David Brooks is wrong on the CPC’s Back to Work budget

David Brooks recently wrote a misguided column criticizing the Congressional Progressive Caucus’ Back to Work fiscal 2014 budget, which the House voted on yesterday. I am proud that EPI budget analysts and I worked closely with the CPC on the proposal’s development and analysis, so I want to clarify where Brooks went wrong.

Brooks and I disagree in two major areas: differing evaluations of the state of economic recovery and prospects for growth, and the role of rich people and the government in generating growth.

Brooks sees an economy that “is finally beginning to take off” and no longer has “a large and growing gap between the economy’s current output and what it is capable of producing.” In contrast, I see an economy with 7.7 percent unemployment, and unemployment projected by the Congressional Budget Office to be roughly 7 percent by the end of 2015. Current unemployment is comparable to that of the worst month of the early 1990s recession and substantially higher than that of the worst month of the early 2000s recession.

Furthermore, the U.S. economy in late 2012 was running $985 billion (5.9 percent) below potential output for the year—which is equivalent to each person losing $3,100 (annually). I will grant Brooks that this “output gap” is not currently growing larger. Nevertheless, the gap has not changed much in two years (it was 6.1 percent in the second half of 2010) and is now much higher than the worst quarters of the recessions in the 1970s, 1990s, and early 2000s (5.0, 3.6, and 2.1 percent respectively). In short, the gap is no longer “large and growing”; it is just “large and not shrinking” and looks relatively stable. The depressed economy is suppressing wage growth (there have been no improvements in wages and benefits for the large majority of American workers for more than ten years!) and we are scarring a generation of young people—both those in school as well as those searching for the bottom rungs of a career ladder. This state of affairs is unacceptable and, therefore, government policy should not accept it.

Brooks snidely describes those who wrote the Back to Work budget as “people hermetically sealed in the house of government.” I think the stronger case is that people who see today’s economy as not needing any additional support are hermetically sealed in the house of privilege.

Brooks also worries that higher tax rates on the rich will “suppress economic activity” and influence “how much people invest in education, how likely they are to create businesses and which professions they go into.” It strikes me as odd that Brooks is so complacent about the current state of the economy but is so worried that taxing the rich will lower economic growth. It is also odd to think that higher taxation will blunt the incentives for education as well as the pursuit of high-paid professions: after all, the top one percent of wage earners now earn 19.3 times that of those in the bottom 90 percent, more than double the distance it was (9.4 times) in 1979. There will remain plenty of incentives for top earners to study, work hard and be entrepreneurial. In any case, if these are his concerns, then the Back to Work budget is the one for him since it invests more in education and spurs far more growth than the House Republican, House Democratic or Senate Democratic budgets.

Brooks also invokes the research indicating that higher tax rates will simply cause rich people to shift the form of their incomes to avoid taxation. However, the main vehicle for doing so is reconfiguring salary income as tax-preferred capital income, and the Back to Work budget broadens the tax base to prevent such tax avoidance: it equalizes tax rates on salary income and capital gains, dividend and other “unearned” incomes for upper-income households.

Last, Brooks worries that higher taxation means “reducing the incentives to work and increasing the incentives to relax”, meaning that Brooks is afraid that rich people will work fewer hours. But how does Jamie Dimon working fewer hours per week affect me, or you, or the vast majority of American workers who have not seen a raise in years?

And the Back to Work budget actually greatly boosts the incentives and payoffs to working for lower-wage workers. It reinstates an expanded Making Work Pay tax credit for three years and permanently extends the recent expansion of the earned income tax credit and other tax credits benefiting low-income households. Policies such as these would increase incentives for low-income workers to work. So it boosts the payoffs to low-wage workers from adding hours to the labor force, but may provide some slight disincentives to those at the very top of the distribution. I can live with that tradeoff—why can’t Brooks?

  • Ken Wallace

    When I read Brooks column, I couldn’t figure out what planet he lived on. Everything he said was the opposite of my knowledge & experience, and I’ve been around for a long time. This Back to Work budget is really the only budget worth fighting for. If the people were picking budgets, this is the one they would pick. It addresses all the key excesses of the last 30 years that have put us in this mess. Obama could have a real legacy if he adopted it and took it to the people.

  • benleet

    Actual unemployment is worse than 7.7% because of the decline in employment to population ratio. Since 2008 the ratio has dropped by 4.4% or 10.7 million workers. The 1981 recession the e. to p. ratio dropped 1.2% to 57.8% vs. today’s 58.6%. The participation rate, not the e. to p. rate has been over 66% for 19 years, 1989 to 2008, now it is 63.5%, a rate not seen since 1978. For 24 years, 1985 to 2009, the e. to p. ratio has been over 60%. For about 3 and a half years the e. to p. rate has been stuck, meaning the employment growth has kept exactly even with population growth. Another way of looking at it, the number of workers in private sector employment since has grown since Dec. 2000 by 1.8%, while the “working age population” has grown by 15.2%. So in 12 years 2 months 1.427 million private jobs were created, but the expected number was 16.989 million. Meaning only 8.4% of the expected private sector jobs materialized, 91.8% were not created.
    Private jobs in 12 years increased by 1.8%, the working age population increased by 15.2%, the “not in labor force” increased by 27.6%. Here’s the BLS source: http://www.bls.gov/web/empsit/cpseea01.htm — Private enterprise is not hiring at a normal rate, and for 3 years total employment is just keeping even with population growth. Some recovery. My blog has a long essay on this, http://benL8.blogspot.com

  • simonmd341

    Great piece Larry. Why don’t they print this on the NYTimes Op-Ed page to refute Brooks’ nonsense.

  • Ken Wallace

    After reading Brooks column, I wondered what planet he occupies. Everything he said was the opposite of all I know & experienced, and I’ve been around a long time. The Back to Work budget is the only one worth fighting for. It addresses all the excesses of the last 30 years that put us in this mess. Obama could have a real legacy if he adopted it and took it to the people.

  • macheath327

    Brooks leads off his column by discussing a well-known statue in DC of a man restraining a horse, which Brooks says is in front of the Department of Labor. But the statue, “Man Controlling Trade,” is in front of the Federal Trade Commission. Brooks is so lazy and uninformed that he doesn’t even know where the Department of Labor is, and apparently he and his editors can’t bother to check even that easily verifiable fact. Much less his equally shoddy analysis of the progressive budget proposal and the economy.

  • cncsawman

    When Paul Ryan was selling the Bush Tax Cuts as prudent stimulus from the floor of Congress Republicans believe fervently in Keynesian Economics, not so much with a Democratic administration.

    Nothing new, remember the doomsday predictions and zero Republican votes for the 1993 Budget Reconciliation Act, where Al Gore broke the tie vote to pass Clinton’s first budget?

    It’s not economic idiocy, as much as that sounds plausible most of the time, but a cold, calculating means of grinding everything down to a crawl until they’re back in charge of the Executive Branch; then the existential threat to humanity called The Deficit will disappear in a puff of smoke and the Reagan/Bush tradition of squandering the county’s wealth in the most inefficient way possible and then blaming Democrats for the resulting mess will resume.

  • http://twitter.com/al2o3cr Matt Jones

    I eagerly await the day that “high taxes” convince David Brooks to stop writing. ;)