The Congressional Budget Office (CBO) issued a new report yesterday, Economic Effects of Policies Contributing to Fiscal Tightening in 2013, confirming the major findings of a recent EPI report.

But, since they have a much larger megaphone than us, it’s useful to use this to reiterate the main points people should know about in discussions over the “fiscal cliff” or, as we call it (for reasons explained below), the “fiscal obstacle course.”

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

First, the problem posed by the fiscal obstacle course is that budget deficits are falling too quickly in the next two years, and public debt is not rising quickly enough. This is thankfully becoming a bit clearer in discussions about all of this, but it’s always useful to reiterate. Often the fiscal problem—too often referred to as a looming “crisis”—is (mis)represented as the U.S. economy being poised on some knife-edge, where the (clear and present) danger of overly rapid deficit reduction in the next couple of years must be solved only if the (speculative and not imminent) danger of projected long-run structural budget deficits crowding out private investment (by increasing borrowing costs) is also simultaneously addressed. This idea that the U.S. economy is poised between these two roughly equal dangers is why the assumption is often made that the fiscal obstacle course can only be solved with some “grand bargain” Read more

This piece originally appeared on Huffington Post

The American public has repeatedly indicated that the health of the economy is their biggest concern. An Associated Press election-day exit poll found that 59 percent of voters considered the economy to be the most important issue facing the country while only 15 percent considered the deficit to be the number one issue. And when voters say “the economy” they mean jobs and the rising cost of living.

President Obama’s re-election depended significantly on America’s growing numbers of racial and ethnic minorities. For these groups too, the economy is the number one issue. An October CNN poll found that 44 percent of Latinos considered the economy to be the most important issue. Only 6 percent mentioned the deficit. Immigration reform ranked second at 14 percent. A survey of black voters in battleground states also found that jobs and wages were top issues for blacks.

Obama received an impressive 11 percentage-point gain in his share of the Asian-American electorate in the 2012 election relative to 2008. This increase in Asian votes helped him win the swing state of Virginia. For Asian-American voters as with other groups, the economy is the number one issue. Read more

This post originally appeared in The Century Foundation’s series “What’s Next? TCF Fellows Look Ahead at President Obama’s Second Term.”

With the end of the 2012 election, policymakers’ focus will pivot to the so-called “fiscal cliff” of legislated spending reductions and expiring tax cuts scheduled for 2013, which are projected to induce a recession if they materialize. So what does President Barack Obama’s re-election imply for navigating the “fiscal cliff,” both in terms of his budgetary proposals’ economic impacts and their political viability?

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

The “fiscal cliff” exposes that the pace of deficit reduction must be moderated to sustain economic recovery. “Cliff,” however, is a terrible metaphor because it implies a false dichotomy; we prefer “obstacle course” as the numerous separable policies should be weighed on their merits. A recent paper I coauthored with my colleague Josh Bivens concluded that the upper-income Bush-era tax cuts and recent estate tax cuts fail any reasonable cost-benefit analysis and should expire; these policies are the least supportive of jobs of all fiscal obstacle course components. Expiration of remaining stimulus measures—notably the payroll tax cut and emergency unemployment benefits—and looming spending cuts from last summer’s debt ceiling deal actually pose the gravest economic drags.Read more

The election results signaled that the implementation of essential financial regulations can go forward, increasing the likelihood of stable and sustained economic growth. Yet despite this fresh indication of support for curbing the excesses of Wall Street (including the  election of Elizabeth Warren, the most powerful consumer advocate in the country and an insightful critic of the financial industry), the lame duck Congress may, under the public radar, act in a contrary fashion. There is some momentum to move forward legislation that would severely hamper financial regulators, over objections by leading regulators at the federal and state level, and without appropriate due diligence about the bill’s effects.

Specifically, one would hope and expect the lame duck Senate to do nothing to compromise the authority of independent agencies like the SEC and the Consumer Financial Protection Bureau as they implement the Dodd-Frank reforms of Wall Street and the financial sector. Nonetheless, as New York Times editorial writer Teresa Tritch warns, the Senate Homeland Security and Government Affairs Committee might quickly take up and approve legislation to diminish the independence of these important agencies and many others, including the Consumer Product Safety Commission and the National Labor Relations Board. Read more

This piece originally appeared on the Huffington Post

Writing in The Washington Post recently, former Sens. Pete Domenici (R-N.M.) and Sam Nunn (D-Ga.) argued that enacting a bipartisan deficit reduction “grand bargain” could be instrumental in addressing the so-called “fiscal cliff” of legislated spending reductions and expiring tax cuts scheduled for the beginning of 2013. A grand bargain could theoretically mitigate the sizable pending fiscal headwinds, but a deal could also close deficits too quickly, pushing the economy into an austerity-induced recession. Nothing in their op-ed or the two grand bargains it references demonstrates how such a compromise could successfully clear the “fiscal cliff.”

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

At its core the “fiscal cliff” represents the macroeconomic reality that budget deficits closing too quickly—and public debt accumulating too slowly—will push the U.S. economy back into recession. The scheduled spending cuts and tax increases comprising the legislated fiscal tightening are separable policies, all with varying budgetary costs and a wide range of economic impacts; we decomposed these à la carte in our recent paper, A fiscal obstacle course, not a cliff. “Cliff” is a terrible metaphor, as it implies a binary choice, whereas each policy should be weighed on its economic impacts and budgetary costs. Government spending cuts are more economically damaging than tax increases, particularly for upper-income households and businesses, but tax increases will drag on growth to varying degrees. Collectively, the legislated fiscal tightening would shave 3.7 percentage points from real GDP growth, and the U.S. would experience a 2.9-percent contraction in the first half of 2013, pushing unemployment back above 9 percentRead more

The New York Times has reported that the nonpartisan Congressional Research Service (CRS) has withdrawn a September report (though it can be found on the Senate Democratic Policy Committee site) that examined the relationship between top tax rates and economic outcomes. CRS made the decision in response to objections raised by Senate Minority Leader Mitch McConnell (R-Ky.) and other GOP senators about the reports “tone and … its findings.”

We’ll leave arguments about tone aside for a moment and focus on the research quality of the report and whether or not the GOP objections have any basis. Spoiler alert: they don’t. The report mostly just confirms what a rich economic literature already has shown: Raising marginal tax rates on the highest incomes just doesn’t have much impact at all on aggregate economic indicators, though it does have considerable impact on inequality.

This is shown in the report through a wide range of descriptive data and scatter plots that show very little obvious relationship between top tax rates and aggregate economic indicators, but which show striking relationships between falling top tax rates in recent decades and the share of overall income accruing to the top 1 percent of households. It then tests to see if these simple two-way relationships hold in a multivariate regression. They do.

So what are the allegedly substantive objections raised by GOP senators to this report? Read more

The Center for Immigration Studies issued an alarming-sounding report yesterday that, at first glance, seemed to indicate that immigrants have gotten most of the jobs during the recovery from the Great Recession. In fact, the great majority of jobs gained back since the recession have gone to natives, but clever cherry-picking of the comparison dates by CIS could trick a reader into believing otherwise.

The following figure from the CIS report tells the story:

Employment declined from 2009, when President Obama took office, to early 2010, continuing the employment shrinkage that began in 2007 and escalated in 2008. Natives, who make up 84 percent of the workforce, took the brunt of the recession’s job losses. Read more

Here’s some of the interesting content that EPI’s research team browsed through today:

• “Nonpartisan Tax Report Withdrawn After GOP Protest” (New York Times)
• “With paychecks, size matters” (Los Angeles Times)
• “Mexico is now a top producer of engineers, but where are jobs?” (Washington Post)
• “Wary of Future, Professionals Leave China in Record Numbers” (New York Times)

Suzy Khimm wrote an excellent post (during a hurricane, no less) earlier this week on the incoherence of those screaming about the alleged dangers of mounting public debt while also fretting about the “fiscal cliff.” To reiterate her point and be very clear (again) on this: The danger of going over the “fiscal cliff” (bad metaphor, by the way) is that budget deficits will fall, not rise, too quickly. This is very confusing to far too many economic commentators and policymakers because they have been trained to a near-Pavlovian degree to think the federal budget deficit is always too high and rising too quickly.

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

This failure to realize that there should be much more to consider when making fiscal policy than “deficit BAD” has been a big problem in dealing with the Great Recession and its aftermath (see this blog post for an extended take on this).

So, I applaud Khimm’s campaign to spread the word that if you’re worrying about the “fiscal cliff,” then you’re a Keynesian, period. Read more

Here’s some thought-provoking content that EPI’s research team enjoyed reading today:

• “A Big Storm Requires Big Government” (New York Times)
• “Mitt Romney’s voodoo spending cuts” (Wonkblog)
• “Scoop Dupes” (Paul Krugman)