Tuesday, June 14, 2011

Rebuild the American Dream

A Look Back at 1993

The New York Times reported this story (excerpted below) in August 1993:

With Vice President Al Gore casting the tie-breaking vote, the Senate gave final Congressional approval tonight to President Clinton's five-year economic program. This means that the budget plan, the most important legislative issue of the Clinton Presidency so far, cleared Congress by the narrowest possible margin and awaits only the President's signature before becoming law.

But Senator Pete V. Domenici of New Mexico, the top Republican on the Budget Committee, said the increased taxes in the program would devastate the economy. Senator Bob Dole of Kansas, the Republican leader, said the main flaw in the plan was that the tax increases would be retroactive to the first of this year, while most of the spending cuts would occur after the next election.

In the House Thursday, every Republican voted against the economic plan, and all Republican senators had announced their opposition before the Senate debate began. All but six Democratic Senators had announced that they would vote for it. Historians believe that no other important legislation, at least since World War II, has been enacted without at least one vote in either house from each major party.

Phil Gramm of Texas, who may run for the Republican Presidential nomination in 1996, declared: 'I believe this program is going to make the economy weak. I believe hundreds of thousands of people are going to lose their jobs. I believe Bill Clinton will be one of those people.'

The bill would raise the top income tax rate, now 31 percent, to 36 percent for single taxpayers on taxable incomes from $115,000 to $250,000 and for couples with taxable incomes from $140,000 to $250,000. Incomes above $250,000 would be subject to a 39.6 percent rate.

Projected spending would be reduced by more than $250 billion over the next five years, mainly by cutting military spending and putting limits on how much Medicare spending can rise.

Entitlement programs - those like Social Security that pay benefits to everyone who meets certain eligibility requirements - could be expanded only if other entitlements were cut or taxes were raised to offset the additional cost.

Programs that are subject to annual appropriations - all those that are not entitlements - would be subject to an overall freeze, and if spending is increased for one program, it will have to be cut for another.

Did the increased taxes in the program devastate the economy? Did they weaken the economy? Did hundreds of thousands of people lose their jobs?

In a word, no.

This paper, written in December 2002 and excerpted below, describes the effects of the Omnibus Budget Reconciliation Act of 1993:

Despite the fact that it was not an issue that he emphasized while running for the presidency in 1992, Clinton demonstrated willingness early in his presidency to reduce the deficit.

In a joint session of Congress on February 17, 1993, President Clinton unveiled his budget proposal that included deep spending cuts, but which relied overwhelmingly on tax increases to bring the deficit downward. At the same time, Clinton proposed to quickly boost short-term job creation by pumping billions of dollars into new spending programs.

Clinton's call for a tax increase was a direct repudiation of the economic philosophies of his two Republican predecessors. By aiming the taxes primarily at corporations and the well-off, Clinton was suggesting that the programs of Ronald Reagan and George Bush, which were designed to stimulate economic growth through tax cuts, came at the price of high deficits.

In the end, Clinton's economic plan emerged victorious, though just barely. The Omnibus Budget Reconciliation Act was approved in August 1993 without a single vote to spare in either chamber: it passed 218-217 in the House and 51-50 in the Senate (with Vice-President Al Gore making the tie-breaking vote). The measure passed without any Republican votes, the first time in postwar congressional history and possibly the first time ever that the majority party has passed major legislation with absolutely no support from the opposition (Hager and Cloud, 1993b).

Overall, the Clinton economic plan was expected to shrink, but not eliminate the deficit. Annual deficits under the law were expected to be around $200 billion and since nearly $500 billion in deficits was to be eliminated over five years, the national debt was expected to rise by "only" $1.1 trillion (Lee and Johnson, 1994: 205).

The fact that not a single Republican in either chamber voted in support of the 1993 Budget indicates the degree to which partisanship and ideology dominated the vote on the bill (Fisher, 1999). Republicans saw the Clinton budget as a means of raising taxes and undoing the Reagan legacy that they revere. Democrats, though they were not enamored with the tax increases, felt that it was important to support the first Democratic president in 12 years. The result was a divide over the proposal that was along partisan and ideological lines.

Democratic optimism that the 1993 Budget would not be a political hindrance, however, evaporated as the 1994 congressional elections approached. As the 1994 elections proved, the Democrats' support of tax increases did not help them politically. Despite a relatively healthy economy in November 1994, Democrats who supported the Clinton economic plan did poorly in the mid-term elections (though Democrats who voted against the 1993 Budget Reconciliation Bill fared just as poorly).

Overall, the 1993 Budget Reconciliation Bill was expected to shrink, but not eliminate, the deficit. Annual deficits, however, have shrunk dramatically since the measure was enacted - indeed they have shrunk much more than anyone, including the Clinton administration, predicted. Every year during the Clinton administration the federal government has produced a budget with a lower deficit or higher surplus. In a development that would have been thought impossible just a few years ago, there were budget surpluses from 1998-2000, the first years since 1969 that the federal government has not run in the red. In 2000 the federal government had a surplus of a staggering $236 billion, the eighth consecutive year with a declining deficit or increased surplus, a postwar record (see Table 3). As Allen Schick (2000: 36) states, "liquidating the deficit ranks as one of the supreme budgetary accomplishments in American history." The elimination of the deficit has completely changed the dynamics of the federal budget process; the deficit-reducing conventions of the 1990s are being replaced by a new set of ideas for fiscal policy (Lemieux, 1999). Without question, the 1993 Budget Reconciliation Bill has been remarkably successful in its goal of reducing the federal budget deficit.

Deficit reduction has unquestionably been considerably aided by a very healthy economy. The fact that the economy has performed so well after the 1993 Budget Reconciliation Bill was enacted, however, is a strong defense of the success of the bill. The health of the economy since 1993, however, indicates that tax increases on upper incomes are not necessarily a hindrance to economic growth and are a legitimate mechanism by which to balance the nation's budget. In fact, the United States has enjoyed extremely strong economic performance every year since taxes were increased on upper incomes in 1993. Upper income groups have in particular done well since their income taxes rates were increased, helping to create an unexpected windfall for the federal Treasury.

To summarize: the Omnibus Budget Reconciliation Act of 1993 passed with not one Republican vote. Because of the bill's mix of increased tax rates and decreased spending,the federal government had a $236 billion surplus in 2000. During the Clinton years, 23 million jobs were created. In the equivalent amount of time, under the Bush Administration, 3 million jobs were created.

And for those who believe that this happened because of Newt Gingrich and a Republican House, it's important to keep this in mind: not only did the bill receive zero GOP votes, this bill was signed into law before the midterm elections of 1994.

Sunday, June 12, 2011

A response to Rich Lowry's "An Unemployment Catastrophe"

A quote from Rich Lowry, writing in The National Journal:

Pres. Barack Obama is given to cute vehicular metaphors about the state of the economy. We were "in a ditch," then got out and hit a "bump in the road." This is studiously folksy. It also vastly understates the nature of our situation.

President Obama is presiding over an unspooling social catastrophe in the form of unemployment, and especially long-term unemployment. For all those people who are chronically unemployed, it’s as if they have been hit by the proverbial car and then backed over by it again and again.


There's quite a bit of good information in your article "An Unemployment Catastrophe," but there's also quite a bit that needs to be corrected.

First, thank you for addressing the issue of long-term unemployment. It is a social catastrophe, it is not being adequately addressed and it is a blight afflicting millions of Americans.

Of the 13.4 million Americans out of work, 6.2 million of us have been out for 27 weeks or longer, according to the latest BLS numbers. About one million men and women have been out for over 60 weeks and are on the verge of exhausting UI benefits. An additional two million have been out of work for 99 weeks or more, and have completely exhausted UI benefits. With only 3 million job openings nationwide, the number of 99ers is projected to grow this year, which should put paid to the argument that ending unemployment benefits will force people to take work they might have otherwise rejected. (source)

Second, as an editor, I'm sure you understand the importance of getting quotes right. This is what President Obama actually said:

"After they (the GOP) drove the car into the ditch, made it as difficult as possible for us to pull it back, now they want the keys back. No. You can't drive. We don't want to have to go back into the ditch. We just got the car out."

Does that vastly understate the nature of our situation, as you've written? No, not at all. Let's look at how the job market has done since the Great Recession began:

click for larger image

It looks like the job market ditch bottomed out in January 2009. Is it a coincidence that the stimulus act was signed then, too?

Third, you left some important parts out of your next paragraph: it's not just the Obama Administration who is presiding over the crisis in long-term unemployment. It's also Congress and the states.

Go back eight months to November 2010. Remember the question on the GOP's lips as they were heading into the midterm elections: "Where are the jobs?" According to Congressman John Boehner's office, that question was one of the central themes of the GOP's campaign.

The results? The GOP won a historic victory in the midterms, capturing 63 House seats (and control of the House) and six Senate seats. Despite the President's campaign efforts, the GOP did get the keys back - at least, in the House and several of the state legislatures.

What have they done with them so far?

Four states (Michigan, Missouri, Arkansas and Florida) have cut state unemployment benefits from 26 weeks down to 20. South Carolina is looking to follow suit. Florida may cut theirs even lower partly indexing UI benefits to the state's unemployment rate.

What's that sound, you ask? The sound of a car being backed up? And that thump? Pay it no mind.

In the House, Rep Dave Camp, Chairman of the Ways and Means Committee, recently introduced the GOP JOBS Act - a bill which would give states the right to cut jobless aid.

Listen. Did you hear it? Sounded like another thump.

Most recently, the GOP announced their jobs plan: the House Republican Plan for America's Job Creators. Unlike the JOBS Act, it's not a bill yet - it's a 20-page "agenda". One analysis of the document took it to task:

"…it's not just that you could read this jobs plan without knowing the financial crisis ever happened. You could read it without knowing the past decade ever happened. As (Larry) Mishel (of the Economic Policy Institute) says, 'if lower taxes and less regulation was such good policy, then George W. Bush's economy would have been a lot better. But under Bush, Republicans cut taxes on business and on investors and high-income people and they didn't add many regulations and that business cycle was the first one in the post-war period where the income for a typical working class family was lower at the end than at the beginning.'"
This chart from the CBPP should help put things in perspective:

Another thump? Better get that car looked at.

The GOP made political hay out of the weak job market. Once they got into office, though, "where are the jobs?" turned into "so be it."

Have the long-term unemployed been "hit by the proverbial car and then backed over by it again and again." The answer could not be more clear - yes, they have.

And it's because of the GOP behind the wheel.

Sunday, June 5, 2011

Essential Reading

These are the websites I consider as indispensable companions when the monthly employment and job opening reports come out:

Steve Benen's Political Animal blog on the Washington Monthly. Besides the fact that he's essential daily reading, Steve originated the "bikini graph" and usually produces two charts each month: one for overall job growth and one that focuses on the private sector.

The CalculatedRISK blog

Dirk van Dijk at Zacks Investment Research