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Congress and the budget: holding middle-class America ransom Congress and the budget: holding middle-class America hostage
(35 minutes later)
One of the consistent frustrations of Federal Reserve chairman Ben Bernanke is that Congress and the president have hurt the recovery through bad fiscal policy. A new Congressional Budget Office (CBO) report confirms his fears: if Congress fails to produce a budget and end the sequester in the next few months, it's likely that the economy will suffer and the poor and middle class, who can afford the least financial damage, will be hurt the most.One of the consistent frustrations of Federal Reserve chairman Ben Bernanke is that Congress and the president have hurt the recovery through bad fiscal policy. A new Congressional Budget Office (CBO) report confirms his fears: if Congress fails to produce a budget and end the sequester in the next few months, it's likely that the economy will suffer and the poor and middle class, who can afford the least financial damage, will be hurt the most.
It has been five years since the beginning of the fiscal crisis. Over that time, personal incomes have declined, resulting in 45.6 million Americans currently living in poverty. All the while, the top-earning 5% raked in 22.1% of US income in 2012.It has been five years since the beginning of the fiscal crisis. Over that time, personal incomes have declined, resulting in 45.6 million Americans currently living in poverty. All the while, the top-earning 5% raked in 22.1% of US income in 2012.
The future doesn't look much brighter at the moment, especially given the CBO's annual long-term budget outlook report (pdf). In the report, the CBO suggests that the country faces a specific cost for Congressional inaction. If Congress continues to delay decisions on spending or taxes, it would cause the economy to lose ground and make next year's budget an even larger task, according to the CBO's analysis. Yet, moving quickly could also weaken the economy further, as consumers would have trouble adjusting to even more cuts or tax increases.The future doesn't look much brighter at the moment, especially given the CBO's annual long-term budget outlook report (pdf). In the report, the CBO suggests that the country faces a specific cost for Congressional inaction. If Congress continues to delay decisions on spending or taxes, it would cause the economy to lose ground and make next year's budget an even larger task, according to the CBO's analysis. Yet, moving quickly could also weaken the economy further, as consumers would have trouble adjusting to even more cuts or tax increases.
The sequester cuts imposed this year have already done some damage, according to analysts. The across-the-board slashes in government spending sharply reduced the federal deficit, and the first round, at around $24bn, went into effect in March.The sequester cuts imposed this year have already done some damage, according to analysts. The across-the-board slashes in government spending sharply reduced the federal deficit, and the first round, at around $24bn, went into effect in March.
It may be too early to gauge the full effect of sequestration, but a few reports suggest it has hurt the economy, or at least kept it from growing. A July CBO report found that reversing the sequester would create between 300,000 to 1.6 million jobs. Last week, Goldman Sachs analysts found that federal employment dropped by 71,000 jobs in the past year – and 100,000 more could be lost over the next – and that these federal layoffs are hurting personal incomes. Their report to clients read, in part:It may be too early to gauge the full effect of sequestration, but a few reports suggest it has hurt the economy, or at least kept it from growing. A July CBO report found that reversing the sequester would create between 300,000 to 1.6 million jobs. Last week, Goldman Sachs analysts found that federal employment dropped by 71,000 jobs in the past year – and 100,000 more could be lost over the next – and that these federal layoffs are hurting personal incomes. Their report to clients read, in part:
"The first area where sequestration has shown up fairly clearly in the data is personal income, which registered a disappointing 0.1% monthly gain in July, due in part to a 0.5% decline in government wages and salaries.""The first area where sequestration has shown up fairly clearly in the data is personal income, which registered a disappointing 0.1% monthly gain in July, due in part to a 0.5% decline in government wages and salaries."
Real household incomes have declined by 8.3% since 2007, according to an analysis today by the US Census. The same analysis found that for a second year in a row American poverty was stuck at 15%, with about 46.5 million Americans living at or below the poverty line. More than a third of those living in poverty, at 16.1 million, are children.Real household incomes have declined by 8.3% since 2007, according to an analysis today by the US Census. The same analysis found that for a second year in a row American poverty was stuck at 15%, with about 46.5 million Americans living at or below the poverty line. More than a third of those living in poverty, at 16.1 million, are children.
Some believe that the drop in personal incomes requires Congressional action.Some believe that the drop in personal incomes requires Congressional action.
"It's shocking that some lawmakers are proposing savage cuts to programs that help families meet basic needs, and give them a chance to get ahead, while insisting that the very wealthy and big corporations should not pay a penny more in taxes," said Joan Entmacher, vice-president of Family Economic Security at the National Women's Law Center."It's shocking that some lawmakers are proposing savage cuts to programs that help families meet basic needs, and give them a chance to get ahead, while insisting that the very wealthy and big corporations should not pay a penny more in taxes," said Joan Entmacher, vice-president of Family Economic Security at the National Women's Law Center.
President Barack Obama said as much yesterday when he delivered a speech marking five years since the beginning of the financial crisis. Calling on Congress to do its "most fundamental job" of passing a budget, Obama asked that they end the sequester and replace it with more specific and efficient spending cuts:President Barack Obama said as much yesterday when he delivered a speech marking five years since the beginning of the financial crisis. Calling on Congress to do its "most fundamental job" of passing a budget, Obama asked that they end the sequester and replace it with more specific and efficient spending cuts:
"Our economy is not growing as fast as it should and we're not creating as many jobs as we should, because the sequester is in place. That's not my opinion. That's the opinion of independent economists. The sequester makes it harder to do what's required to boost wages for American workers, because the economy is still slack. So if Republicans want the economy to grow faster, create more jobs faster, they should want to get rid of it.""Our economy is not growing as fast as it should and we're not creating as many jobs as we should, because the sequester is in place. That's not my opinion. That's the opinion of independent economists. The sequester makes it harder to do what's required to boost wages for American workers, because the economy is still slack. So if Republicans want the economy to grow faster, create more jobs faster, they should want to get rid of it."
With the economy in such a fragile state, some hope that Congress won't do anything too quickly, in the belief that rash action is worse than inaction. (Not that there's a real risk of speedy action, if recent history is any indication.) If that's the case, then Congress should pace its changes to the budget, recommends the CBO, to "give people more time to plan and … increase output and employment in the next few years by holding down longer-term interest rates, reducing uncertainty, and enhancing businesses' and consumers' confidence."With the economy in such a fragile state, some hope that Congress won't do anything too quickly, in the belief that rash action is worse than inaction. (Not that there's a real risk of speedy action, if recent history is any indication.) If that's the case, then Congress should pace its changes to the budget, recommends the CBO, to "give people more time to plan and … increase output and employment in the next few years by holding down longer-term interest rates, reducing uncertainty, and enhancing businesses' and consumers' confidence."
That kind of perfect world, however, may be a tall order for a political process that many see as inevitably mired in chaos.That kind of perfect world, however, may be a tall order for a political process that many see as inevitably mired in chaos.
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