“A Solid Template”: President Obama’s Opening Bid To Avert The Fiscal Cliff Is Familiar And Sound
President Obama’s opening bid for negotiations resolving the “fiscal cliff” has surfaced, and the contours are both familiar and sound. The Washington Postand an unofficial outline drafted by Republican aides both suggest that the administration has essentially proposed its budget request for fiscal 2013. And the president’s latest budget offers a solid framework for navigating the fiscal obstacle course, as it would substantially moderate the pace of deficit reduction while making a responsible down payment on longer-term deficit reduction. Relative to current policy, the contours are shaping up roughly as follows:
- Allow the upper-income Bush tax cuts to expire (+$850 billion)
- Restore the estate and gift taxes to 2009 parameters (+$120 billion)
- Curb tax expenditures (+600 billion)
- Stimulus spending (-$50 billion)
- Extend emergency unemployment benefits (-$30 billion)
- Extend or replace the payroll tax cut (-$110 billion)
- Continue AMT patch, “doc fix,” and tax extenders (-$240 billion)
- Defer sequestration (?)
Most critically, the Obama framework includes a variation of his American Jobs Act, proposing increased near-term government spending on infrastructure and state fiscal relief while maintaining the ad hoc stimulus set to expire at year’s end—the emergency unemployment compensation (EUC) program, the payroll tax cut, and recent expansion of refundable tax credits—which is the single largest economic headwind threatening recovery among the major components of the scheduled fiscal restraint. (See our à la carte deconstruction of these major components’ budgetary versus economic impacts) The Republican aides’ draft suggests the administration would dedicate $50 billion for infrastructure and stimulus spending, $30 billion for EUC, and $110 billion for an extension of the payroll tax cut or a targeted tax credit, all relative to current policy. And if the administration is looking for a replacement for the payroll tax cut, they could adopt our proposed targeted refundable tax rebate, which would provide a bigger and better economic boost.
Beyond these job creation measures, the president’s proposal for dealing with the economic challenge at hand of overly rapid deficit reduction would largely adhere to current policy—the alternative minimum tax would be indexed for inflation, scheduled Medicare physician reimbursement cuts would be prevented (i.e., the “doc fix” would be continued), expiring business tax provisions would be continued, the sequester would not be implemented in 2013, and the Bush-era tax cuts would be extended for all but upper-income households (those earning more than $250,000 a year). Again, this is all consistent with the president’s budget, with the exception that the budget repealed the sequester instead of deferring it to an unspecified date.
Overall, this proposal would substantially moderate the pace of deficit reduction relative to the current policy, which is critical because this baseline includes sizable fiscal contraction (the payroll tax cut and emergency unemployment benefits are assumed to expire and discretionary spending caps ratchet down). Indeed, the entire challenge posed by the fiscal obstacle course is that budget deficits closing too quickly will push the economy into an austerity-induced recession, and the president’s opening bid actually addresses this very real economic challenge, prioritizing job creation and economic recovery over the (not imminent) problem of longer-term deficit reduction.
But the proposal would make substantial long-run deficit reduction as well. It would allow the upper-income Bush tax cuts to expire, raise roughly another $600 billion from upper-income households and business (presumably by capping the value of tax expenditures), return the estate and gift tax to 2009 parameters, reduce Medicare and Medicaid spending by nearly $400 billion (largely without cost-shifting to states or households, with most savings from providers and pharmaceutical companies). Again, these are all proposals from the president’s budget request. As I calculated a few months back, the president’s budget—as scored by the Congressional Budget Office and adjusted for subsequent baseline revisions—would reduce public debt by $3.0 trillion relative to current policy, lowering the debt-to-GDP ratio to a sustainable 73.4 percent. (Add in the nearly $1 trillion from ending the war in Afghanistan, already built into current policy, and you hit the $4 trillion mark that has become the arbitrary but symbolic threshold for fiscal seriousness.)
A back of the envelope calculation suggests that the combination of continuing EUC, continuing the payroll tax cut, increased infrastructure spending, and expiration of the upper-income tax cuts would boost real GDP growth by 1.5 percentage points and increase nonfarm payroll employment by 1.8 million jobs by the end of 2013, relative to current policy. Details on timing of other deficit reduction are lacking, and would likely somewhat reduce the net economic boost, but the proposal nevertheless offers substantial net fiscal support for our depressed economy. My colleague Josh Bivens and I estimated in another recent paper that the president’s 2013 budget would boost employment by about 1.1 million jobs in 2013, largely because of AJA spending and targeted tax cuts (which we delayed one year from the now-ended 2012 fiscal year to allow for feasible implementation).
This framework also closely resembles the proposals in our recent EPI and Century Foundation report Navigating the fiscal obstacle course: Supporting job creation with savings from ending the upper-income Bush-era tax cuts. We proposed diverting half of the savings from ending the upper-income Bush tax cuts and recent estate tax cuts—roughly $600 billion—to job creation measures heavily weighted toward the next three years, which would boost real GDP growth by 1.7 percentage points and increase employment by 2.0 million jobs in 2013. The upper-income Bush tax cuts are the least economically supportive component of the fiscal obstacle course and have a huge opportunity cost; as far as down payments on deficit reduction go, this is the most sound starting point—as the president has proposed in all four budget requests.
The one major departure from the president’s budget is the new and excellent proposal to eliminate the statutory debt ceiling. The statutory debt ceiling has proved an unacceptable economic liability, particularly since Speaker of the House John Boehner (R-Ohio) irresponsibly pledged in May that he would again hijack the nation’s debt ceiling to be used as a bargaining chip. This duplicative, ill-conceived law should be repealed, or at the very least ruled inoperative.
The president’s budget offered a sound template for moderating the pace of deficit reduction, coupled with a down payment on longer-term deficit reduction that would impose little near-term economic drag—substantially less than the economic boost from the AJA. By adding repeal of the debt ceiling to this balanced package, the president’s opening bid makes for an even more responsible economic and budgetary policy.
By: Andrew Fieldhouse, Economic Policy Institute, November 30, 2012
“A Word To The Not So Wise”: You Come At The King, You Best Not Miss
If you want a sense of how remarkable Barack Obama’s re-election victory is, think back to last summer. At the time, the president was struggling to reach a deal with House Republicans, who were threatening not to raise the debt ceiling and plunge the economy into a second recession. Unemployment was high—9.2 percent—Obama’s approval had dipped to the low 40s, and to anyone paying attention, the first African American president looked like a one-term failure.
But beginning in the fall, Obama began to reassert himself. With the American Jobs Act, he outlined a viable plan for generating economic growth and kick-starting the recovery. With his widely praised speech in Kansas, he outlined a populist agenda of greater investment and higher taxes on the wealthiest Americans. Over the course of 2012, he built good will with important communities, from LGBT Americans with an endorsement of same-sex marriage to Latino immigrants and their families with a measure meant to emulate the DREAM Act. What’s more, the economy began to pick up: Job growth increased, unemployment dropped, and the overall economic picture began to brighten.
Together with one of the most hard-nosed campaigns of recent memory, Obama managed to bounce back from the nadir of 2011 to one of the broadest re-election victories since Reagan’s 1984 landslide. At this point, news networks have called New Hampshire, Iowa, Wisconsin, Colorado, Nevada, Virginia, and Ohio for President Obama. Only Florida has yet to be called, where the remaining votes are in traditionally Democratic areas of the state. Compared with 2008, Obama lost only two states: North Carolina and Indiana. When all is said and done, Barack Obama will have won re-election with 332 electoral votes—a much larger margin than the last president to win re-election, George W. Bush
Over the next week, I’ll write about the details of Obama’s victory, in particular his huge advantage with nonwhite voters—without historic margins (and turnout) among African Americans, Latinos, and Asian Americans, it’s likely Obama would have failed in his quest for a second term. Indeed, it should be said that Republicans have themselves to blame for a good deal of this. If not for their categorical opposition to health-care reform, the Affordable Care Act would have never been passed in its current form. If not for their harsh approach to immigration, they might have won greater Latino support over the last four years. If not for their embrace of misogyny, they might have closed the gender gap. If not for their willingness to indulge the worst conspiracies about Obama, they might have made inroads with young people and college-educated voters.
In the meantime, it’s worth noting what Obama’s victory means for the next four years of public policy.
Obamacare will be implemented in full, and the United States will begin its journey toward universal health-care coverage. Millions of Americans will be covered by the bill’s Medicaid expansion, and millions more will—for the first time—have access to affordable health insurance. Likewise, Dodd-Frank will survive, and the federal government will begin to craft regulations that will—with any luck—prevent a repeat of the 2008 financial collapse. Obama’s re-election shields core liberal commitments—on social insurance, anti-poverty policy, and environmental regulation—from conservative assault, and gives Democrats a chance to reshape the Supreme Court and the federal judiciary writ large.
Thanks to last night’s results, liberals have four years to cement a host of policies and achievements that could prove as transformative as the Great Society or even the New Deal. And this is on top of an economic recovery that will almost certainly boost Democrats’ standing with the public.
It’s still far too early to make a judgment about Barack Obama’s overall historical standing. But by virtue of winning re-election, he has become the most successful Democratic president since Lyndon Johnson, and one of the most successful of the 21st century.
Not bad for the skinny Hawaiian kid with a funny name.
By: Jamelle Bouie, The American Prospect, November 7, 2012
“Not Very Much”: Without The Economy, What Does Romney Have Left Against Obama?
Last Friday’s new job numbers demonstrate that Barack Obama has started to turn around the economy George W. Bush ran aground.
Don’t get me wrong. A 7.8 percent jobless rate is way too high. And the effective jobless rate which includes part-time workers who want full-time work and Americans who have given up hope of ever finding jobs is even worse.
But there have been 31 straight months of growth in the number of private sector jobs. The unemployment rate is still high but there has been a slow and steady decrease in the jobless rate. The picture is even brighter in the battleground states that will pick the next president. In Iowa, the unemployment rate is only 5.5, and it is 5.7 percent in New Hampshire. The unemployment rate would be even lower if the GOP majority in the House of Representatives had approved the president’s proposed American Jobs Act which would have given state and local governments the funds to rehire hundreds of thousands of the teachers, police officers, firefighters, and other public employees who had lost their jobs in the last few years.
One of the striking things about recent national surveys is that Americans now think that Barack Obama is as capable of handling the economy as Mitt Romney. The Battleground national poll conducted for George Washington University last week shows that there are almost as many voters (47 percent) who think President Obama is the best candidate to handle the economy as there are voters (49 percent) who think Romney is the better man for the job.
Romney’s business credentials were his ace in the hole but he played his hand poorly. The steady increase in employment has certainly helped restore trust in the president’s capacity to nourish the economy but the GOP nominee has undermined his own image as a successful entrepreneur.
Romney is his own worst enemy. The infamous “47 percent” video exposed Romney’s callous disregard for Americans like seniors and veterans who are economically dependent on government benefits. The video clearly had an impact on Romney’s standing. The Battleground survey shows the president with a big advantage (56 percent to 40 percent) over Romney for standing up for the middle class.
If the president does win re-election, I suspect that many pundits will say the 47 percent video was the turning point of the campaign. But I think the real pivot point was during the spring when the Obama campaign exposed what Rick Perry called Romney’s time at Bain Capital a career in “vulture capitalism.” At the time, most Democratic insiders dismissed the anti-Bain preemptive attack ads, but they put Romney on the defensive on the only issue that could help him win the campaign. The president also helped himself when he adopted an aggressive message of economic populism in the fall of 2011 after he finally got frustrated over Republican obstructionism.
Monday, Romney gave a speech on foreign policy at the Virginia Military Institute. He has talked about national security a lot lately, and the Romney campaign’s focus on foreign policy may be an admission by Romney that he has lost the edge he had over the president on the economy. Romney’s new emphasis on foreign policy is counterproductive since few voters care about it and because voters give the president good marks for international relations. According to the Battleground poll, few Americans indicate that the wars in the Middle East (4 percent) or terrorism (2 percent) are the most important issues in the campaign. By a margin of 50 percent to 44 percent, voters choose the president as the candidate best able to handle foreign policy.
A story in Politico on Tuesday indicated that the Romney family is pushing the candidate to de-emphasize his anti-Obama economic rhetoric. But if the GOP candidate stops beating up on the president for his economic performance, what does Romney have left? The answer is not very much.
By: Brad Bannon, U. S. News and World Report, October 9, 2012
“Truth About Jobs”: The Good News That The Deranged Right Just Can’t Handle
If anyone had doubts about the madness that has spread through a large part of the American political spectrum, the reaction to Friday’s better-than expected report from the Bureau of Labor Statistics should have settled the issue. For the immediate response of many on the right — and we’re not just talking fringe figures — was to cry conspiracy.
Leading the charge of what were quickly dubbed the “B.L.S. truthers” was none other than Jack Welch, the former chairman of General Electric, who posted an assertion on Twitter that the books had been cooked to help President Obama’s re-election campaign. His claim was quickly picked up by right-wing pundits and media personalities.
It was nonsense, of course. Job numbers are prepared by professional civil servants, at an agency that currently has no political appointees. But then maybe Mr. Welch — under whose leadership G.E. reported remarkably smooth earnings growth, with none of the short-term fluctuations you might have expected (fluctuations that reappeared under his successor) — doesn’t know how hard it would be to cook the jobs data.
Furthermore, the methods the bureau uses are public — and anyone familiar with the data understands that they are “noisy,” that especially good (or bad) months will be reported now and then as a simple consequence of statistical randomness. And that in turn means that you shouldn’t put much weight on any one month’s report.
In that case, however, what is the somewhat longer-term trend? Is the U.S. employment picture getting better? Yes, it is.
Some background: the monthly employment report is based on two surveys. One asks a random sample of employers how many people are on their payroll. The other asks a random sample of households whether their members are working or looking for work. And if you look at the trend over the past year or so, both surveys suggest a labor market that is gradually on the mend, with job creation consistently exceeding growth in the working-age population.
On the employer side, the current numbers say that over the past year the economy added 150,000 jobs a month, and revisions will probably push that number up significantly. That’s well above the 90,000 or so added jobs per month that we need to keep up with population. (This number used to be higher, but underlying work force growth has dropped off sharply now that many baby boomers are reaching retirement age.)
Meanwhile, the household survey produces estimates of both the number of Americans employed and the number unemployed, defined as people who are seeking work but don’t currently have a job. The eye-popping number from Friday’s report was a sudden drop in the unemployment rate to 7.8 percent from 8.1 percent, but as I said, you shouldn’t put too much emphasis on one month’s number. The more important point is that unemployment has been on a sustained downward trend.
But isn’t that just because people have given up looking for work, and hence no longer count as unemployed? Actually, no. It’s true that the employment-population ratio — the percentage of adults with jobs — has been more or less flat for the past year. But remember those aging baby boomers: the fraction of American adults who are in their prime working years is falling fast. Once you take the effects of an aging population into account, the numbers show a substantial improvement in the employment picture since the summer of 2011.
None of this should be taken to imply that the situation is good, or to deny that we should be doing better — a shortfall largely due to the scorched-earth tactics of Republicans, who have blocked any and all efforts to accelerate the pace of recovery. (If the American Jobs Act, proposed by the Obama administration last year, had been passed, the unemployment rate would probably be below 7 percent.) The U.S. economy is still far short of where it should be, and the job market has a long way to go before it makes up the ground lost in the Great Recession. But the employment data do suggest an economy that is slowly healing, an economy in which declining consumer debt burdens and a housing revival have finally put us on the road back to full employment.
And that’s the truth that the right can’t handle. The furor over Friday’s report revealed a political movement that is rooting for American failure, so obsessed with taking down Mr. Obama that good news for the nation’s long-suffering workers drives its members into a blind rage. It also revealed a movement that lives in an intellectual bubble, dealing with uncomfortable reality — whether that reality involves polls or economic data — not just by denying the facts, but by spinning wild conspiracy theories.
It is, quite simply, frightening to think that a movement this deranged wields so much political power.
By: Paul Krugman, Op-Ed Columnist, The New York Times, October 8, 2012
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