall Street to fund Main Street
* Ensures profits from investments are finally taxed at the same rate as income taxes
* Raises revenue from the wealthiest few who can afford to pay more
* Expands the Earned Income Tax Credit and the Child Care Credit
Justice and Fair Elections
* Ensures the justice system is fair and effective for all Americans by increasing funding for voter protection and legal assistance programs
* Rebuilds trust in the justice system by developing community oriented policing reforms
* Protects American election systems from any interference and increases protections for voting rights by strengthening key election reforms
* Funds public financing of campaigns to curb special interest influence in politics
* Supports policies and initiatives to significantly reduce gun violence
Educational Opportunities for Every Student
* Delivers on the promise of lifting working families up by investing $1 trillion in effective early learning opportunities and for a child care for all program
* Makes debt free college a reality for all students
* Greater investments in K-12 education
* Increases computer science opportunities for all students
* Allows refinancing of student loans
* Fully funds IDEA and provides Pre-K for all
Pathways Out of Poverty and Empowering the Middle Class
b>* Supports a minimum wage increase and collective bargaining rights
* Provides a plan to reduce poverty by half in ten years
* Increases discretionary funding to invest in women, communities of color and their families
* Provides an increase in Trade Adjustment Assistance for workers
* Strengthens the Small Business Administration’s ability to provide support to America’s small business owners
* Addresses the pay equity gap
Comprehensive and Just Immigration Reform
* Implements comprehensive immigration reform, including a pathway to citizenship
* Prohibits funding for construction of any border wall and any immigration policies, which seek to ban people from entering the US because of their religion
* Supports continued funding to sanctuary cities Access to Housing
* Fully funds programs to make housing affordable and accessible for all Americans
* Invests $12.8 billion to end family homelessness Protecting our Environment
* Closes tax loopholes and ends subsidies provided to oil, gas and coal companies
* Identifies a price on corporate carbon pollution
* Invests in clean, renewable, and efficient energy and green manufacturing
Protecting Our Veterans
* Eliminates veterans’ homelessness
* Increases access to mental health care for all veteran and service members
* Invests in job training opportunities for transitioning service members and veterans
Sustainable Defense: Promoting Peace And Security
* Modernizes our defense system to create sustainable baseline defense spending
* Ends emergency funding for Overseas Contingency Operations
* Increases funding for diplomacy and strategic humanitarian aid
* Adds robust funding for refugee resettlement programs
‘The People’s Budget’
Analysis of the Congressional Progressive
Caucus Budget for Fiscal Year 2018
Hunter Blair / The Economic Policy Institute Policy Center
(May 2, 2017) — The Congressional Progressive Caucus (CPC) has unveiled its Fiscal year 2018 (FY2018) budget, titled “The People’s Budget — A Roadmap for the Resistance.” It builds on recent CPC budget alternatives in setting the following priorities: near-term job creation, financing public 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.
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.
Figures A-C, showing the impact of The People’s Budget on debt, deficits, and nondefense discretionary funding compared with current law, the president’s “skinny budget,” and historical averages, appear in the body of the report. Tables 1 and 2 detailing the policy changes within the budget; and summary tables 1 through 4 depicting budget totals as well as comparisons with the current law baseline, appear at the end of the report.
We find that The People’s Budget would have significant, positive impacts. Specifically, it would:
Improve the economic well-being of low- and middle-income families by finally completing the economic recovery. To close the persistent jobs gap that has plagued the US economy since the start of the Great Recession, The People’s Budget provides an upfront economic stimulus large enough to go beyond closing the output gap — a measure of how far from potential the economy is operating.
The People’s Budget would boost gross domestic product (GDP) by 2 percent and employment by 2.4 million jobs in the near term. This would both close the output gap as measured by the Congressional Budget Office (CBO) and further push unemployment down, to 4 percent, our estimate of genuine full employment.
The budget would also ensure that the mixture of spending and revenue changes provides a net fiscal boost long enough to avoid a future fiscal cli (i.e., a sharp drop in demand caused by budget deficits closing too quickly to sustain growth) that could throw recovery into reverse.
Make necessary public investments. The budget finances roughly $281 billion in job- creation and public-investment measures in calendar year 2017 alone and roughly $710 billion over calendar years 2017-2018. This fiscal expansion more than provides the amount of fiscal support needed to rapidly reduce labor market slack and restore the economy to full health. Furthermore, The People’s Budget also aims to hit more ambitious long-term public investment targets, by returning nondefense discretionary spending (NDD) to its historical average as a percentage of GDP by 2022.
Facilitate economic opportunity for all. 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.
Strengthen the social safety net. 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. Instead, it uses government purchasing power to lower health care costs (health care costs are the largest threat to long-term fiscal sustainability) and builds upon efficiency savings from the Affordable Care Act. 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.
Smartly cut spending. 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. It ends emergency overseas contingency operation (OCO) spending in FY2018 and beyond, and ensures a slow rate of spending growth for the Defense Department for the remainder of the decade.
Increase tax progressivity and adequacy. 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.
Reduce the deficit in the medium term. The budget increases near-term deficits to boost job creation, but reduces the deficit in FY2019 and beyond relative to CBO’s current law baseline. After increasing near-term borrowing to restore full employment, the budget gradually reduces the debt ratio in the now full-employment economy over time, almost reaching a key benchmark of sustainability (of a stable debt-to-GDP ratio during times of full employment).
With the CPC budget as a starting point, reaching this benchmark of sustainability is not difficult. Any additional smart Social Security reform which closes that program’s long-run actuarial financing gap would as a byproduct result in meeting this benchmark of sustainability.
The People’s Budget this year continues its longer-run stance of not specifying such a Social Security reform, as any fundamental reform of Social Security should be a stand-alone endeavor. But we can infer what a fundamental reform that closed the long-run Social Security financing gap would do to overall budget balance. Relative to current law, the budget would reduce public debt by $4.0 trillion (14.2 percent of GDP) by FY2027.
For the seventh year in a row, the Economic Policy Institute Policy Center (EPIPC) has provided assistance to the Congressional Progressive Caucus (CPC) in analyzing and scoring the specific policy proposals in its alternative budget and in modeling its cumulative impact on the federal budget over the next decade. The policies in CPC’s fiscal year 2018 budget — The People’s Budget: A Roadmap for the Resistance — reflect the decisions of the CPC leadership and staff, not those of EPIPC (although many of the policies included in the budget overlap with policies included in previous EPI budget plans).
Upon CPC’s request, the nonpartisan Citizens for Tax Justice (CTJ) independently scored the major individual income-tax reforms proposed in The People’s Budget. All other policy proposals have been independently analyzed and scored by EPIPC based on a variety of other sources, notably data from Congressional Budget Office (CBO), the Joint Committee on Taxation (JCT), the Office of Management and Budget (OMB), and the Tax Policy Center (TPC).
Introduction
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.
Further, much recent research indicates that aggregate demand is likely to remain depressed in coming years without a fiscal boost (this hypothesis about chronic ongoing demand shortages is often referred to as “secular stagnation”). 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 almost four-decades- long trend of markedly increasing income inequality.
Moreover, since late 2011, contractionary fiscal policy (reduced government spending) has greatly contributed to the continuing slack in the labor market and stagnant earnings for most workers. The slack in the labor market can still be seen through the low labor-force participation rate, high labor-underutilization rate, and the low employment-to-population ratio of prime-age workers (ages 25-54). 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 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.
The People’s Budget also seeks to accelerate productivity growth through sustained public investment — in part through $2.0 trillion of much needed infrastructure investments through 2027 and in part through returning NDD spending to historical levels of 3.5 percent of GDP by 2022 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. A significant portion of the sticker price of a fiscal stimulus package will be recouped through higher tax collections and lower spending on automatic stabilizers such as unemployment insurance (programs or policies that offset fluctuations in economic activity without direct intervention by policymakers).
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.
The People’s Budget would further promote fiscal responsibility and come near a sustainable public-debt trajectory by raising revenues progressively, exploiting health care efficiency savings, and maintaining the reduced spending trajectory of the Department of Defense (DOD).
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. But in future years when the economy is at full employment, deficits will be smaller under The People’s Budget.
After increasing near-term borrowing to restore full employment, the budget nears the key benchmark of sustainability: stabilizing the debt-to-GDP ratio at full employment. Relative to current law, the budget would reduce public debt by $4.0 trillion (14.2 percent of GDP) by FY2027.
The Economic Context for The People’s Budget
More than nine 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.
Slack Remains
Growth in the 7.5 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 2017 stands at 4.8 percent, it likely overstates the extent of labor market recovery.
The share of adults age 25-54 with a job — which fell an unprecedented 5.5 percentage points (from 80.3 percent to 74.8 percent) from its peak to trough due to the Great Recession — is now (as of January 2017) still just 78.2 percent. Further, while there has been a recent uptick, nominal wage growth still remains below where it should be in an economy at full employment.
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.
While fiscal policy during and immediately after the recession — particularly the enactment of the American Recovery and Reinvestment Act (ARRA) — was strongly expansionary and arrested the economy’s sharp decline, economic performance has since deteriorated largely because fiscal policy became increasingly contractionary in 2011.
This turn toward fiscal contraction has largely been driven by the enactment of the Budget Control Act (BCA) of 2011, which cut and capped discretionary spending and established the automatic “sequestration” spending cuts that took effect March 1, 2013.
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.
If public spending in the current recovery had simply matched the growth trajectory of that of the early 1980s recession and recovery, spending would be at least $1 trillion higher now. When multiplier effects are taken into account, this level of spending would have induced a full recovery (Bivens 2016c).
By prematurely pulling away from fiscal support, policymakers condemned the economy to years of unnecessarily depressed output, anemic growth, high unemployment rates, and large cyclical budget deficits (Bivens, Fieldhouse, and Shierholz 2013).
Instead of making recovery the priority, the Washington budget debate remained 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 anti-stimulus substantially larger than the stimulus provided by the ARRA.
Fiscal Expansion Can Restore Genuine Full Employment
The still-present slack in the labor market means that fiscal expansion could return the economy to genuine full employment. Targeting genuine full employment means more than just closing the CBO’s measure of the output gap. Instead, fiscal expansion should go further and target a 4 percent rate of unemployment. This can only occur if the Federal Reserve does not raise interest rates relative to baseline. In fact, we believe that the Federal Reserve should not raise interest rates again until inflation actually appears in the data (Bivens 2016b).
Using fiscal policy to boost aggregate demand is not only the key to achieving a durable return to full employment, it will also actually substantially finance itself and improve key metrics of fiscal health (notably the public debt-to-GDP ratio) in the near term, as the extra economic activity it spurs leads to higher tax collections and lower safety-net spending.
Productivity Growth Has Weakened
A worrisome trend that has emerged fairly recently is that productivity growth has decelerated over the course of the recovery. This means that the benefits of aggressive fiscal policy to restore the economy to full employment and hold it there for a while could be large indeed. Ball, DeLong, and Summers (2014) and Bivens (2014) have shown the damage to estimated long-run GDP by the extended period of running the economy below potential.
Reversing the damage already done by — and preventing further damage from — the slack in demand is a key reason why further economic stimulus is needed and why policymakers should be aggressive in pursuing an extended period of full employment (Bivens 2016a). Likewise, in both the short and long run, another way to stem the tide of decelerating productivity growth is through sustained public investment.
The following sections describe the spending proposals and then the revenue policies in The People’s Budget (see Table 1 at the end of this report). The budget is modeled and all policies are scored relative to CBO’s January 2017 current law baseline (CBO 2017).
Individual policies and net budgetary impacts, including projected debt-to-GDP (Figure A), deficit-to-GDP (Figure B), and NDD budget authority-to-GDP (Figure C) ratios are compared with CBO’s current law baseline, as well as President Trump’s FY2018 “skinny budget.”
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.
Further articles about the Peoples Budget can be accessed here.
