This commentary first appeared in Spotlight on Poverty and Opportunity.
The pressing importance of jobs and economic growth – rather than the misplaced obsession with austerity – finally seems to be gaining recognition inside Washington. President Obama illustrated this renewed focus in his State of the Union address, emphasizing the need to “do more to make sure our economy honors the dignity of work, and hard work pays off for every single American.” The president’s fiscal year 2015 budget, released this month, builds off these ideas. It provides a robust vision for building a sustainable platform for economic growth with shared prosperity and security.
These priorities are front and center in the budget. The president proposes an additional $28 billion in nondefense discretionary funding (plus $28 billion in defense spending) in 2015. Much of this new spending – offset by the closing of tax loopholes – would focus on improving the well-being of low- and middle-income Americans through job creation and making work pay (wages have been stagnant since 2000).
A major budgetary focus is getting people back to work, with a particular emphasis on helping the long-term unemployed re-enter the workforce. Such assistance is desperately needed. Research by the Boston Federal Reserve showed that employers were extremely unlikely to call back job seekers who had been out of work for at least six months, even if their qualifications were better than other applicants’.
To boost overall hiring of workers, the president would allocate significant funding for infrastructure improvements, creating immediate employment opportunities in the construction industry as well as enhancing future productivity. And to both provide an economic boost and combat needless suffering by those struggling to find a job, the president would extend Unemployment Insurance (UI) to the over one million workers who lost benefits when the emergency UI program was allowed to expire. These investments are especially critical at a time when the economy is still struggling from a lack of demand.
Beyond creating new employment opportunities, the president wants to ensure that work pays off for all Americans. The budget includes an expansion of the Earned Income Tax Credit (EITC) for childless workers, raising the maximum benefit available from $500 to $1000, and lowering the eligibility age from 25 to 21. Such a change would help fill one of the most glaring holes in our social safety net. As I have explained in previous research, childless workers are currently “the sole group that the federal tax system taxes deeper into poverty.”
While not part of the official budget, the president also reiterates his request that Congress pass legislation to increase the minimum wage to $10.10 per hour (close to its late 1960s inflation-adjusted level). A minimum wage increase coupled with an expansion of the EITC would increase work effort and after-tax earnings for lower-income workers. Additionally, the budget provides increased support to the Labor Department to combat wage theft by employers (such as an employer not paying overtime). Such protection at the federal level is crucial, given that conservative state legislatures across the country have been pushing new legislation that limits workplace protections and makes it harder for employees to recover lost wages.
The strength of the budget proposal also stems from what was left out. A notable omission is the proposal of indexing Social Security benefits to the chained Consumer Price Index—a policy that would slowly erode the buying power of Social Security benefits, especially for retired and disabled workers. A better policy proposal, and one not included in the budget, would be to index benefits to a price index that better tracks the consumption patterns of the elderly, ensuring that working households can retire with dignity.
For the tens of millions of marginalized Americans – from the long-term unemployed to the working poor – the president’s budget would be a welcome step in removing the barriers preventing them from moving up into the middle class. Now it’s Congress’s turn to act.