Yesterday the president released his FY2014 budget request. While there is a lot to be commended in the budget (canceling sequestration cuts, calling for an (admittedly insufficient) increase in the minimum wage, infrastructure investment, creating a “Buffett rule”) there is also plenty to dislike. Perhaps the most controversial measure is the inclusion of the chained CPI to measure the cost of living adjustment for Social Security (and to index tax brackets and other programs). This is a not a policy favorite of EPI’s (see here and here for why).
Less commented on is the dramatic scaling back of stimulus efforts in this year’s budget relative to previous versions. In last year’s FY2013 budget request, the president included a section within his proposals dedicated to “temporary tax relief and investments to create jobs and jumpstart growth.” While perhaps not as robust and exhaustive as we would like to see in an effort to insure a full economic recovery, last year’s budget was not too shabby on stimulus. It included $178 billion in stimulus proposals for FY2012, and $355 billion over FY2012-2022. Examples of stimulus in the FY2013 request included a two-year payroll tax holiday, an extension of unemployment insurance benefits, some business and energy tax credits, investment in surface transportation priorities, and a number of different policies aimed on hiring and supporting teachers and first responders and rehabilitating and rebuilding neighborhoods and schools (many of these policies were seen in his September 2011 American Jobs Act proposal).
Importantly, much of the proposed stimulus in the FY2013 budget was frontloaded. In fact, last year Obama proposed that about half of his stimulus efforts through 2022 take place in FY2012 (see graph). Front-loaded stimulus—that is, ramping up near-term, targeted spending—is a key part of any effort to support rapid economic recovery and a return to a full employment economy. Debt-financed public investments in the next few years would greatly help efforts to drive down joblessness, and the cost of this debt—measured by the long-term costs of borrowing—is historically low. As the figure below depicts, in FY2013 Obama proposed about half of his stimulus to take place in FY2012, with the rest of the investments happening over FY2013-2022. In short, while Obama has often spoken the language of austerity, his actual budgets have so far been fairly protective of recovery in the near-term. With the latest budget, this is no longer the case.
This year’s budget shows a much different path for stimulus. While the ten-year total for investments isn’t all that different (proposed investments over FY2014-2023 clock in at just under $200 billion compared with $177 billion over FY2013-2022), the degree of economic support for recovery is dramatically diminished. Why? The near-absence of stimulus investments for the current year, FY2013. In fact, Obama’s budget this year only invests $1.6 billion in FY2013 stimulus—a huge difference compared with last year. While a major portion of the difference can be attributed to the expiration of the payroll tax holiday and the inclusion of unemployment insurance extensions in the American Taxpayer Relief Act of 2012 (i.e., the fiscal cliff deal, which means that the UI extensions are now part of the baseline and don’t count as extra Obama administration stimulus), those policies don’t explain everything. For instance, the FY2013 budget booked almost $40 billion in the first-year (for FY2012) alone for surface transportation investments, teacher stabilization, modernizing schools, and supporting the hiring of first responders. The FY2014 budget books less than $1 billion for those priorities in first-year investments (for FY2013).
What has changed between this year and last year? Even though the unemployment rate has dipped below 8 percent (it was 8.3 percent when the FY2013 budget was released), our recovery is not exactly going well. Our recent unemployment declines have partly been due to people dropping out of the labor force, as opposed to an increase in the share of the working-age population with jobs. And job creation in the first quarter of 2013 is significantly lower than it was in the last quarter of 2012. With the expiration of the payroll tax holiday and sequestration expected to keep job growth lower than we ideally need to see in the coming months, it doesn’t appear that there is good reason for the administration to be pulling back on efforts to stimulate the economy.
In sum, this budget shows that the Obama administration is continuing to lose steam when it comes to proposing key stimulative measures for our economy. The American Jobs Act (AJA) proposal was fairly bold: a $447 billion package of infrastructure investments, emergency unemployment benefits, aid to state and local governments and tax cuts for households and businesses, with spending front-loaded. (Had Congress enacted the full AJA, we estimated that nonfarm payroll employment would have been more than 1.6 million jobs higher by the end of 2012.) Last year’s budget request included a somewhat less-bold version of the AJA. This year’s budget request shows that the administration is even less focused on promoting stimulus provisions—a disappointment without a doubt.