One of the persistent criticisms of President Obama’s fiscal plan is that it counts war spending reductions as savings. Basically, the Congressional Budget Office calculates its defense baseline in part by taking the most recent war supplemental (technically called Overseas Contingency Operations, or OCO) and assuming that amount—adjusted for inflation—will be spent each year over the foreseeable horizon. This adds up to about $1.73 trillion over 10 years. The president’s proposal, however, includes only $653 billion in OCO spending over 10 years, for a savings of about $1.1 trillion.

Some critics, however, allege that these savings cannot be counted because the CBO OCO baseline itself isn’t realistic, therefore the savings are not “real.” For example, the Committee for a Responsible Federal Budget (CRFB) argues that counting these savings is a “budget gimmick” that the president uses to “inflate his savings.” According to this critique, another baseline for OCO expenditures should be used—either the president’s budget request or the CBO’s drawdown policy option—which would lower the baseline and make it practically impossible to generate budget savings from reducing war spending.

All due respect to CRFB and the other critics, but this criticism is silly. The CBO OCO baseline isn’t “unrealistic”—rather, it represents the costs of President Bush’s aggressive invasion-centered approach to foreign policy extended into perpetuity. President Obama is, thankfully, in the process of trying to change America’s approach to foreign policy, drawing down troops from Iraq and Afghanistan and moving toward a more multilateral, patient, diplomatic, and most importantly, less expensive approach. Furthermore, the fiscal plan proposes to cap OCO spending, thereby making sure those savings are realized.

President Obama’s foreign policy approach costs less money than President Bush’s, and the budget outlook should reflect those savings.

This week, House Republicans are continuing with their repeated criticisms of EPA regulations as a threat to the economy, and are about to vote on legislation calling for a new panel to study the cumulative effect of certain EPA rules and delaying, perhaps indefinitely, the implementation of two key rules. This stonewalling approach is misguided:  the combined costs of the EPA rules advanced by the Obama administration are not a threat to the economy. Once fully in effect:

• The cumulative compliance costs of EPA rules finalized so far during the Obama administration will amount to between 0.04 percent and 0.07 percent of the economy

(Unless otherwise noted, all the findings in this post can be found in my report from last week).

• The cumulative compliance costs of rules finalized or proposed (assuming all rules proposed so far are finalized) by the Obama EPA will amount to between 0.11 percent and 0.15 percent of the economy.

It is entirely implausible that compliance costs that comprise such a small share — about one-one thousandth — of the economy can have a huge effect on the economy’s direction, but that is what EPA opponents have been asserting for some time. The proposition that these rules are a serious concern for the economy is especially unlikely when one considers:

• The rules would yield significant economic benefits — ranging from increased productivity by healthier workers or consumer savings due to greater fuel efficiency — that partly or in some cases fully offset the compliance costs.
• The costs of EPA rules are often overstated by the government itself (see pages 21-23 of this EPI report from April).
• The rules are phased in over several years, facilitating necessary compliance.

While the overall economic effects of these rules will be negligible, the health benefits will be profound, saving tens of thousands of lives and dramatically reducing respiratory diseases and heart attacks. When these health benefits are quantified in dollars, the EPA rules finalized and proposed so far by the Obama administration have net benefits that could exceed $200 billion a year.

To be sure, some important EPA rules may yet be proposed by the Obama administration, and their costs, and their benefits, should also then be considered. But the evidence to date is clear:  the hue and cry over the effect of EPA regulations on the economy is a counterproductive distraction. The lopsided attention to this topic is making it harder for the nation and Congress to focus on the changes in policies that could actually significantly improve the employment situation.

President Obama’s Super Committee proposal makes the case for $1.6 trillion in new revenue from tax reform that would lower tax rates, close loopholes such as the ones that exist for oil and gas companies, roll back the Bush tax cuts for upper-income earners, and restore fairness in the tax code. Included in this package of revenue policies is something the president has dubbed the “Buffett Rule,” which states that people making over $1 million should not pay lower taxes than those in the middle class.

The Buffett rule is less a specific policy and more of a guiding principal, the concept of which could not come at a more appropriate time. While our income tax code includes six marginal tax rate percentages, the highest-income taxpayers often end up paying lower marginal rates than those in the middle class, because 1) tax subsidies tend to disproportionately benefit high-earners, and 2) the rate at which capital gains and dividends are taxed is much lower than the rate at which wage income is taxed. This is why Warren Buffett pays a lower tax rate than his secretary.

In fact, the highest income households are enjoying some of the lowest taxes in generations. Since 1979, our overall average tax rate has fallen slightly, but for those at the top of the income ladder, the rate has fallen dramatically. While average tax rates went from 22.2 percent of income in 1979 to 20.4 percent of income, for the top 1 percent of households the rate has fallen from 37 percent of income to 29.5 percent of income, a reduction of over a fifth. It’s even more pronounced for the highest income earners: the tax rate for the top 400 households (average income $350 million!) fell from 26.4 percent in 1992 to 16.6 percent 15 years later, a nearly 40 percent reduction.

The diminished tax burden on high income earners has both expanded our deficit and helped make us a more unequal society. The Buffett rule is long overdue.

 Note: Updated figures show that for 2008, the top 400 paid an average tax rate of 18%. This chart reports 2007 numbers because that is the most recent year the Congressional Budget Office offers information for both the top 1% of households and the average tax rate.

President Obama outlined a fairly progressive federal budget proposal for the Super Committee this morning, calling for upfront job creation, more revenue from high-earners, and preserving our commitments to children, the disabled, and the elderly. The proposal represents a balanced and progressive approach that addresses the root causes of our budget deficits, namely the Great Recession, a decade of ineffective and unfair tax cuts, and a decade of unfunded wars. Here’s a quick summary:

— $447 billion for the American Jobs Act
— $1.2 trillion in discretionary cuts (already enacted under the Budget Control Act)
— $1.1 trillion from drawing down troops overseas
— $577 billion from cuts to mandatory programs: about 40 percent are Medicare savings (mostly reducing overpayments), 10 percent are Medicaid/SCHIP savings, and the rest are from agricultural subsidies, federal employee benefits, and recalibrating government fees and program oversight
— $1.6 trillion, including $900 billion from allowing the Bush tax cuts to expire for high-earners and capping tax subsidies
— $436 billion in interest savings

There are many things in here for progressives to like. First, it focuses on job creation, including in the proposal the American Jobs Act that the president released last week. That’s as it should be—a continued downturn makes fiscal balance near impossible. The first step of the Super Committee must be getting the economy back on track, and the AJA is a good start.

Second, the proposal moves toward a more fair and equitable tax code. The guiding principle for reform is the so-called “Warren Buffet rule,” which holds that middle-class Americans shouldn’t be paying a higher tax rate than high-income Americans. Beyond addressing fairness, the proposal acknowledges that considerably more revenue is needed; the alternative spending-cuts-only approach would unacceptably force the brunt of deficit reduction on the backs of poor and working families. Furthermore, the president also issued a veto threat against any legislation that affects Medicare benefits without also including additional tax revenue from high-earners and corporations, a welcome sign that the president actually intends to use his constitutional powers as leverage in the coming negotiations.

Third, the proposal includes savings from winding down the wars in Iraq and Afghanistan. This reflects the fact that the wars in Iraq and Afghanistan are extremely expensive (nearly $1.3 trillion has already been appropriated for these wars over the last decade), and drawing them down entails substantial savings.

Fourth, the proposal generally takes the right approach to reforming health programs, doubling down on the health care reforms in the Affordable Care Act. On Medicare, it focuses on health provider savings while maintaining the commitment to seniors. The Medicaid savings are less positive, as they could shift costs to states and even undermine health care reform. But these proposals stand in stark contrast to the House Republican plan to turn Medicare into a voucher program—leaving seniors to fend for themselves in predatory, broken insurance markets—and cut Medicaid in half over the next two decades.

And fifth, the proposal does not cut Social Security, a recognition of the fact that the program does not impact the deficit over the long run. The president took a firm position that any Social Security reform must be done on a separate legislative track, one that focuses not on deficit reduction but rather on protecting it for future generations.

The outlined budget proposal would provide a counterweight to the lopsided discretionary spending cuts from the Budget Control Act and flip federal fiscal policy from being an obstacle to a force for economic recovery. This budget outline would also stabilize deficits and begin to reduce debt as a share of the economy in a balanced manner consistent with commitments to a fair tax code and economic security programs for children and seniors. Hopefully, the Super Committee will mirror this dual focus of strengthening the economy today and improving the long-term fiscal outlook in a balanced fashion.

As we have pointed out numerous times before, our country is currently experiencing – thanks to the Great Recession and weak recovery – a large jobs shortfall of around 11.2 million jobs. This includes 6.9 million jobs lost since Dec. 2007, plus 4.3 million jobs needed to keep up with population growth that weren’t created because of the downturn.

Presidential candidate Mitt Romney has recently addressed this jobs shortfall, coming out with a jobs plan that he claims would create 11.5 million jobs.

But would Romney’s plan actually create jobs anywhere close to this scale? “Believe in America,” his plan, is heavier on ideological rhetoric than it is on direct job creation solutions. In fact, nowhere in the 160 page plan could I find a stated job creation number – 11.5 million is a number Romney has quoted in public appearances, but it does not appear anywhere in his plan. The math doesn’t just appear to be fuzzy – it appears to be nonexistent. Not surprisingly, attempts to contact the Romney campaign for specifics on the 11.5 million miracle number went unanswered.

So what does Romney’s plan actually propose doing? He makes the George W. Bush-era tax changes permanent, at a cost of around $3.8 trillion over the next decade, and cuts the corporate income tax rate. He repeals the Affordable Care Act and financial regulatory reform. He pursues free trade agreements and creates something called the Reagan Economic Zone, which would basically be a partnership “codify[ing] the principles of free trade at the international level.” He goes after the NLRB and certain labor practices, focuses on private-sector job training, and promises to increase the legal immigration of highly skilled individuals. Finally, he promises to pursue a balanced budget amendment and a strict spending cap, both irresponsible policies that would make it extraordinarily difficult for the government to respond to economic crises. (Sweeping tax cuts coupled with a balanced budget requirement would also force big spending cuts, thereby reducing employment).

So Romney’s plan is really more of a conservative wish list of supply-side policies for stimulating long-term economic growth than a plan to put Americans back to work today or next year (or the year after next). And he relies on assumptions that don’t have a whole lot of foundation – for instance that trickle-down economics works or that it’s unhealthy for the federal government to ever run deficits. He also assumes that giving corporations lower tax rates will create more jobs, even though corporations are currently sitting on $1.12 trillion in cash and liquid investments, and waiting for demand to increase before hiring again. Romney then turns these supply side policies into a boost in near-term activity (4 percent per year for four years, versus 3.4 percent in the Congressional Budget Office’s economic projections). This better-than-expected growth is somehow translated into jobs numbers, without letting us see the math.

He also isn’t clear about what his jobs number means. Is it jobs created in addition to the number of jobs our economy is currently projected to create, or is it total jobs created? This is sort of an important point to clarify. In his speech Romney does say “new jobs,” but in reality a job is new both if it is projected to be created and if it is created on top of the number of jobs already projected to be created. Over four years, 11.5 million jobs breaks down into roughly 240,000 jobs created per month. Though significantly better than recent job creation, 240,000 jobs per month is a fairly modest target. In an economy coming out of a recession, monthly jobs numbers should be more on the order of 300,000–350,000 – something Romney’s plan would likely fall shy of accomplishing (again, it comes down to a short-term vs. long-term policy focus).

Richard Trumka, president of the AFL-CIO and a member of EPI’s Board of Directors, summed up Romney’s jobs plan by saying it can be reduced to two sentences: “Let rich people have a lot more money. And remove regulations and they’ll create jobs.” If we’ve learned anything from eight years of this tactic (2001-2008), it’s that this two-pronged strategy simply doesn’t work.

Sometimes, it’s worth documenting the obvious. A recession causes income losses for families pretty much across the board, but much more so the lower your income. That is, a recession drives up inequality between the top and the middle and the middle and the bottom. The primary driver of this inequality is that unemployment and reduced work hours hits those with low and middle earnings the hardest. We can see that by looking at changes in family incomes along with changes in their earnings and work hours, as we do by income in the figure below for families with children (under 18 years old).

Remember, income includes all the sources of income a family receives, such as: transfer income (e.g., unemployment compensation); dividend, interest or rental income; or earnings. Plus, a family’s earnings depend upon how many people in the family work, how much they work in a year (weeks per year and hours per week) as well as the level of their hourly wages.

The income losses from 2007 to 2010 were pervasive with those in the upper fifth losing 4.3 percent and larger (6.6 percent) losses in the middle and much larger losses (11.2 percent) for the bottom fifth. This is well known, or should be. This inequality is driven by the difference in reduced working time, as family work hours shrunk by 14.0 percent, 11.9 percent and 4.3 percent, respectively, for families in the lowest, middle and upper fifths. Not surprisingly, the pattern of reduced family earnings across income fifths corresponds to that of reduced work hours.

The implications are straightforward. Policies which generate jobs and greater work hours are key to reversing the income declines. Doing so is imperative for the broad middle class but will be especially important for the lowest income families who have seen their work opportunities and their incomes fall the most.

Click the figure to enlarge

David Brooks writes a column with a pretty common theme: macroeconomics as morality tale. His overarching claim is that government is powerless to fight unemployment and near the end he sneers at those who expect some help from policymakers – “Many voters seem to think that government has the power to protect them from the consequences of their sins.”

I’m not much for the religious rhetoric, but if I had to identify any particular group of voters who had sinned, I’d argue that they have indeed been protected from the “consequences of their sins” by government.

I presume, though, that the sins Brooks has in mind is the big increase in household debt associated with the housing bubble? Again, if we’re identifying sinners, I’d nominate first the policymaking elites who didn’t just fail to see the housing bubble – they saw it and urged households to pile up more debt to keep it going. And I don’t see those guys facing severe consequences, outside of some mockery.

More important than the fact that his moral compass doesn’t seem to distinguish well between malefactors versus victims of the financial crisis, Brooks has the economics all wrong. Yes, household spending and residential construction collapsed when home prices fell, and the rest of the economy followed. What’s the “consequence” of this that government is allegedly unable to protect against? Less spending. Period.

Is the government really incapable of spending? It wasn’t that long ago that Brooks was lamenting the rise in spending in recent years. Or is it that government spending, unlike private spending, somehow doesn’t create jobs? But it does.

Brooks hand waves about how financial collapses in the past have led to long and brutal downturns as evidence that government is powerless. Actually, that’s just evidence that governments foolishly listened to counsels like Brooks in the past. We now know (or we should know) better.

William Gale, co-director of the Tax Policy Center, has dusted off a five-year-old plan to convert tax deductions for retirement savings into flat-rate refundable credits. Gale’s new proposal, like the one he co-wrote in 2006 with Jonathan Gruber and Peter Orszag, would make 401(k) subsidies less skewed toward high-income households.

In the new paper, Gale proposes a version that would raise tax revenues by $450 billion over 10 years by reducing the proposed government match from a revenue-neutral 30 percent to a revenue-raising 18 percent. These savings, which would come primarily from cutting tax breaks for households in the top income quintile, could stave off deeper cuts to other government programs or fund the president’s proposed jobs bill.

This seems like a no-brainer, and from a pure policy perspective, it is. Current tax breaks are very poorly targeted. For the same dollar contribution to a 401(k), high-income taxpayers in the 35 percent tax bracket get a tax break that’s three-and-a-half times larger than the tax break received by moderate-income taxpayers in the 10 percent bracket. Combined with the fact that high-income households can afford to save more, the result is that an estimated two-thirds of these tax breaks go to households in the top 20 percent of the income distribution. And since most high-income households are already saving, they can simply steer funds into tax-favored accounts, which is why “tax break” rather than “tax incentive” is the more accurate term.

Gale touts his plan as a progressive one, and in a sense it is, since it would reduce the cost of a highly regressive tax break while potentially easing the pressure on essential government programs. But there’s a difference between “less regressive” and “progressive.” Most of the subsidies would still flow to high-income households who can afford to save more and who also tend to get more help from their employers.

An 18% government match will not change the fact that high-fee, high-risk, 401(k)s are not an affordable retirement vehicle for low-income or even middle-income families. And since the funds are still taxed when they’re tapped for retirement, the value of the tax break remains tied to investment returns. (It helps to think of the tax break as a no-interest loan from the government, the value of which depends on how much you make investing the funds). This also tends to favor higher-income households who can afford to take on more risk.

If Gale’s plan isn’t a solution to the retirement crisis facing our country, isn’t it at least an improvement over the current system? Certainly, as long as it’s not oversold. Tweaking a broken system can forestall more far-reaching reforms. (This might partly explain why Orszag, in his new role as a Citigroup vice chairman, is still free to tout the plan). A more imminent concern is the fact that Gale promoted his plan at a recent Senate hearing as a way to help soften the blow of what he characterized as unavoidable Social Security cuts.

It’s also too bad that Gale proposed a lower government match rather than reducing the contribution limit. The 2001 Bush tax cuts increased the contribution limit from $10,500 to $15,000 and introduced a higher “catch-up” contribution for older workers (these limits are now indexed for inflation). Few middle-class households can afford to contribute $10,500, let alone the current limit of $16,500 (or $22,000 for those 50 and older). Lowering these limits but keeping the 30 percent match would be more progressive and have a real incentive effect, as middle-income households might actually increase their retirement saving, as opposed to high-income households simply shifting money around.

For more than 75 years, the National Labor Relations Board has had the power to protect employees in their right to organize by ordering employers to return operations that the employer moved in retaliation for the exercise of protected rights. This power has always been recognized and has been exercised by Republican appointees, including, in 1987, those of President Reagan, who ordered an employer that refused to bargain in good faith to return work to a warehouse operation it had closed (Century Air Freight).

Yet the Chamber of Commerce and the House Republican leadership want people to think that the NLRB affirming this same anti-retaliatory principle in the Boeing case is something extraordinary, that it is a new assertion of government power by the Obama administration, which is bending over to do a favor for its union friends. Accordingly, House Republicans are advancing legislation that would overturn long-established labor law and prevent the NLRB from “ordering any employer to close, relocate or transfer employment under any circumstances.”

The media have failed to point out that these assertions of newly exercised, politicized authority are objectively false, and instead, have given full expression to the campaign of inaccuracies and misstatements. Even Steven Greenhouse in the New York Times falls into this trap, though he does point out that moving work to retaliate against the exercise of protected rights is illegal.

To get to the actual facts of this matter, I am printing the section of the NLRB General Counsel’s report from 2006 that deals with the NLRB’s power to restore the status quo when work has been relocated in violation of the National Labor Relations Act. The author was Arthur F. Rosenfeld, who served as General Counsel from June 2001 to Jan. 2006, and who was not just a George W. Bush appointee, but had served as counsel to Senate Republicans on the committee with jurisdiction over the NLRA and the NLRB.

Mr. Rosenfeld stated: “We typically seek an order restoring the prior operation and prohibiting similar conduct in the future. Such relief is necessary because, when these actions unlawfully eliminate all or large portions of an operation and the jobs of unit employees, they undermine the status of an incumbent union or one seeking recognition.”

So is Obama’s NLRB overreaching and creating some new extraordinary power for the government? Clearly not. Even under Republican administrations, ordering an employer to move work back after it had been relocated illegally was “typical.”

Here is the relevant section of Rosenfeld’s 2006 GC Memorandum:

3. Subcontracting or other change to avoid bargaining obligation

These cases involve an employer’s implementation of a major entrepreneurial-type decision that adversely affects unit employees: for example, subcontracting or relocating entire plants, departments, or product lines. Such changes can be discriminatorily motivated, i.e., designed either to interfere with a union organizational campaign or to escape from an incumbent union, and thus violative of Section 8(a)(3).⁷ The change can also be independently violative of Section 8(a)(5) if undertaken without satisfying an employer’s bargaining obligation to an incumbent union. We typically seek an order restoring the prior operation and prohibiting similar conduct in the future. Such relief is necessary because, when these actions unlawfully eliminate all or large portions of an operation and the jobs of unit employees, they undermine the status of an incumbent union or one seeking recognition. Moreover, an interim restoration order preserves the Board’s ability to issue (and courts to enforce) a final order restoring operations without it being too burdensome for the respondent because of the passage of time or the prior alienation of the old facility or equipment.Based upon these considerations, courts have granted interim restoration of operations in these situations. See, e.g., Maram v. Universidad Interamericana de Puerto Rico, Inc., 722 F.2d 953 (1st Cir. 1983); Aguayo v. Quadrtech Corporation, 129 F. Supp.2d 1273 (C.D. Ca. 2000). In certain cases the courts have granted a less drastic interim remedy of preventing the sale or alienation of a facility pending a Board decision. See, e.g., Hirsch v. Dorsey Trailers, Inc., 147 F.3d 243 (3d Cir. 1998). See also Dunbar v. Carrier Corp., 66 F. Supp.2d 346 (N.D.N.Y.), stay denied 66 F. Supp.2d 355 (N.D.N.Y. 1999).

The single case authorized by the Board in this category during the reporting period involved the discriminatory relocation of unit work. The case was successfully resolved with a Board settlement.