Yesterday, the Congressional Budget Office (CBO) released their updated budget baseline in the February 2013 Budget and Economic Outlook report.  One interesting takeaway is that projected deficits for the new ten-year budget window are $7 trillion, whereas last August the agency projected $2.3 trillion in total deficits over 2013-22.1 Why such a large change in projected deficits?

First of all, the August baseline assumed the expiration of a variety of tax provisions, including the Bush tax cuts, the Alternative Minimum Tax patch, a variety of business tax extenders, indefinite war spending, a massive cut to Medicare doctors’ payment rates, and sequestration. Though CBO always calculates these baseline projections with respect to current laws, it was clear that this was not a realistic baseline and that the current policy baseline was a more accurate depiction of likely ten-year budget projections.

Secondly, each time the CBO updates their baseline budget projections, they take into account legislative, economic, and technical changes that have occurred since the previous update—changes that impact the size of projected surpluses or deficits. In this instance, passage of the American Taxpayer Relief Act of 2012 (ATRA) caused enormous changes that pretty much explain the entire increase in projected deficits (excluding debt-service costs, ATRA boosted projected deficits by $4 trillion). ATRA impacted future revenue levels by:

• Permanently extending the Bush income tax rates for all income under $400,000 ($450,000  for joint filers); a provision that, though helpful for lower-and middle-income earners while the economy remains depressed, is already proving to be very costly down the road.Read more

Congressional Progressive Caucus (CPC) Co-Chairs Rep. Keith Ellison (D-MN) and Rep. Raúl Grijalva (D-AZ) have introduced the Balancing Act of 2013 (H.R. 505) which presents an evidence-based approach to two imminent challenges actually facing policymakers: preventing what is intentionally terrible budget policy from taking effect, and preventing budget policy from exacerbating the jobs crisis and counterproductively delaying a return to full employment.

Broadly speaking, their bill would replace the entirety of the pending automatic “sequestration cuts”—now legislated to commence March 1—with $948 billion in progressive revenue (much of which was proposed in the CPC’s budget fiscal 2013 alternative, the Budget for All) coupled with $276 billion in near-term economic stimulus, paid for with $278 billion in cuts to spending by the Department of Defense. Replacing the sequester with revenue would bring net spending cuts and revenue increases roughly to a 1:1 ratio, and the DOD spending reductions would bring nondefense and defense discretionary spending cuts to a 1:1 ratio (measuring deficit reduction since the start of the 112^th Congress, notably $1.5 trillion in discretionary spending cuts and $633 billion in policy savings from the lame duck budget deal). And most critically, the bill would balance deficit reduction with near-term measures boosting growth and employment, while making the composition of deficit reduction less economically damaging than scheduled.Read more

With the recent news that both the United Kingdom’s and United States’ economies contracted last quarter—the U.K. by a large 1.2 percent annualized rate and the U.S. by a much smaller 0.1 percent—it’s a good time to revisit the contrasting economic situations in the U.K. and the U.S. to show just how dangerous austerity is to economic growth. First off, both countries fell into recession by experiencing a similar housing market shock, and the central banks of both countries engaged in responses of similar magnitude. And between the second quarter of 2009 (the trough for both countries) and the third quarter of 2010, both countries grew at similar rates: 2.2 percent annualized real growth for the U.K., and 2.5 percent annualized for the U.S. (according to OECD data).

But in the summer of 2010, the newly-elected conservative-led coalition government of the U.K. passed and implemented an aggressive austerity budget. This budget was heavily weighted toward spending cuts—nearly 80 percent of the total fiscal consolidation—and included a 25 percent cut to non-health domestic departmental spending by 2014-15. Tax increases accounted for the remaining 20 percent, including increases in the value-added tax (essentially a sales tax). In total, this fiscal consolidation represented 2.2 percent of U.K. GDP by 2014-2015. Combined with the previous government’s planned austerity, the overall fiscal consolidation implemented totaled 6.3 percent of GDP.

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The Pew Hispanic Center estimates that 45 percent of unauthorized immigrants crossed the border legally, but overstayed their temporary work or tourist visas, which means that almost half of unauthorized migration won’t be impacted at all by more Border Patrol agents, surveillance drones, or additional miles of border fencing. That’s why the additional funding proposed for border enforcement in the immigration proposals put forth by President Obama and the “Gang of Eight” Senators is misguided. Instead, some of those funds would be better spent by first, legalizing and fully integrating unauthorized immigrants into the fabric of American society, and then by investing in the creation of a functioning electronic employment verification mechanism. New funds should be devoted to increasing the level of labor standards enforcement by the agencies of the U.S. Labor Department. This is the only way to prevent future unauthorized migration.

It is encouraging that both immigration proposals offer a pathway to citizenship for unauthorized immigrants. Legalization will ensure that five percent of the labor force is no longer exploitable and that unauthorized workers do not degrade the wages and working conditions of U.S. workers. But the proposals ignore the reality that according to almost every conceivable metric, the southern border is more secure than it has ever been, and cities near the southern border are some of the safest in the country. Last year, $18 billion in taxpayer dollars was spent on securing the border—perhaps it was worth it, based on these results—but we might have reached the point of diminishing returns.

Compare this to the $1.6 billion that was spent in 2012 on enforcing labor laws and regulations, to protect 135 million workers, despite rampant wage theft of low-wage workers and alarmingly high levels of work-related injuries, illness, and deaths. Employer subcontracting to avoid accountability and employees being misclassified as independent contractors are also widespread problems in the workplace; they are tactics businesses use to exploit workers and escape liability when they circumvent labor and immigration laws, and to avoid paying payroll taxes and worker’s compensation insurance premiums. If a new comprehensive immigration law does not invest heavily in enforcing labor standards and tackling these problems, they are likely to continue. Read more

President Obama and a group of eight Senators (also known as the “Gang of Eight”) have each released sets of principles for reforming our immigration system. Their courage and hard work to fix our long-broken immigration system should be applauded. Both plans rightly focus on granting a path to citizenship for the unauthorized immigrant population—which will allow more than 5 percent of the U.S. labor force to come out of the shadows and the underground economy. This will level the playing field for all workers (as well as the firms that employ them) and end the exploitation of foreign workers who labor without the protections offered by most labor and employment laws.

MORE: Key EPI research on immigration

What has not been discussed to a large extent—and which the president and the Gang of Eight’s frameworks do not yet address in detail—is how we manage future flows of immigrant workers, and how we fix the poorly functioning programs employers use to hire workers from abroad. Any acceptable and successful comprehensive solution to our immigration system will hinge upon this.Read more

There is a rapidly-forming consensus that policymakers should commit to specific levels of deficit reduction over the next 10 years. At a press conference earlier this month, President Obama endorsed a specific 10-year savings target of $1.5 trillion, arguing that two years ago there was a consensus that “we need[ed] about $4 trillion to stabilize our debt and our deficit, which means we need about $1.5 trillion more.” This is consistent with the Center on Budget and Policy Priorities’ recommendation that  $1.4 trillion in deficit reduction (including interest savings) over the next 10 years be targeted to stabilize the debt ratio (federal debt as a share of total gross domestic product).

Various commentators such as Martin Wolf of the Financial Times and Paul Krugman of the New York Times have noted that this amount of deficit reduction is modest, and consequently suggest that policymakers instead focus on the more pressing priority of job creation and rapidly lowering unemployment. But the case for turning to job creation is even stronger than perhaps they realize: this analysis shows that the debt ratio can be stabilized with less than $1.4 trillion. And more importantly, there actually isn’t a single minimum target necessary; if coupled with near-term stimulus, the debt ratio could be stabilized without any deficit reduction whatsoever. Read more

Here are a few links that EPI’s research team clicked through today:

• “We all agree that spending cuts hurt the economy. Right? Right.” (The Plum Line)
• “Diagnosing the ‘GDP problem‘ (The Maddow Blog)
• “‘Pease’ Provision in Fiscal Cliff Deal Doesn’t Discourage Charitable Giving and Leaves Room for More Tax Expenditure Reform” (Center on Budget and Policy Priorities)

Amid signs that the Maryland economy is slowly improving, lower-income earners continue to struggle. Maryland has now gained back more than four of every five jobs lost during the recession, yet population growth since December 2007 means that the state needs to create more than 180,000 jobs just to get back to the unemployment rate preceding the recession.1 Raising Maryland’s minimum wage would put much-needed money in the pockets of Maryland’s low-income workers, particularly important in a state where low wages (i.e., wages at the 20^th percentile) declined by a nation-leading $1.20 between 2009 and 2011.2  Senator Robert J. Gargiola and Delegate Aisha Braveboy have introduced legislation this year to raise Maryland’s minimum wage from the current $7.25 per hour to $10.00 in 2015, increasing the tipped minimum wage from 50 percent to 70 percent of the full minimum wage, and indexing both wage rates to rise automatically with the cost of living. The data show that this proposal would improve the well-being of working families in Maryland, while injecting almost half a billion dollars into the economy.

Download the PDF version of this analysis

This paper provides an overview of the economic impact and demographic details of the workers who would benefit from the proposed increase in the minimum wage, examining their gender, age, race and ethnicity, educational attainment, work hours, family composition, and other characteristics.  It also details the estimated economic activity and job-creation impacts that would result from an increase in the Maryland minimum wage to $10.00.

Key findings include:

– Increasing the Maryland minimum wage to $10.00 by July 2015 would result in raised wages for over half a million (536,000) Maryland workers—roughly one in five workers in the state. These workers would receive $778 million in additional wages over the phase-in period. Read more

In a CNN opinion piece published Jan. 28, Tamar Jacoby, the president and CEO of ImmigrationWorks USA, shows amazing disdain for the one-third of Americans working low-wage jobs. She claims that they shouldn’t want the jobs they have because they can find more productive and better paying work. Jacoby thinks a job as a home health aide is beneath the aspirations of native-born Americans. So much for the dignity of work!

Dr. Martin Luther King Jr. criticized Jacoby’s way of thinking about “low productivity” work in a famous speech to striking sanitation workers just before he was assassinated:

If you will judge anything here in this struggle, you’re commanding that this city will respect the dignity of labor. So often we overlook the worth and significance of those who are not in professional jobs, or those who are not in the so-called big jobs. But let me say to you tonight, that whenever you are engaged in work that serves humanity, and is for the building of humanity, it has dignity, and it has worth. One day our society must come to see this. One day our society will come to respect the sanitation worker if it is to survive. For the person who picks up our garbage, in the final analysis, is as significant as the physician. All labor has worth.

The fact is that 40 million Americans work in extremely low wage jobs and are either grateful to have them or unable to find anything better. It’s shocking Read more

Today’s GDP report was unexpectedly disappointing, but the economy is likely not entering recession. The downward drag on GDP growth that pushed into negative territory was mostly exerted by changes in private inventories (which are volatile and unlikely to provide a consistent drag on GDP going forward) and a large reduction in defense spending that is also unlikely to be repeated.

The large drag imposed by this defense cutback, however, illustrated the valuable point that fiscal contraction is contractionary: When government spending drops, the economy suffers.  The rest of the economy is simply not growing strong enough to make up for losses in demand due to government spending cuts. And while the defense drag this quarter was extraordinarily large, the trend has been steadily declining public support to the economy for some time now.

The downward trend in government spending can be illustrated by taking a look at current government expenditures, relative to potential gross domestic product. We look at expenditures as a percent of potential GDP because it does not allow a decline in actual GDP (or a slowdown in its growth) to make this ratio look bigger. What we’re looking for is a policy-induced rise (or failure to rise) in the importance of public spending, and expressing this spending as a share of potential GDP better isolates this policy effect. Read more