It’s President’s budget day in here in the nation’s capital and while I believe there’s a lot to be said about what’s coming in the budget proposal for fiscal year 2015, I’ll grant that Lori Montgomery makes some good points in her piece entitled: “Five reasons Obama’s budget matters even less than usual this year.”
For reasons I’ll explain in a moment, I disagree, but some of her points are well taken. First off, like all of his other budgets, this one will not become law (and, of course, the same should be said of the House Republicans’ budget).
Second, the Murray/Ryan budget deal from the end of last year already set top line discretionary spending levels for 2015, though of course they could be changed by subsequent legislation.
In the wake of the government shutdown in October, Rep. Paul Ryan (R-Wisc.) and Sen. Patty Murray (D-Wash.), the heads of the House and Senate budget committees respectively, brokered an agreement to keep the trains running through September 2015. That agreement did one of the most important things a budget needs to do on Capitol Hill: It informed the appropriations committees how much money they have to spend. Obama’s budget request will offer a vision for how to apportion the money — roughly $1.1 trillion — among the various federal agencies, but the big question is already settled.
Still, you’ve really got to view these documents as aspirational and as such, representative answers to the most existential questions of our current politics: what is the role of government, how large should that role be, how should it be financed, what is the balance between austerity and investment in public goods, in what ways is the market failing to meet the needs of broad swaths of the population and which are the best policies to meet those market failures?
You don’t follow this news today to see what’s going to become law in the near term. You do so to learn the terms of debate, in this case from the administration, a debate that will be ongoing for many months to come. This year, those terms promise to be particularly germane because the President’s budget will build on the ideas he put forth in the State of the Union address, around inequality and opportunity.
Thus, you will see the administration chafing at the bit of unsustainably tight budget caps on discretionary spending (which, to be fair, they helped to create) and proposing spending to relax those caps to invest more in manufacturing, worker training, preschool, and more. You will see an exciting proposal to significantly expand the part of the Earned Income Tax Credit that goes to childless adults, an idea that has some bipartisan support (though the sticking point will of course be “wherefore the payfor”—the expansion costs $60 billion over 10 years; the WH will propose closing some loopholes that benefit wealthy taxpayers, like the “carried interest loophole,” another way in which the proposal pushes back on income inequality).
These arguments are as old as the Republic itself; they’re Hamilton v. Jefferson; YOYOs v. WITTs. Sure, when the news is coming from dysfunction junction down here in DC, there are reasons to be skeptical and even cynical. But to go there—to disengage from this existential debate—is not only a serious mistake. It is a politically biased mistake that supports those who would very much like you to disengage so they can continue to diminish the role of government and ignore the growing inequality of opportunity that strikes at the heart of America’s best aspirations and values.
So get ready to get your budget-wonk on and follow here and at CBPP.org throughout the next few days.
I’ll try to say something in new in my continuing critique of Paul Ryan and Jared Bernstein’s favorite government anti-poverty program, the EITC (Earned Income Tax Credit). Giving money to adults without children who presumably can work full time only makes more transparent the real goals of Republicans in promoting EITC. It becomes ever more so a wage subsidy program that enables businesses to pay substandard wages. The existing program severely limits benefits to adults without children, the credit topping out around $500 vs. $5,500 for three children. I would argue this is a feature, not a bug.
As stated before, a mere $2.50/hour increase in the minimum wage would cover the maximum amount of the credit, at no cost to the government, and substantial savings to the existing EITC. For higher income levels, the boost in the minimum would have a ripple effect boosting those levels too. The cost would be born by business owners, and partly passed on to consumers, creating some mild inflation, but lessening inequality.
Where one might argue the EITC has an actual purpose, not obviated by raising wages, is helping families where the number of work hours is limited, so it is the hours worked resulting in substandard income levels, vs. inadequate wage rates. One can see this effect most clearly in the post on Krugmans blog, page 13, Incentive Effects. https://webspace.princeton.edu/users/pkrugman/Fighting%20poverty.pdf Assuming I’m reading the table correctly, families fall into poverty because they don’t or can’t work enough hours. 40 hours/week x 50 weeks per year would equal 2000 hours. At $7.25/hour, that’s $14,500 and poor, but with a new minimum of $10.00/hour that’s $20,000 and no longer poor (single parent and two children http://aspe.hhs.gov/poverty/14poverty.cfm ) However Paul’s table tells you they’re working half those hours on average. One guesses aside from poor labor market, the hours has a lot to do with having children. With no children, full time work lifts one out of poverty, dollars are better spent creating more jobs to tighten labor market than subsidizing businesses.
Of course, the problem above with hours could also be partly better addressed with free childcare. Additionally, laws to mandate paid maternity/paternity leave would aid a single parents return to employment. Encouraging more flexibility in employment hours would also help.
Part of the idea of government targeting aid to children is that this is an investment which will pay off later by ensuring productive (and tax contributing) members of society. Another perhaps more important consideration is that children should not be penalized just because of the circumstances of their birth (poverty, or single caregiver vs. two caregivers and/or incomes, family wealth). These considerations are lacking in increasing (it’s not expanding) benefits to single income earners. They need higher minimums, more jobs, and opportunities for skills improvement instead.
Why would Democrats favor increasing EITC for single earners? Cynically one presumes they know business interests favor it, and Democrats are only less corrupt than Republicans in relative terms. It does also help the poor, who are an important constituency. But in the long run, the poor are not helped by more corporate welfare. Raising EITC relieves pressure to address poverty with the proper progressive solutions. The wage subsidy also lowers wages for everyone, hurts businesses offering fair wages, and partly counters the effect of a higher minimum (because the subsidy tapers practically all the way to the median).
Finally, I’ll allow myself to repeat the most convincing argument perhaps. Reagan and Bush, and most recently Paul Ryan and Greg Mankiw favor EITC. What does that tell you?
There’s an unfortunate ambiguity, omission, error, in the term I used above towards the end of the comment. The term “single earners” by itself was meant to be “single earners without children” (or dependents) and I should be more clear in making these statements.
“These considerations are lacking in increasing (it’s not expanding) benefits to single income earners.” (without children)
“Why would Democrats favor increasing EITC for single earners?” (without children)
I have finally decided that citizen welfare is really corporate welfare:
Welfare for citizens == welfare for corporations?
I firmly believe we need a strong social safety net and because of that I now believe we need a minimum wage that translates to a living wage.
I just want to thank you for your time blogging because I really look forward to them, Mr. Bernstein. I’ve got a lot of reading to catch-up on and your writings are refreshing.