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

Here are a few of the links that EPI’s research team clicked through during the last couple of days:

• “Payroll Tax Cuts May Boost the Economy More than You Think” (TaxVox)
• “U.S. Income Inequality Worse Than Many Latin American Countries” (Huffington Post)
• “Nicholas Stern: ‘I got it wrong on climate change – it’s far, far worse‘” (The Guardian)
• “Obama wants to tackle poverty and inequality. So why is his economic team so focused on the deficit?” (Washington Post)
• “Failures” (Paul Krugman)
• “Your Biggest Carbon Sin May Be Air Travel” (New York Times)
• “The Force: How much military is enough?” (New Yorker)

The cash balance retirement plan Louisiana Gov. Bobby Jindal recently signed into law for state workers was declared unconstitutional by a state district judge because it did not pass the Louisiana House of Representatives with a two-thirds majority. The cash balance plan would shift considerable risk onto workers without addressing the issue of unfunded liabilities caused by elected officials’ failure to keep up with required contributions.

Jindal has announced that he will appeal the decision. But this isn’t the only legal challenge the plan faces. The IRS is also considering whether the plan fails the Social Security equivalency test, which exempts some public-sector workers from participating in Social Security as long as government employers provide a retirement benefit at least equivalent to Social Security benefits. As Michelle Chen wrote in an In These Times blog post, Republicans around the country are using “pension panic” to push through policies that are both half-baked and anti-worker.

In the aftermath of the American Taxpayer Relief Act of 2012 (i.e., the lame-duck budget deal, ATRA for short), many in Washington have urged 10-year deficit reduction targets that are trillions more than the $600 billion reduction already locked in by ATRA. While many of these calls for increased deficit reductions have been inchoate (as noted here), others have been more reasonably grounded. Yet, we think that nearly all demands for specific, ambitious 10-year deficit reduction targets are likely to be terribly counterproductive in the current debate

The primary reason for this is simple: Without a sharp focus on when and what kind of deficit reduction should happen, these calls can easily lead policymakers to embrace measures that will surely hamper economic recovery. And this recovery should be the primary focus of these policymakers. The output gap in 2012—essentially the difference between actual economic output and output that would have been produced had all productive resources in the economy been put to work—will likely register just shy of $1 trillion, or 5.6 percent of the economy. This is $1 trillion in national income that the country is forfeiting each year simply due to the continued weakness in aggregate demand—weakness that would likely be exacerbated by any aggressive deficit reduction in the next few years. This depressed state of the economy makes the timing and composition of any proposed deficit reduction crucial. And yet these crucial details are generally not a primary focus in 10-year deficit reduction targets that are dominating the debate.

In regards to timing, deficit reduction that imposes a drag on growth really should not begin at all until the economy moves much closer to full employment. Read more

Via Ezra Klein comes a must-read leaked memo from Senate Budget Committee Chairwoman Patty Murray (D-Wash.) to Senate Democrats ahead of fashioning a Senate Budget Resolution. It’s an excellent chronology of the deficit reduction enacted in the 112th Congress—a hefty $2.4 trillion expected to take effect and $3.6 trillion if sequestration goes into effect—and the looming phases of the Beltway budget fights following the American Taxpayer Relief Act (i.e., the lame-duck budget fight, or ATRA for short).1

Klein hones in on tables depicting the fundamentally unbalanced nature of deficit reduction in the 112th Congress: Ignoring sequestration, 70 percent of policy deficit reduction measures (i.e., excluding additional debt service savings) enacted came from spending cuts as opposed to revenue, and if sequestration takes effect as scheduled, the share of spending cuts ratchets up to 80 percent. Murray’s memo contrasts these ratios with a 51 percent revenue share proposed by the Simpson-Bowles Co-Chairs’ report and 52 percent in the Senate’s bipartisan “Gang of Six” proposal. Hence Murray’s conclusion:

“Revenue Must be Included in Any Deal. Tackling our budget challenges requires both responsible spending cuts and additional revenue from those who can afford it most.”

She’s absolutely right, but the memo hits only on the budgetary half of why compositional balance is important. Accepting on face value that the 113th Congress will pursue more deficit reduction measures (more forthcoming from us on this premise)—at the very least replacing sequestration in chunks or entirety—including progressive revenue is critical for minimizing the economic drag of austerity. Read more

In a new, well-documented report, Immigration Enforcement in the United States: The Rise of a Formidable Machinery, the Migration Policy Institute (MPI) calculated that the government’s price tag for immigration enforcement in 2012 was $18 billion. The report made headlines by highlighting the fact that this figure amounts to 24 percent more than it costs to fund the five main U.S. law enforcement agencies combined. But MPI offered another important juxtaposition in the report that has failed to receive much attention: the abysmally low level of funds the government commits to enforcing labor standards and protecting the rights of workers in the United States.

MPI reviewed the budgets of the National Labor Relations Board (NLRB) and the Labor Department’s Wage and Hour Division (WHD) and Occupational Safety and Health Administration (OSHA), concluding that in 2010, the “combined budgets for [the] three main federal labor standards regulatory agencies was $1.1 billion … compared to the $17.2 billion budgets for DHS’s two immigration enforcement agencies.” Analyzing the most recent federal budget data available, EPI has found that even when including additional federal agencies whose primary purpose is to enforce labor standards (the Mine Safety and Health Administration (MSHA), the Office of Federal Contract Compliance Programs (OFCCP), and the National Mediation Board (NMB)), in 2012, the total amount Congress appropriated to enforce labor laws and regulations amounted to only $1.6 billion—about 9 percent of what was spent enforcing immigration laws last year.

The labor enforcement agencies are staffed at only a fraction of the levels required to adequately fulfill their missions.Read more