Budget Blog

One of the most important parts of responsible budgeting is looking ahead to the future and responding appropriately to changing circumstances. And in order to do that successfully, policymakers must rely on clear and consistent budget projections and cost estimates that are as fair and as accurate as possible. Without such information, it would become impossible to make smart fiscal choices. Unfortunately, the House of Representatives this week is considering three separate bills that, together, would significantly undermine all four key characteristics of useful budget numbers, resulting in projections and estimates that are less fair, less accurate, inconsistent and unclear. Enacting this package of legislation would make it more difficult to implement responsible policies that adequately address all of our fiscal and economic challenges.

Today, the Senate is expected to vote on bipartisan legislation to restore long-term unemployment benefits, which would help workers as they struggle to get back on the job. The bill would then move to the House of Representatives for consideration. At the Senate Budget Committee’s recent hearing, award-winning economist Dr. Raj Chetty explained how unemployment benefits help workers, communities, and the economy. Watch excerpts from the hearing:

Responding to a question from Chairman Patty Murray, Dr. Chetty refuted the claim that unemployment benefits create disincentives for people to work.

MURRAY: What can you tell us about the effect of unemployment benefits on families and the economy?

CHETTY: The concern that many people voice is that when you extend unemployment benefits, as has been voiced here, you potentially reduce the incentive for families to return to work… Now while [economic] theory says that that effect could be small, could be large, we now have good data that allows us to actually study what happens empirically in practice. And the best data - there are now numerous studies, using millions of data points - which indicate that these disincentive effects, while they exist, are quite small.

So when you extend unemployment benefits by say 10 weeks, you extend the amount of time that people stay out of work quite modestly. And even the longer time out of work that occurs appears to be driven by people trying to find a better job - a job that might work better for their skill set - taking advantage of those longer benefits to find the right match that ultimately will help the economy grow, rather than just idling their time and living off the system, as some people perceive. So I think theoretically those issues are important, and economists talk about them. Empirically, the data says those effects are not nearly as big you might have worried about. 

During the hearing, Senator Bernie Sanders asked about impediments to consumer demand and the lack of jobs. Dr. Chetty responded by explaining that supporting people who are out of work with unemployment benefits helps boost the economy, because those struggling to find work spend those dollars in their communities.

CHETTY: Coming to your question about what would stimulate jobs and aggregate demand, there's good evidence if you give a dollar to a person below median income, much more of that is spent, than if you give a dollar to a person at the top end of the income distribution. So if you're trying to raise aggregate demand, these things are intricately linked.

SANDERS: Such as extending long-term unemployment, putting money into the hands of people who desperately need that money?

CHETTY: The marginal propensity to spend out of unemployment benefits is extremely high, so that, I think, would have a stimulative effect. 

Dr. Raj Chetty is a professor of economics at Harvard University. In 2013, Chetty was awarded the John Bates Clark medal, given by the American Economic Association to the best American economist under age 40. Learn more about the hearing “Opportunity, Mobility, and Inequality in Today’s Economy” here

Democrats are focused on finding ways to encourage growth and expand opportunity for workers and families. The House Republican Budget for fiscal year 2015 would take a very different approach. Instead of working with Democrats to build on the bipartisan foundation set in the two-year budget agreement, the House Republican Budget would:

Take away the Medicare guarantee and shift the cost of health care onto seniors;

Make drastic cuts to investments in education, medical research, and transportation that create middle class jobs and long-term, broad-based growth;

And once again protect the wealthiest Americans and biggest corporations from paying a penny more toward their fair share.

Following the release of the House Budget last week, a number of groups representing communities across the country weighed in on the drastic cuts in the proposal to programs and investments that are vital to families, seniors, workers, and the economy.  Here is some of what just a few of those groups had to say:

Center on Budget and Policy Priorities:Some 69 percent of the cuts in House Budget Committee Chairman Paul Ryan’s new budget would come from programs that serve people of limited means, our forthcoming report finds.  These disproportionate cuts — which likely account for at least $3.3 trillion of the budget’s $4.8 trillion in non-defense cuts over the next decade — contrast sharply with the budget’s rhetoric about helping the poor and promoting opportunity.”

Center for American Progress: “While the House Republican’s budget plan claims to strengthen the safety net, the reality is it slashes health care, education, child care, and other job supports for struggling families in order to pay for tax cuts for the very wealthy.”

Young Invincibles: “This budget proposal would eliminate some of the most significant protections for young people. In an economy where many young adults are desperate for economic stability, this budget builds barriers between young adults and their ability to get back to work, pay for college, and afford health care.”

AARP: “Chairman Ryan’s proposed budget fails to address the high costs of health care and instead shifts costs onto seniors and future retirees. Repealing the benefits of the Affordable Care Act ignores the progress we’ve made to improve access to health care and protect against discrimination based on age, gender or medical history. Removing the Medicare guarantee of affordable health coverage for older Americans by implementing a premium support system and asking seniors and future retirees to pay more is not the right direction.”

Coalition for Health Funding: “...but our nation’s soldiers, like all Americans, rely on public health programs here on American soil. These programs discover cures for disease and keep our food and water safe. They provide needed mental health services to our returning wounded, and they help families rebuild their lives after natural disasters. Continued cuts to public health will do Americans more harm than good.”

National Education Association: “Americans are looking to Washington to stand up for them, to create opportunities for economic prosperity, and ensure a brighter future for the next generation. Ryan’s budget, unfortunately, falls far short. He continues to balance the budget on the backs of the nation’s most vulnerable—low- and moderate-income Americans, children, students, and seniors—while failing to demand corporations and the rich to pay their fair share. In short, his budget again makes a mockery of shared sacrifice.”

Institute For College Access and Success: “Despite bipartisan concern about rising college costs and student debt, the House Budget Committee’s fiscal year 2015 budget slashes funding for Pell Grants, forcing millions of Pell Grant recipients to borrow more, while simultaneously increasing the cost of their loans” 

On Tuesday, the Senate Budget Committee will hold a hearing: Supporting Broad-Based Economic Growth and Fiscal Responsibility through a Fairer Tax Code. The hearing will feature two expert witnesses in the field of tax policy.
Today on the Senate Floor, Chairman Murray joined other women Senators to discuss the importance of raising the minimum wage and the difference it would make for women across the country. During her remarks Murray highlighted how the 21st Century Worker Tax Cut Act, which she recently introduced, would complement increasing the minimum wage and benefit women, and explained how the 21st Century Worker Tax Cut Act would help women re-enter workforce by giving struggling two earner families with children a tax deduction on the second earner’s income.
On Monday, the Intergovernmental Panel on Climate Change (IPCC) released its latest assessment on the impacts of a changing climate on our planet. This assessment is an exhaustive survey of the best available scientific, technical, and socioeconomic literature on the impacts and vulnerabilities from climate change.

The evidence is clear: Climate change is real and its impacts are already being felt by every nation across the planet. The negative impacts of climate change are disproportionately borne by the poor and most vulnerable members of society. Adaptation is important, but as emissions of carbon pollution increase, there will be impacts that exceed the ability to adapt.
Yesterday, Chairman Murray emphasized that federal investments in research and development, particularly in basic research, are critical investments for our country at an event hosted by the Senate Aerospace Caucus, which she co-chairs. Speaking to the crowd, Chairman Murray noted that because of federal R&D investments, DARPA—a Department of Defense agency that develops new technologies for the military—has repeatedly achieved significant technological breakthroughs; introducing the world to innovations like the Internet, night vision, and GPS.

Below are a few stories from late last week and over the weekend highlighting Senator Murray’s 21st Century Worker Tax Cut Act, which would complement critical reforms like raising the minimum wage by helping workers and families in today’s economy keep more of what they earn.

E.J. Dionne, Washington Post Columnist: “…one of last week's most important and least noted political events was the introduction of the 21st Century Worker Tax Cut Act by Sen. Patty Murray, D-Wash. Murray favors a minimum wage increase to $10.10 an hour, but she also has other ideas that would help Americans at the bottom of the income structure to earn more.” LINK

Reihan Salam, National Review Columnist: “…Murray has done us a service by advancing a serious proposal that has the potential to better the lives of a large number of workers.” LINK

CQ News: “The Washington Democrat’s proposal, released this week to coincide with the unveiling of the Democrats’ ‘fair shot’ election-year agenda, would expand the Earned Income Tax Credit and create a new credit for families with two earnersAn anchor of federal anti-poverty programs that has grown dramatically since its inception in 1975, the EITC is drawing renewed interest on both sides of the aisle: Republicans see the program as a more efficient alternative to raising the minimum wage, and Democrats have made expanding it a cornerstone of their efforts to fight income inequality. LINK