March 13, 2013
For those upset that the budget debate is getting ever further removed from the real world problems of an economy that is suffering from a deficit of 9 million jobs, there is good news. The Congressional Progressive Caucus (CPC) has produced a budget that is intended to make the unemployment situation better rather than worse.
The story of course is that we are still in a situation where we need the government as a source of demand in the economy. This is independent of how much we like the government or the private sector. The private sector does not expand and create jobs just because governments want it to, as is being discovered now by leaders in the United Kingdom, Greece, Italy, Spain and everywhere else where deficit reduction is now in vogue. In the current economic situation, loss of demand from the government is a loss of demand to the economy. That is why recent steps to reduce the deficit, such as the ending of the payroll tax cut (which put money in consumers’ pockets) and the sequester, will lead to slower growth and higher unemployment.
The CPC decided to produce a budget that recognized this reality. It provides for a mix of short-term measures aimed at immediate job creation, such as jobs programs and additional money to defray state and local government revenue shortfalls, along with an ambitious long-term infrastructure agenda. According to estimates from the Economic Policy Institute this agenda would create 6.9 million additional jobs by the end of next year compared to the CBO baseline scenario.
The CPC also include measures that should make any serious deficit hawk happy. On the spending side they want savings from cutting the military budget, reducing payments to drug companies under Medicare, and establishing a public option in the health care exchanges that will go into place next year under the Affordable Care Act.
On the tax side, they propose eliminating a number of special interest tax breaks, establishing higher tax marginal tax brackets (up to 49 percent) for very high income households, a higher estate tax (55 percent) for the richest of the rich, and imposing a financial speculation tax and a carbon tax. The net effect of these policies stimulate now, cut later, and result in a deficit that is just over 1.0 percent of GDP by the middle of the decade and a debt to GDP ratio that is on a clear downward track.
The Serious People will undoubtedly claim that the CPC budget is not politically realistic and use this fact as an excuse for ignoring it. But this is a case of a serious double-standard. Does anyone believe that the middle class tax increases implied by the Ryan budget’s ending of deductions (which he will not even identify) are politically realistic? How about his plans for cutting Medicaid by close to 40 percent?
Clearly political realism is not a criterion used in determining whether a budget proposal deserves attention. The public would do well to focus on the substance of the CPC budget and its rationale. The Washington insider crew is a tough lot to crack, but even they can sometimes be moved by a combination of evidence and public opinion.
