The Progressive Caucus Budget Blueprint Increases Public Investments to Target Full Employment and Faster Productivity Growth

WASHINGTON - An EPI Policy Center analysis of the Congressional Progressive Caucus’s The People’s Budget: Prosperity Not Austerity, a budget alternative for fiscal 2017, shows that if adopted, the budget would raise incomes for middle-class and low-income Americans. The fiscal boost provided by the People’s Budget would increase GDP by 3 percent and create 3.6 million jobs over the first two years of its implementation, so long as the Federal Reserve accommodated this stimulus. It would bring us to 4 percent unemployment by 2018, while boosting long-run productivity growth through public investment. The budget reduces the deficit beginning in fiscal 2017 relative to CBO’s current law baseline and would achieve primary budget balance and sustainable budget deficits in fiscal 2018 and beyond.

“The big boost to public investment that the People’s Budget provides will help address two of the most glaring problems in the American economy today: a still-incomplete economic recovery and decelerating productivity growth.” said EPI budget analyst Hunter Blair. “Further, the budget’s target of genuine full employment is essential if low- and middle-wage workers are going to see significant gains in hourly pay in coming years.”

The EPI Policy Center analysis finds that The People’s Budget would have significant, measurable, positive impacts. Specifically, it would:

• Finally complete the economic recovery. The People’s Budget would sharply accelerate economic and employment growth, boosting GDP by 3 percent and employment by 3.6 million jobs in the near term. This would both close the CBO estimate of the output gap and (if the Fed accommodated) achieve genuine full employment with the unemployment rate reduced to 4 percent.
• Make necessary public investments. The budget finances roughly $295 billion in job creation and public investment measures in calendar year 2016 alone and roughly $565 billion over calendar years 2016–2017, which will rapidly reduce labor market slack and restore the economy to full health. Further, the budget continues strong public investments even after full employment is achieved, which would help reverse recent declines in productivity growth.
• Facilitate economic opportunity for all. By expanding tax credits and other programs for low- and middle-wage workers, boosting public employment, and offering incentives for employers to create new jobs, The People’s Budget aims to boost economic opportunity for all segments of the population, including those left out of the current recovery.
• Strengthen the social safety net. The People’s Budget expands and extends emergency unemployment benefits and increases funding for education, training, employment, and social services as well as income security programs and proposes benefit enhancements, not cuts, in social insurance protections..
• Smartly cut spending. The budget focuses on modern security needs by repealing sequestration cuts and spending caps that affect the Defense Department but replacing them with similarly sized funding reductions that are less front-loaded and will allow more considered cuts.
• Increase tax progressivity and adequacy. The budget restores adequate revenue and pushes back against income inequality by adding higher marginal tax rates for millionaires and billionaires, equalizing the tax treatment of capital income and labor income, restoring a more progressive estate tax, eliminating inefficient corporate tax loopholes, levying a tax on systemically important financial institutions, and enacting a financial transactions tax, among other tax policies.
• Reduce the deficit in the medium term. The budget increases near-term deficits to boost job creation, but reduces the deficit in fiscal 2017 and beyond relative to CBO’s current law baseline. In later years the budget reduces the ratio of debt to GDP when the economy is at full employment.

EPI will release a paper on Wednesday, March 16 which provides further evidence that the U.S. economy would still benefit from a fiscal boost, even with the progress made so far in recovering from the Great Recession. This paper will also provide empirical support for the view that conventional measures understate the degree of slack remaining in the U.S. economy, and that the 4 percent unemployment target in the People’s Budget should be adopted.