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114th CONGRESS
2nd Session
}
SENATE
{
REPORT
114-xxx
THE 2016 JOINT ECONOMIC REPORT
_______
REPORT
OF THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ON THE
2016 ECONOMIC REPORT
OF THE PRESIDENT
TOGETHER WITH
MINORITY VIEWS
MARCH 1 (legislative day, MARCH XX), 2016.—Ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON: 2016
II
JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5 (a) of Public Law 304, 79th Congress]
SENATE
Dan Coats, Indiana, Chairman
Mike Lee, Utah
Tom Cotton, Arkansas
Ben Sasse, Nebraska
Ted Cruz, Texas
Bill Cassidy, M.D., Louisiana
Amy Klobuchar, Minnesota
Robert P. Casey, Jr., Pennsylvania
Martin Heinrich, New Mexico
Gary C. Peters, Michigan
HOUSE OF REPRESENTATIVES
Pat Tiberi, Ohio, Vice Chairman
Justin Amash, Michigan
Erik Paulsen, Minnesota
Richard L. Hanna, New York
David Schweikert, Arizona
Glenn Grothman, Wisconsin
Carolyn B. Maloney, New York, Ranking
John Delaney, Maryland
Alma S. Adams, Ph.D., North Carolina
Donald S. Beyer, Jr., Virginia
VIRAJ MIRANI, Executive Director
HARRY GURAL, Democratic Staff Director
LETTER OF TRANSMITTAL
__________________
March 1, 2016
HON. MITCH MCCONNELL
Majority Leader, U.S. Senate
Washington, DC
DEAR MR. LEADER:
Pursuant to the requirements of the Employment Act of 1946, as
amended, I hereby transmit the 2016 Joint Economic Report. The
analyses and conclusions of this Report are to assist the several
Committees of the Congress and its Members as they deal with
economic issues and legislation pertaining thereto.
Sincerely,
Dan Coats
Chairman
IV
V
CONTENTS
CHAIRMAN’S VIEWS.....................................................................1
CHAPTER 1: GROWTH AND MOBILITY IN 21st
CENTURY AMERICA..............................................................3
ECONOMIC INEQUALITY AND MOBILITY.....................................7
Metrics....................................................................................................7
Young Adults and Mobility in the 21st Century ....................................10
Economic Inequality, Mobility and Growth .........................................13
RENT-SEEKING AND THE ROLE OF GOVERNMENT ................... 18
PRO-GROWTH POLICY OPPORTUNITIES ................................... 21
Barriers to Entry: Unionization, Occupational Licensing and Minimum
Wage .....................................................................................................21
Policy Goals and Full Employment......................................................24
Improving Workforce Potential ............................................................26
CONCLUSION .............................................................................. 29
CHAPTER 2: MACROECONOMIC OUTLOOK ............... 33
NEAR-TERM OUTLOOK ............................................................. 34
Gross Domestic Product ......................................................................34
Labor Market........................................................................................36
Payroll Jobs..........................................................................................39
Unemployment......................................................................................40
Labor Force Participation and Employment-to-Population Ratio ......41
Full-time and Part-time Employment ...................................................47
The Effects of the Affordable Care Act on Labor .................................48
Housing Market ....................................................................................51
Fiscal Policy.........................................................................................52
Monetary Policy ...................................................................................54
LONG-TERM OUTLOOK ............................................................. 56
The Risk of High and Rising Debt ........................................................56
Mandatory Spending Programs Drive Debt.........................................60
The ACA Compounds Long-Term Fiscal Issues...................................65
CHAPTER 3: THE GLOBAL MACROECONOMIC
SITUATION.............................................................................. 71
Eurozone...............................................................................................72
Japan ....................................................................................................73
China and Other Emerging Markets ....................................................75
Oil .........................................................................................................76
International Trade ..............................................................................77
International Tax Competitiveness.......................................................80
VI
International Tax Systems ....................................................................81
Corporate Inversions............................................................................83
Using New Taxes for Spending Programs Rather Than Competitiveness
..............................................................................................................84
Passthrough Businesses .......................................................................85
Lost Opportunities for Pro-Growth Reform .........................................86
CHAPTER 4: OPPORTUNITY FOR ALL ........................... 87
Supplemental Nutrition Assistance Program .......................................92
Earned Income Tax Credit ...................................................................94
Head Start Program .............................................................................94
K-12 and School Choice .......................................................................95
The Impact of Two-Parent Families.....................................................97
CHAPTER 5: INNOVATION, TECHNOLOGICAL
CHANGE, AND AUTOMATION.........................................100
Productivity Growth ...........................................................................101
Declining Dynamism ..........................................................................102
Research and Development and the Role of Patents ..........................106
Technological Advancement and the Sharing Economy ....................109
Education for the 21st Century ...........................................................110
CHAPTER 6: INFRASTRUCTURE & ENERGY..............113
INFRASTRUCTURE.....................................................................113
The Report Favors New Taxes to Fund Infrastructure ......................115
Efficiency and the Private Sector .......................................................116
ENERGY AND CLIMATE CHANGE.............................................119
Fracking Technology Lowers the Price of Oil ...................................119
Toward a Secure and Stable Supply of Oil.........................................120
Administration’s Proposed Oil Tax....................................................121
The Paris Climate Agreement, GHG Regulations, and the Economy 122
Inadequacy of the Administration’s Energy Policies .........................129
CHAPTER 7: 70TH ANNIVERSARY OF THE JOINT
ECONOMIC COMMITTEE.................................................131
Origins of the Employment Act of 1946 .............................................131
Legislative Compromise .....................................................................132
Later Amendments to the 1946 Act.....................................................135
Role of the Joint Economic Committee ..............................................136
Prestige of the Joint Economic Committee ........................................137
Commemorating the 70th Anniversary ................................................141
ENDNOTES.............................................................................144
VII
VIEWS OF RANKING MEMBER CAROLYN B. MALONEY.........173
INTRODUCTION.........................................................................173
PUTTING THE RECOVERY IN CONTEXT: OVERVIEW OF
ECONOMIC PROGRESS..............................................................177
A Severe Recession .............................................................................177
A Steady Recovery ..............................................................................178
Putting the Recovery in Proper Context.............................................184
OVERVIEW OF MACROECONOMIC CONDITIONS.....................189
Challenges for Interpreting Economic Indicators..............................189
Recent Trends in Output Growth........................................................190
The Labor Market...............................................................................196
Inflation ..............................................................................................199
The Outlook ........................................................................................199
THE EFFECT OF THE GLOBAL ECONOMY................................201
The Effects of a Sharp Decline in Oil Prices......................................201
Slow Growth in China ........................................................................206
Major U.S. Trading Partners .............................................................210
Emerging Market Economies .............................................................212
Effects of a Global Slowdown on the U.S. Economy ..........................212
KEY LONG-TERM ECONOMIC CHALLENGES..........................215
Demographics and Population Aging ................................................215
Slowdown in Labor Productivity Growth ...........................................226
Rising Inequality ................................................................................236
POLICY APPROACHES FOR ECONOMIC GROWTH AND SHARED
PROSPERITY..............................................................................250
Bolstering Labor Force Participation................................................250
Reforming the Immigration System ....................................................257
Raising Labor Productivity Growth ...................................................260
Promoting Share Prosperity...............................................................265
Expanding Economic Opportunity for Women...................................270
CONCLUSION.............................................................................274
ENDNOTES.................................................................................275
1
114th CONGRESS
2nd Session
}
SENATE
{
REPORT
114-xxx
THE 2016 JOINT ECONOMIC REPORT
_____________
MARCH 1 (legislative day, MARCH xx), 2016. – Ordered to be printed
________________
MR. COATS, from the Joint Economic Committee,
submitted the following
REPORT
together with
MINORITY VIEWS
Report of the Joint Economic Committee on the 2016 Economic Report of the
President
CHAIRMAN’S VIEWS
Nearly seven years into the recovery, Americans are still waiting
for a sign of stronger growth in their incomes that would help them
move up the economic ladder. In the final Economic Report of the
President and the Annual Report of the Council of Economic
Advisers (Report) of this Administration, the crux of the Report
promotes “inclusive growth” as a way of addressing income
inequality, which the Administration characterizes as a “defining
challenge of the 21st century economy.” Yet here in America, we
do not have a class system that relegates families to one particular
income group; the American economy is incredibly dynamic and
still harbors great potential for upward mobility.
2
Instead, America faces two defining challenges today. The first is
slower economic progress over the course of the recovery from the
not-so-recent recession. The second related challenge is the
looming fiscal unsustainability that threatens to devastate what
could be a bright economic future. These challenges will
determine whether we will be able to continue the American
tradition of passing down to the next generation a future that is
more prosperous and full of opportunities than in the previous
generation.
The longer the delay, the more painful the necessary fiscal policy
changes will become. While unequal opportunities, as the Report
highlights, are indeed concerning and a precursor for economic
immobility,
many
of
the
Administration’s
policy
recommendations could thwart stronger economic growth and
mobility for the most vulnerable individuals as well as postpone
critical reforms to ensure fiscal sustainability. With the use of
carefully determined metrics to measure Americans’ well-being
and the performance of policies going forward, solutions abound
for stronger economic mobility. These include reforms to the tax,
regulatory, and education systems, and better policy outcomes for
the welfare of the American people in the 21st century.
3
CHAPTER 1: GROWTH AND MOBILITY IN 21ST
CENTURY AMERICA
This year’s Economic Report of the President places emphasis
on “inclusive growth” for the middle class, bolstered by
policies aimed at promoting productivity, participation, and
“equality of outcomes.” However, equality of outcomes is a
potentially dangerous misnomer for the resolution of
“excessive” economic inequality, as it misplaces focus from
the true problem of insufficient economic opportunities as
detrimental to economic mobility and potential for growth.
Moreover, any discussion of economic inequality must
necessarily include economic mobility. While the analysis
highlights the importance of removing barriers to employment
and entrepreneurship that arise from unequal opportunities, its
promotion of unionization and minimum wage increases beget
a word of caution as these policies also present potential
barriers to entry for the most vulnerable workers. Among the
longer-term challenges listed above, high and rising publicly
held Federal debt is unfortunately not among them.
In the final year of this Administration, the 2016 Economic Report
of the President and the Annual Report of the Council of Economic
Advisers (CEA) (ERP, or Report), though quick to point out how
far the economy has come from the recent recession, strikes a more
moderate tone on economic growth going forward than offered in
previous reports. Echoed in the Report, the President argued in
his January 2016 State of the Union address: “The United States
of America, right now, has the strongest, most durable economy
in the world.” 1 Strength and durability are not synonymous. The
economy has endured, but growth is not strong. Now nearly seven
years into the recovery from the December 2007-June 2009
recession, economic growth can at best be characterized as
moderate. 2
4
Over the course of this recovery, the country has learned hard
lessons on how excessive spending, overzealous regulation, and
overwhelmingly accommodative monetary policy can cause more
harm than good to society. Unfortunately, the resulting low
business investment, labor force participation, and productivity
growth promise to continue for the foreseeable future. Forecasters
now anticipate an era of slower growth than previous decades, and
subdued expectations about economic, population, and labor force
growth have placed additional pressures on Federal budget
constraints. In turn, Federal policies will have a lasting effect on
the labor force and the country’s potential for growth. As the
Congressional Budget Office (CBO) noted in its recent update to
the Budget and Economic Outlook, the potential labor force is
expected to decline in part due to Federal policies, including the
Affordable Care Act (ACA) and real tax bracket creep. 3
The first of a “Growth and Prosperity” Series produced by Joint
Economic Committee (JEC) Republican staff in October 1999
entitled, “Economic Growth and the Future Prospects of the U.S.
Economy,” provided prescient caution about Federal policies in
light of anticipated demographic changes:
The United States is at an important crossroads. If
we control government spending during the next
decade, the economy will grow more rapidly and
thereby reduce the burden accompanying the
retirement of the “baby boom” generation. In
contrast, if the federal government undertakes new
spending initiatives and does nothing to reform
existing health care and retirement programs, the
U.S. will become a big-government, Europeanstyle economy when the baby boomers retire. This
will lead to slower growth and less prosperity... If
we are not sensitive to this situation, the
combination of new spending commitments and
current obligations to future retirees will cause the
5
U.S. to become a stagnating “big government”
economy sometime after 2010. 4
At that time, baby boomers were in their peak earning years,
providing a positive impact on the Federal budget and the
economy which provided the growth that precipitated the budget
surpluses of the late 1990s. In addition, publicly held Federal debt
as a share of gross domestic product (GDP) stood at a comfortable
38.2 percent and Federal outlays at 17.9 percent.
The failure to take the necessary steps to address these challenges
has resulted in outcomes that are as unfortunate as they were
foreseeable. Health care and retirement programs are expected to
comprise approximately half of Federal spending in fiscal year
2016 as baby boomers begin to retire, up from just over a third in
1999. Federal spending is expected to rise to 21.2 percent of GDP
this fiscal year, and publicly held Federal debt is expected to rise
to 75.6 percent, nearly double the 1999 level and the long-term
historical average of 38 percent of GDP. 5
The trajectory for Federal spending obligations, deficits, and debt
are only expected to grow worse over time. In just ten years, 99
percent of revenue will go to mandatory and net interest spending,
crowding out funds for other important priorities like national
defense and medical research. 6 Deficits are projected to double as
a share of GDP over the next decade while Federal spending rises
to 23.1 percent of GDP in 2026. Publicly held Federal debt is
projected to rise to 86.1 percent by the end of the next decade, and
to 155 percent within three decades—the highest percentage ever
recorded in the United States. 7
In his State of the Union address this year, President Obama stated
that he wanted “to focus on the next five years, the next 10 years,
and beyond.” 8 However, he failed to note one of the most
important issues that America faces in the coming years: the
financial obligations that will come due over those periods. Debt
was not mentioned once in his address, and how to achieve fiscal
6
sustainability was not among the four questions the President
argued that “we as a country have to answer.” 9
Perhaps ironically, in last year’s Report, it was growth in labor
force participation that the President and his advisers were
counting on to tackle deficits and debt posed by “the pig in the
python” baby boomer retirement. 10 Analysis from CBO, the
Bureau of Labor Statistics (BLS), and other institutions, however,
paint a very different picture about the ability of the labor force to
stabilize debt. CBO estimates that if lawmakers were to aim for
maintaining debt at 74 percent of GDP by 2040, revenues would
need to increase six percent annually or spending would need to
fall 5.5 percent annually. 11 BLS notes that “stabilization is likely
to come at a cost... the need to fund mandatory programs (such as
Social Security and Medicare) while constraining deficits poses an
increasingly large problem for the economy.” 12
In mid-2015, the Wells Fargo Economics Group also noted the
dire consequences associated with the current policy trajectory:
Waiting until 2021 to enact tax policy changes to
stabilize the debt-to-GDP ratio at the current 74
percent of GDP would translate into an additional
$570 in taxes per year for a household in the
middle income quintile (making around $66,400
per year)... In the case that Congress and the
administration wait until 2021 and decide to enact
across-the-board spending cuts, the impact on
Social Security benefits for the average individual
would be rather dramatic as well. For example, to
just stabilize the national debt, across the board
cuts to all non-interest spending would reduce the
average annual Social Security benefits for a
median income earner for someone born in 1955
by approximately $1,393 per year. 13
7
The Wells Fargo analysis noted that, on net, the long-run fiscal
and economic benefits of addressing the unsustainable fiscal
policy outlook outweigh the short-term costs.
Rather than address these imposing challenges, this year’s Report
instead focuses on narrower inequality measures. The Report
claims that it “examines the economics and policies that can
strengthen productivity without exacerbating inequality,
promoting robust and inclusive growth that can be shared by a
broad group of households.” It further identifies inequality as a
“defining challenge of the 21st century economy” that affects both
the United States and abroad, suggesting that “unequal outcomes”
arise from “unequal opportunities.” While unequal opportunities
are indeed concerning and a precursor for economic immobility,
they are not solely to blame for unequal outcomes. The pursuit of
policies that aim for “equality of outcomes” not only fails to
account for the myriad underlying reasons why one American
would pursue one “outcome” over another, but it also implies that
all Americans share the same “American Dream.” Given the
incredibly diverse and vibrant population that makes up modern
America, nothing could be so blatantly further from the truth. The
American Dream has nothing to do with equality of outcomes and
everything to do with equality of opportunity.
ECONOMIC INEQUALITY AND MOBILITY
Metrics
As in last year’s Report, the 2016 Report fails to define the
“middle class.” And as the 2015 Joint Economic Report
(Response) made clear, metrics still matter. Specifically, to set
achievable goals and measure progress, it is necessary to agree on
the metrics:
The [2015] Report itself doesn’t seem clear on that
metric; its reference to the bottom 90 percent of
households and the median household weave
throughout the first chapter, suggesting that the
8
“lens” is not quite clear. As it stands, there is no
unified, broad definition of income, let alone a
clear cut definition of “middle class.” Income,
even when clearly defined, is only one measure of
many in determining the welfare and success of an
individual. The “typical” or median household
may make sense when referencing a moment in
time, but is less useful when comparing the median
household over time. 14
For example, recent research over the last year suggested that the
middle class has narrowed compared to the growing lower- and
upper-income classes. Pew Research Center (Pew) recently
released an in-depth study on changes in lower-, middle-, and
upper-income households over the past several decades.
Researchers found that the middle class has shrunk compared to
the growing lower- and upper-income classes, down to 50 percent
in 2015 from a 61 percent majority in 1971. 15
However, it is important to keep several considerations in mind
when discussing the changes that have occurred in the distribution
of income over time. Income commonly refers to more than just
wages earned, and is one metric among others such as net worth
and consumption patterns, in determining the financial well-being
of Americans. Moreover, such metrics can be measured by
person, household, or even family. 16 In the Pew study, income
was measured by household using the Census definition of money
income, 17 which excludes certain money receipts, tax payments,
dues and deductions, and benefits like foods stamps, health
insurance, subsidized housing and energy assistance.
Although the recent findings from the Pew study appear to confirm
the Report’s concern that the middle class is shrinking, several
caveats are worth exploring in any discussion relating to the
middle class. The income metric used to determine who falls into
the middle class matters to the entire framing of the discussion.
Different definitions, such as using only the middle-fifth of
9
income or excluding the top and bottom quintiles, will yield
different results than the Pew-defined size-adjusted households
that fall between two-thirds to double the median U.S. households
income. In fact, middle-income household advancement has been
stronger in the past several decades 18 than the oft-cited statistics
indicate because the data tends to overstate increases in the
disparities between the income groups. 19 Many Americans still
identify themselves as middle class, though less so since the
recession. 20 Given the cost of living variations across America, 21
what it means to be middle class varies by state and even
metropolitan area. 22 In addition, the Pew-defined threshold for
middle income has not only broadened over time, but risen in real
terms, suggesting a rising standard of living. 23
Also noteworthy is that the upper-income group grew at a faster
pace than the lower income group. As Pew reported: “From 1971
to 2015, the number of adults in upper-income households
increased from 18.4 million to 51 million, a gain of 177%. During
the same period, the number of adults in lower-income households
increased from 33.2 million to 70.3 million, a gain of 112%.” 24
By comparison, middle-income households grew by 51 percent
from 80 million to 120.8 million. The fact that the upper-income
group broadened—meaning that a relatively larger share of
households frequent the upper-income group today than had in the
past—is a positive trend and should ameliorate some of the
concern regarding the “concentration” of income in the upperincome group. Such concern is misplaced if income mobility
keeps to its historical pace or strengthens. 25
Mobility still matters. The makeup of income groups is anything
but static, with people frequently moving among the lower-,
middle-, and upper-income groups.
The distribution of
households in each income group at any given moment is a
snapshot of a dynamic flow (i.e. mobility) of households between
income groups over time. Mobility is most commonly measured
in both absolute terms, whereby a child is better off than his or her
10
parents regardless of origin in the distribution, and also in relative
terms, whereby a child moves up or down depending on where in
the distribution they originated (i.e. a child in the bottom group
could still be better off than his or her parents in the bottom group,
suggesting upward mobility in the absolute sense, but immobility
in the relative sense).
Many would likely be surprised to learn that, contrary to recently
developed conventional wisdom, economic mobility in America
has not lagged that of its international peers. 26 Relatively new
research delves into a mobility-related measure known as
intergenerational elasticity, which measures the relationship
between a person’s income and that of their parents. The findings
suggest that roughly half of parental income advantages are passed
down to children. 27 The Report points out that intergenerational
earnings elasticity of fathers and sons in the United States is lower
compared to most major developed economies, noting: “the higher
the elasticity, the less mobile the society. Such a mobility can be
understood as a measure of the inequality of opportunity.” 28 This
particular issue for young men in the United States is in fact an
important one that must be addressed. An Organization for
Economic Cooperation and Development (OECD) study also
notes that this is true of France, Italy, and the United Kingdom as
well. 29 However, similar research demonstrates that the United
States is out of sync with other countries on intergenerational
earnings mobility only for sons who had fathers in the bottom fifth
of earnings—not exactly a middle-class issue, but rather one of
low-income families looking to move into the middle class. In
fact, the United States falls in the middle of the pack for other
father and child correlations. 30
Young Adults and Mobility in the 21st Century
As noted in last year’s Response, alternative metrics continue to
indicate a shift in the relationship that young individuals have with
the labor market. While previous generations may have faced
tough labor markets as they entered the workforce, as baby
11
boomers did in the 1981-82 recession, the labor market recovery
for millennials has been “much less robust” following the 200709 recession. 31 A Georgetown University Center on Education
and the Workforce study notes that, like those in school in their
late teens and early twenties, the share of people in their late
twenties (26-30 years of age) participating in the labor force has
also declined, down from 88 percent in 2000 to 80 percent in 2012.
This is the lowest rate in the 60 years that data has been collected.
The share of adults in their late twenties working full-time, yearround jobs has fallen by 15 percentage points for men to 65 percent
from 2000 to 2012. Women have also seen a six percentage-point
decrease over the same time period. The study further suggests
that entering the labor market in a bad economy can have negative
long-term effects on earnings and employment that can last for 10
to 15 years. 32 The data further suggest that millennials,
collectively the youngest and largest generation in the workforce
today, are also switching jobs at a slower pace than previous
generations. 33
Longer-term trends, however, suggest that the issue was building
even prior to the recession. Between 1992 and 2000, each
successive graduate class of college and post-college degree
holders saw an increase in the likelihood of entering jobs that
require “brains” instead of “brawn” at the start and in the middle
of their careers. However, this pattern began to reverse after 2000,
contributing to the declining job and income prospects young
work entrants currently face. Wages of recent graduates haven’t
been keeping up with previous generations’ starting wages relative
to the median wage. The drag of graduating college during a
recession can have a permanent effect on lifetime income. This
seems to be true of certain college degrees over others. Graduates
with scientific and business degrees see an increase in earnings
graduating into a recession, while arts and social sciences see a
decrease. 34 Nonetheless, a 2013 Urban Institute study found that
the average wealth of millennials between 20 and 30 years of age
12
in 2010 was 7 percent lower than the average wealth of baby
boomers within that age group in 1983. 35
According to Census Bureau data, 15.1 percent of 25- to 34-yearolds live with their parents, increasing for the fourth consecutive
year. Compared to just 12 years ago when the rate was just above
10 percent, the trend remains historically elevated and continues
to inch higher. 36 A household is formed when an adult leaves the
home of another adult and finds his or her own place of residence,
whether owned or rented. However, as the Report also highlights,
two-thirds of the new households created over the year ending in
June were created by Americans between 65 and 74 years old. 37
As mentioned in the 2015 Report, this year’s Report notes that
millennials’ delayed purchase of homes will continue to affect
household formation in the near term, but finds that this will be
remedied in the coming years as graduates pay off their student
loans. Unfortunately, millennials and the generations that follow
them face a number of unprecedented problems that could affect
their mobility going forward, including a record amount of
average student loan debt, elevated underemployment, lower
starting wages than previous generations, and long-term fiscal
challenges originating from entitlement and public pension
programs. 38 Recent research from the Federal Reserve Bank of St.
Louis finds that the average per-capita lifetime net benefit from
Federal benefits received minus taxes paid turns from significantly
positive to significantly negative beginning with Generation X,
and only worsens for millennials and post-millennial
generations. 39 The longer reform is delayed, the greater the
intergenerational imbalance will grow, and the more painful and
drastic the necessary fiscal policy changes will become.
In addition, with the oldest baby boomers only recently becoming
eligible for full Social Security benefits, 40 their retirement is only
just beginning and will span at least the next two decades. In fact,
baby boomers most commonly comprise the upper-income group
because many are still in their highest earning years. 41 Though
13
baby boomers are retiring at a slower rate than previous
generations, as the labor force participation rate for Americans age
55 and older is rising 42 while younger age cohorts’ participation is
falling, their retirement will not only leave a lasting impact on the
labor force, 43 but it also means more Americans will be living on
relatively lower retiree incomes than they made in their working
years.
Economic Inequality, Mobility and Growth
The Report makes the following point that omits a significant
reason for the divergent trends in top 1 percent income shares
between the United States and other G-7 countries:
Until the 1980s, the United States experience was
similar to other countries; as recently as 1975, the
top 1 percent garnered a similar share of the
income in the United States as in other G-7
countries, as shown in Figure 1-1. But since 1987
the share of income going to the top 1 percent in
the United States has exceeded every other G-7
country in each year that data are available. 44
The reason, known perfectly well by the Administration, is largely
due to the Tax Reform Act of 1986 which, among other changes,
lowered the top individual tax rate from 50 percent to 28 percent.
This created an incentive for small businesses to file under the
individual tax code since the top marginal corporate income tax
rate was much higher. In fact, the data show a growing share of
U.S. business income has been taxed on a passthrough basis
(Figure 1-1), 45 meaning that a firm’s business income is attributed
to the owner(s) and taxed as individual income, which has further
complicated the process of teasing out income inequality from
existing data. 46
14
Figure 1-1
The Report also notes that technological change has played a role
in increasing wage inequality and job polarization in both the
United States and abroad. Information technology has changed
relative demand for workers with different skill levels, known as
skill-biased technological change (SBTC). Over the last nearly
four decades, SBTC altered demand for different types of labor as
the cost of acquiring and utilizing information technology assets
fell rapidly and U.S. businesses substituted computers and
computerized machinery for workers performing routine tasks. As
discussed at length in last year’s Response, previous JEC research
found that SBTC explained a majority of the increase in income
inequality among U.S. households over the past several decades,
and that SBTC is also driving the increase in income inequality
abroad. 47
As supporting evidence of the growing global attention to
inequality, the Report goes on to highlight Thomas Piketty’s
seminal 2014 book, Capital in the Twenty-First Century.
However, data issues plague the work of scholars like Piketty and
Emmanuel Saez. Specifically, the use of tax return data
(particularly of pre-tax income) instead of after-tax household
income fails to account for government benefits and employerprovided health insurance. As Manhattan Institute scholar Scott
15
Winship states, “they do not account for the main ways in which
we mitigate income concentration via public policy.” 48 This
begets the question: why does it make sense to measure inequality
in a manner that does not account for the effect of the very policies
meant to mitigate it? The answer is simple: It makes no sense
whatsoever. Such a question underscores the importance of
clearly defining the metrics and understanding their underpinnings
before predicating policy changes upon them.
As pointed out in a previous JEC staff analysis, the increase to real
U.S. median income over the past several decades has been far
greater than reported using only pre-tax and pre-transfer income.
Economist Richard Burkhauser noted that, after accounting for
size of households, government transfer payments, taxes, and
employer-provided health insurance, the real U.S. median income
has actually increased 36.7 percent from 1979 to 2007 (pre-dating
the recent recession), as compared to the unadjusted, pre-tax
median income tax unit increase of 3.2 percent (Figure 1-2).
Burkhauser’s numbers compare similarly with CBO, which found
that for the 60 percent of the population in the middle of the
income scale, real after-tax household income growth was just
under 40 percent from 1979 to 2007. 49
16
Figure 1-2
Despite the issues associated with measuring income inequality,
the Report makes a brief attempt to point out that wealth inequality
is even more unequally distributed, though making the caveat that
wealth inequality is “particularly difficult to measure accurately
because we do not track wealth in the way we do income and
trends in wealth inequality are concentrated among a small
number of households.” 50 Not only is wealth inequality inherently
more difficult to track, but it is unclear if it is a larger issue than
income inequality. For wealth measurements, age is an even more
important factor (in many cases, young adults have negative net
worth as they pay off student loans, car payments, and mortgages,
while the recently retired may have substantive wealth built over
a lifetime to live off of in retirement), in addition to household
formation (for example, if a married couple divorces and creates
two households with lower wealth than they previously held
combined, is this a policy concern when it comes to how it changes
wealth inequality?), along with a number of other factors
associated with the valuation of wealth as well.
The Report also highlights the 21 percent wage disparity between
the typical woman and typical man working full-time as another
17
area of inequality of opportunity. However, there is nothing
typical or accurate about comparing the two averages. Recent
research that uses median hourly earnings and makes adjustments
for education, experience, and job type among workers age 25 to
34 found that all but 7 percent of the wage disparity disappears. 51
Furthermore, a study completed in 2010 using median, full-time
income data at the metropolitan level found that among young
adults age 22 to 30 never-married with no children, women were
out-earning men by 8 percent on average among the metropolitan
areas studied and by as much as 21 percent more. Interestingly,
while women’s earnings appear to benefit from the expansion of
the knowledge-based economy, Silicon Valley was noted among
the “holdout” areas where young men’s earnings still surpass
women’s. 52 Adjusting for these factors makes for a better applesto-apples comparison by controlling for the choices individual
Americans make which may influence their income disparities and
may have very little to do with their earnings. Once again, the
metrics are extremely important to policymakers’ understanding
of the problems that they wish to address.
The Report further states that inequality is correlated with lower
mobility, trotting out the “Great Gatsby” curve first introduced in
2011. However, evidence of changes in income inequality and
mobility in the United States reveal no such relationship. 53
Despite periods of high and rising inequality, including in the
1990s when income was increasingly concentrated within the top
one percent and incomes were rising across the board, recent
research from economist Raj Chetty finds that mobility did not
fall. In fact, the research concluded “measures of social mobility
have remained remarkably stable over the second half of the
twentieth century in the United States.” 54
Ultimately, it is economic mobility that matters more than income
inequality—the fact is that people in the lower-, middle-, and
upper-income groups are always changing over time. Improving
economic mobility, not income inequality, remains a challenge to
18
the 21st-century economy.
However, as aforementioned,
economic mobility in America is not laggard compared to
international peers, and mobility in America has remained largely
unchanged over the last 20 years. Despite this, income
immobility, the ability to “move to opportunity,” and the
relationship between child and parent earnings will continue to
play prominent roles in the changes to distribution in income over
time, and it remains more important than ever to remove barriers
to opportunity and continue to every effort to improve economic
mobility.
RENT-SEEKING AND THE ROLE OF GOVERNMENT
The Report states: “Rents arise when markets are not perfectly
competitive, such as when uncompetitive markets yield monopoly
profits or preferential regulation protects entities from
competition.” 55 No market, however, is perfectly competitive.
The Report continues: “Classic examples of such rents include
monopoly profits and the unearned benefits of preferential
government regulation.” 56 In fact, there are few better examples
of preferential government regulation that promote rent-seeking
behavior than the politically-designed energy policies pursued by
this Administration, which are discussed in more detail in Chapter
6.
This is also true of increasing market concentration.
Consolidation has become ubiquitous precisely because of
increased regulation brought by this Administration. The sectors
in which the Report cites massive consolidation are air travel,
telecoms, banking, food-processing—a veritable “who’s who” of
overregulation. It is also of particular note that, largely as a result
of the changes in the healthcare landscape brought on by the ACA,
the healthcare sector—especially insurance—has recently
undergone consolidation. In all its zeal, the Administration issued
a record number of 82,036 pages of regulation to the Federal
Register in 2015, amounting to more than 3,378 final rules and
regulations and adding to the near-$2 trillion in lost economic
19
productivity and higher prices due to cumulative regulatory
burdens. 57
The Report claims that evidence suggests in many cases that rentseeking behavior “exacerbates inequality and can actually impair
growth.” 58 Rent-seeking is just political entrepreneurship by
another name, as explained by economist Wayne Brough:
The entrepreneurial calculus may change in
response to institutional changes brought by an
expanding regulatory state. Some entrepreneurs
will focus more on redistributing existing rents
through the political process rather than
innovating for the benefit of consumers… As
political entrepreneurs crowd out economic
entrepreneurs, society shifts from the positive-sum
game of wealth creation to the zero-sum game of
wealth transfers. 59
The Report wraps up discussion of problems associated with rentseeking behavior by suggesting political reforms to reduce the
influence of regulatory lobbying: “Finally, to the degree that rentseeking warps regulations, policymakers should reduce the ability
of people or corporations to seek rents successfully through
political reforms and other steps to reduce the influence of
regulatory lobbying.” 60 The implication that the rent-seeking and
regulations relationship is causal in only one direction is puzzling,
as it is equally likely that regulation could incite or re-channel rentseeking behavior. As pointed out in economist Bruce Yandle’s
classic “Bootleggers and Baptists” theory of rent-seeking
behavior, the bootleggers—standing to profit handsomely from
new regulation—support, or rent-seek, “tee-totaling” Baptist
politicians to maintain prohibition of the sale of alcohol on
Sundays. Such a relationship exists between interest groups,
politicians and regulators:
20
In a democratic society, economic forces will
always play through the political mechanism in
ways determined by the voting mechanism
employed. Politicians need resources in order to
get elected. Selected members of the public can
gain resources through the political process, and
highly organized groups can do that quite handily.
The most successful ventures of this sort occur
where there is an overarching public concern to be
addressed (like the problem of alcohol) whose
"solution" allows resources to be distributed from
the public purse to particular groups or from one
group to another (as from bartenders to
bootleggers). 61
In fact, Nobel laureate economist Milton Friedman described this
relationship as more of an “iron triangle,” an insurmountable
connection between interest groups, bureaucracies, and politicians
that makes reform particularly difficult, and virtually always fails
the consumer. 62 As noted by economist Mancur Olson in his study
of special-interest privileges, nations that allow entrenched
interest groups to grow in power and influence over time engender
the relative decline of those nations. 63
Moreover, political reforms that ultimately reduce unproductive
rent-seeking require that government, and the (redistributive)
power of the purse associated with it, necessarily demand that the
target of rent-seeking—government itself, in all of its current
largess—become less tantalizing to seek in the first place. Less
rent-seeking for political favor due to smaller government allows
for a greater ability to address the current unsustainable spending
problem. As discussed in a previous JEC staff study, if fiscal
consolidation and pro-growth reforms are to be successful in the
long term, policymakers must credibly commit to addressing the
multifaceted growth of government, including the size of
21
government, the roles of government and how revenues are
spent. 64
PRO-GROWTH POLICY OPPORTUNITIES
Barriers to Entry: Unionization, Occupational Licensing and
Minimum Wage
The Report extensively discusses the issues associated with
barriers to entry into jobs and markets, and offers several policy
solutions including greater support for collective bargaining,
minimum wage, reducing occupational licensing barriers, and
removing restrictive land use regulations. However, for all of the
points that are made about occupational licensing and other
regulations, the Report stops short of connecting these barriers to
entry with the equally significant ones that unionization and
minimum wage present:
First, the employment barriers created by licensing
raise wages for those who are successful in gaining
entry to a licensed occupation by restricting
employment in the licensed profession and
lowering wages for excluded workers. Estimates
find that unlicensed workers earn 10- to 15-percent
lower wages than licensed workers with similar
levels of education, training, and experience
(Kleiner and Krueger 2010). Second, research
finds that more restrictive licensing laws lead to
higher prices for goods and services, in many cases
for lower-income households, while the quality,
health and safety benefits do not always
materialize (Kleiner 2015). Finally, some statespecific licensing requirements create unnecessary
barriers to entry for out-of-state licensed
practitioners, reducing mobility across state lines
(Johnson and Kleiner 2014). 65
22
The employment barriers detailed in the Report resulting from
occupational licensing also extend to union membership by: (1)
increasing wages for licensed (union) workers compared to nonlicensed (non-union) workers, and (2) increasing the price of
goods and services, particularly burdensome on lower-income
households. 66 In addition, the third and final point with regard to
state-specific requirements is the same concept behind frequent
criticism that the ACA restricts choice by disallowing shopping
for insurance out-of-state. 67
The Report notes that union membership declined consistently
since the 1970s. 68 However, over the same time frame,
occupational licensing was consistently rising. In fact, economist
Morris Kleiner, the very same mentioned by the Report in the
quote above, makes this link in a paper with fellow economist and
former economic adviser to the President, Alan Krueger: as the
prevalence of union membership fell into decline, from nearly
one-third of workers in the 1950s to just above one-in-ten in 2008,
so occupational licensing rose from roughly 5 percent in the 1950s
to nearly 29 percent in 2008. The study additionally notes:
“Indeed, the wage premium associated with licensing is strikingly
similar to that found in studies of the effect of unions on wages.”69
Though Kleiner and Krueger find that unions reduce inequality
(by way of compressing the wage distribution), 70 their research
does not suggest that the “balance of bargaining power leans
toward the firm” 71 in absence of greater unionization.
As the Report acknowledges, occupational licensing can too often
be a clumsy solution to ensure customer health and safety.
Consumer health and safety can be prioritized in other ways, such
as voluntary certification, without hurting entrepreneurship and
job creation. The justification for licensing should include why
certification is not enough. States should re-examine their
occupational licensing laws to ensure that they are not serving the
interests of incumbent groups in place of the consumers they are
meant to protect. 72
23
President Obama again included raising the minimum wage
among his list of proposals for the year ahead in his State of the
Union address. In step, the Report misleadingly argues that the
minimum wage is “geared toward workers with the very least
bargaining power.” 73 However, evidence shows that the minimum
wage is far from a useful tool to help the poor. 74 The main effect
of minimum wage increases is a reduction in the number of lowskill and entry-level jobs. 75 In fact, CBO projected that a proposed
Federal minimum wage to $10.10 per hour could amount to an
employment reduction of as many as one million workers. 76 These
are the very jobs that the most vulnerable workers in the labor
force—those just starting out and looking to get a foothold into
their job paths—rely upon the most. This flies in the face of the
President’s narrative for one simple reason: an unemployed
worker is not an empowered worker.
Over time, the minimum wage gives employers added incentive to
automate, which reduces job opportunities for those with limited
skills. Yet one cannot easily distinguish the advances in
technology that are motivated by artificially increased wage cost
from those that occur independently.
Consequently, the
detrimental effect of the minimum wage on employment likely is
greater than what can be definitively attributed to it. 77
In an effort to alleviate the struggle in which many young workers
find themselves in seeking to obtain their first job, President
Obama has proposed a $5.5 billion dollar collective of grants, skill
investment and direct wage payments. As noted by Mercatus
Center scholar Adam Millsap, the fact that the minimum wage has
a negative effect on teenage and young adult employment is a
“glaring omission” from the President’s proposal, especially given
the glut of evidence demonstrating that minimum wages harm the
most vulnerable and least skilled workers. 78 Other arguments
against raising the minimum wage include that fact that an
increase creates both winners and losers: those who keep their jobs
24
at the new higher wage, and those who see a reduction in hours,
job loss, or fail to obtain a job at all. 79
Policy Goals and Full Employment
Despite assertions of being near “full employment,” broader
indicators continue to show significant slack in the labor market. 80
The unemployment rate has historically been used to determine
progress towards full employment. However, as detailed above
and in greater detail in the subsequent chapter, labor force
dropouts, discouraged workers, and long-term unemployment
have not fully recovered from the recession, even adjusting for
population changes.
Furthermore, the Report states that the same macroeconomic
policies used to return the economy to full employment can be
used to reduce income inequality introduced by cyclical
unemployment:
Indeed, unemployment or sub-optimal employment
is a form of inequality in itself, resulting in zero or
insufficient labor earnings for a subset of workers.
The same macroeconomic policies usually
employed to boost growth and return the economy
to full employment can unambiguously reduce this
cyclical form of income inequality. 81
While Federal law establishes full employment as an official
policy goal as detailed in Chapter 7, blind commitment to full
employment at all costs can be wildly counterproductive. There
are significant tradeoffs associated with using fiscal and monetary
policies to bring the economy back to full employment. Federal
borrowing to meet that goal comes with long-term economic costs
and exacerbates intergenerational inequities.
In fact, the reasons for workers to find themselves jobless or leave
the labor force may suggest a different remedy today than the illconceived stimulative measures initially pursued through fiscal
25
and monetary policies during and in the immediate aftermath of
the recent recession. Many economists and policymakers believe
that, at least in theory, using these macroeconomic stabilization
tools as “counter-cyclical” policy can boost economic growth in
times of distress and rein in growth when the economy is perceived
to be overheating (i.e. when growth is occurring at an
unsustainable rate and demand outpaces production, leading to
higher prices). However, the reality is that the appropriate policies
may not be chosen in a timely manner or at all. The stakes are
high: the wrong move may very well yield a worse outcome for
the economy than would have occurred had no action been taken
at all.
Although the Report places the discussion of income inequality in
the specific context of cyclical unemployment (which results from
insufficient aggregate demand), F.A. Hayek argued that not all
unemployment above the natural rate is indicative of insufficient
aggregate demand, and pursuit of full employment through
spending meant to increase aggregate demand risks not only
chronic inflation, but imposes a pervasive mismatch between the
type of labor supplied and the type of labor demanded by
employers. Hayek goes on to note the true problem is to achieve
a distribution of labor with a sustainable level of high employment
without artificial stimulus. However, Hayek cautions that we are
incapable of knowing what that distribution of labor is
beforehand. 82
Federal policymakers have an important role in fostering a freemarket economy in which Americans enjoy ample opportunities
for employment, but government should not and cannot be the
paramount facilitator of the labor market. The private sector is the
true driver of labor market dynamism.
It is quite possible that the recession, paired with longer-term
structural trends in technology and demographics, as well as
policy changes that affect the reward of work, have altered
incentives to participate in the workforce, work more hours, and
26
start and grow businesses. Many policies that the Administration
has pursued in the aftermath of the recession are estimated to
negatively affect employment. Examples include the President’s
proposed minimum wage increase, the ACA’s 30-hour full-time
work threshold, 83 and the pending increase in the Department of
Labor’s income threshold for overtime pay eligibility. 84 As
aforementioned, CBO projected that a proposed Federal minimum
wage to $10.10 per hour could amount to an employment
reduction of as many as one million workers. 85 In addition, CBO
also estimates the implementation of the ACA will cause a labor
force reduction of roughly two million full-time equivalent
workers by 2025. 86 Full implementation of the increase in the
Department of Labor’s income threshold of overtime pay could
reduce full-time equivalent jobs by as much as half a million jobs
or more. 87 These and other regulations effectively reduce
economic productivity and thwart job growth for the most
vulnerable workers.
Rather than the Administration’s policies, Congress should look
to pro-growth, structural policy measures and reforms, including
changes in spending and tax provisions, and deregulatory
measures that aim to increase the incentives for potential workers
to find jobs, and for businesses and entrepreneurs to hire and train
workers. 88 Above all, in this uncharacteristically slow-growth
environment, it remains more important than ever that the
Administration, Congress and the Federal Reserve avoid taking
hasty action that risks destabilizing an already fickle economy.
Improving Workforce Potential
Overall wage growth was middling for most of 2015, picking up
in the final month of the year. By one measure, the 12-month
change of average hourly earnings, nominal wage growth rose 2.5
percent in December 2015, suggesting long-awaited momentum
for stronger growth had finally arrived, though the average
annualized change for 2015 stood at 2.2 percent. 89 However,
nominal wages are still increasing more slowly than the 3.5
27
percent rate which the Federal Reserve considers “healthy.” 90
Furthermore, that momentum has a long way yet to translate into
higher household incomes. Real median household income for
2014 (the latest data available) was slightly lower at $53,657 than
in 2013 ($54,462). 91
As aforementioned, wage gains for millennials have been much
slower. In fact, other costs typical to a young person—such as rent
and student loan debt— are actually outpacing wage gains. In
addition, the starting wages of recent college graduates since the
beginning of the recent recession have changed very little, and a
gap has grown between recent graduates and overall median
weekly earnings, an occurrence that predates the recent recession
by several years. 92 In fact, the aforementioned Pew research on
the middle class found that young adults age 18 to 29 were among
the biggest “losers with a significant rise in their share in the
lower-income tiers.” 93 Economist Tyler Cowen argues that does
not bode well for our economic future. 94 This is particularly
concerning if the economy is giving way to a “Great Reset” that,
in a low-productivity growth environment, 95 will offer far less
favorable long-run wage prospects and slower growth in living
standards, borne out most clearly by the young entering into the
workforce. Ultimately, it remains to be seen whether young adults
will surmount the challenges they face today. 96
In his State of the Union address, President Obama brought his
proposal for two years of free community college back to the fore,
stating that he will “keep fighting to get that started this year.”97
However, the Administration’s focus in the realm of education
remains misplaced and the solution offered does little to remedy
the education deficits with which so many students across the
nation are saddled. As mentioned in the Response last year:
Making community college free does not ensure
that students who graduate from said programs
will actually have the skills they need to obtain a
good paying job. Today, many of the classes
28
offered at community colleges are remedial,
compensating for deficits in education received at
the high school level. Financially, community
college is not perceived as a chokepoint for many
students, as most low-income individuals are
already able to receive a community college
education for free if they are eligible for Pell
Grants. Furthermore, of the nearly 40 percent that
are able to graduate, their incomes remain scant
above that of workers with only a high school
diploma if they do not go on to complete a college
degree. 98
Recent research from the Federal Reserve Bank of New York
indicates that nearly half of recent college graduates were
underemployed between 2009 and 2013, working in jobs that do
not require a college degree, though these recent graduates are
making more than other young workers of a similar age without a
degree. Only approximately one-fifth of underemployed recent
graduates were in low-skilled jobs, including baristas, bartenders
and cashiers. 99
In testimony before the JEC, American Enterprise Institute scholar
Andrew Kelly argued that evidence increasingly suggests that not
only does an affordability crisis exist in American higher
education, but that a value crisis exists as well. This is especially
true in the case of recent college graduates, given that the wages
of recent college graduates have declined over the past decade.
The result is that students are paying more for a lower return to
education. 100 In the same hearing, former Indiana governor and
current Purdue University President Mitchell E. Daniels noted that
accessibility and affordability of higher education and career
readiness are imperative to economic growth and argued that
universities should have more “skin in the game” to hold them
accountable for student outcomes. 101
29
CONCLUSION
Nearly seven years into the recovery, Americans are still waiting
for a sign of stronger income growth and resulting economic
mobility. As the JEC marks its 70th anniversary this year, as
discussed in more depth in Chapter 7, it is remarkable that our
nation finds itself continuing to address many of the same
challenges raised in previous years. For instance, in its Response
on the 50th anniversary of the JEC, the Committee noted that
though President Clinton and his CEA were painting a picture of
economic robustness, members were concerned that things like a
booming stock market belied economic fundamentals:
The President wants anxious workers to know that
he ‘feels their pain’ while at the same time
boasting…that this is the best economy in decades.
Economic statistics paint a contradictory picture.
The so-called “misery index” (inflation plus
unemployment) is admittedly quite low (thank you
[Fed Chairman] Alan Greenspan), but this
economic expansion has been unambiguously
poor….The facts are clear. No matter how you
slice it, Bill Clinton’s economic expansion
record—anemic growth of 2.3%—is dismal. 102
Not only did these words make it clear that Members believed
tough times lay ahead (confirmed when the dot-com bubble burst),
they have also proved timeless. One could easily read the exact
same paragraph in today’s paper with a couple of names changed
to reflect different Administrations, and have no idea that it had
been written 20 years ago.
It is only fair to note that although the JEC has a good track record,
the Committee’s Response has admittedly not always been spot
on. For instance, the then-Majority’s 2010 Response set out a
three-point agenda that they claimed would kick start the postfinancial crisis economy:
30
An effective, targeted stimulus would include a
portfolio of policies.
First, extending
unemployment insurance would have ripple effects
across the entire economy, triggering broad-based
economic growth…Second, federal investment in
small businesses would help jumpstart job
creation….Finally, federal funds for innovation
and basic research play a key role in economy
recovery. 103
After six years of irresponsible spending on programs like these,
the United States remains mired in economic growth barely
topping two percent. 104 Deficits and debt are on the rise and one
in ten people age 16 and older is underemployed or
unemployed. 105 Furthermore, the likelihood of the United States
slipping into recession has risen to 25 percent according to Bank
of America. 106 Perhaps the Administration should have heeded
the conclusion of the Minority Views at that time:
Despite the daunting challenges facing our nation
and recent steps by the majority in the wrong
direction, we remain confident that the
entrepreneurial spirit and drive of America will
survive and prosper. It will emerge—not with the
interference of an expansive government, but with
the hard work, thrift, and determination of its
people.
Harnessing that work, thrift and
determination requires that government help
provide a transparent and fair playing field, but
also requires that government let its working
families and productive enterprises flourish by
allowing them to reap the benefits of their
activities. Higher taxes and expanded government
serves to diminish rewards to entrepreneurial
efforts. 107
31
As discussed in last year’s Response, the Administration should
broadly support policies that promote economic mobility for all
Americans in addition to focusing on individuals who experience
little to no economic mobility, such as those who lack the
necessary skills to compete in today’s workforce.
Furthermore, as longer-term technological trends continue, labor
market polarization 108 will continue to affect the types of jobs
demanded in the economy as middle-skill jobs are automated.
Policies that negatively alter work incentives will reduce work
opportunities, flexibility, and hours. Regulatory barriers to
entrepreneurship, specifically the cumulative burdensome
requirements imposed at the Federal level and occupational
licensing laws at the state level, will continue to impede the
creation and development of businesses and the jobs that come
with it. 109 Altogether, these shifts in technology and policy will
ultimately be reflected in the income earned, the number of
earners, and the hours worked by individuals in these households,
regardless of distribution.
As discussed in the Report, much concern remains over the
considerable slowdown in productivity over the past decade, and
labor productivity in the nonfarm business sector remained fairly
subdued over the course of 2015. 110 Strong growth in productivity
is a key component to output, profit, and wage and income growth.
Yet nonfarm business sector productivity growth has achieved a
mere 0.6 percent average annual rate since the first quarter of
2010, and fell at an annual rate of 3.0 percent in the last quarter of
2015. Thus far, it would appear that the Administration’s hopes
of higher productivity have been dashed, undermining the
Administration’s budget and expected lower future deficits.
In addition, while demographic trends continue to affect the
overall labor force participation rate, the participation rate of
prime-age workers (age 25 to 54) remains 1.8 percentage points
below the recovery start after decelerating during the recession
and reflecting a longer-term declining trend. As mentioned in the
32
Response last year, though it is hoped that these trends will
improve, productivity and labor force participation growth alone
cannot address the Federal spending problems that have been
years in the making. Furthermore, if the projected long-term
trends in demographics and participation in the labor force serve
to frame the future labor market, then countries such as the United
States would be wise to ensure their fiscal sustainability to avoid
potentially slower future economic growth.
33
CHAPTER 2: MACROECONOMIC OUTLOOK
The Report points out that relatively strong job growth has
been particularly disconnected with slower GDP growth over
the course of this recovery, and labor market “churn” has
continued its long-run, declining trend. Yet whether this is due
to greater job stability or workers’ reduced ability to achieve
wage gains by switching jobs remains to be seen. Despite
presuming a relatively optimistic economic outlook going
forward based upon a budget that presumes debt will at least
“stabilize” over the next 10 years, the Report again fails to
recognize the long-term impending debt crisis that, if left
unaddressed, will hurt the U.S. economy, dampen wages,
threaten our national security, and reduce the Federal
Government’s ability to respond to future challenges.
In the next decade, outlays on mandatory programs and interest
payments on the debt will be the driving forces of increased
spending, consuming 99 percent of all Federal revenues by
2026. Two of the primary trust funds used to provide certain
Social Security and Medicare benefits will be exhausted by
2030 and 2026, respectively. It will cost over $5.9 trillion in
additional spending to preserve scheduled Social Security
benefits for 10 years after its insolvency date, and it will cost
over $2.8 trillion to preserve Medicare services for an
additional 10 years. Another key driver of mandatory outlays
stems from the ACA, the costs of which have been grossly
underestimated. The ACA essentially takes money from
Medicare in order pay for the health law, and the JEC expects
increased spending in the order of trillions will result from the
ACA.
34
NEAR-TERM OUTLOOK
Gross Domestic Product
Economic growth continued at a relatively muted pace in 2015.
After yet another slow start in the first quarter of 2015, GDP
demonstrated tepid growth in the second quarter, a relatively
strong third quarter, followed by deceleration in growth for the
final quarter. Despite attaining average real GDP growth of only
2.1 percent over the course of the current recovery, President
Obama’s Fiscal Year 2017 Budget still assumes a relatively
optimistic 2.4 percent average GDP growth over the next five
years, ticking down to 2.3 percent average growth from 2022
through 2026. 111 By contrast, CBO expects a more conservative
average rate of 2.1 percent over the next five years and 2.0 percent
average growth from 2022 through 2026. 112 A smaller economy
over the next decade would mean less revenue than the Obama
Administration expects to meet ever-growing spending
obligations. This comparison is limited by the fact that the CBO’s
economic assumptions are based on current law, and the
President’s budget is based on a variety of changes to current law
and economic assumptions that differ from the CBO’s analysis.
Real GDP growth in the fourth quarter of 2015 appears sluggish
compared to earlier quarters in the year, though revised up to 1.0
percent. As measured from fourth quarter to fourth quarter, which
is the preferred measurement used by CBO and the Federal Open
Market Committee (FOMC), real GDP growth from the fourth
quarter of 2014 to the fourth quarter of 2015 slowed to 1.9 percent
(Figure 2-1).
35
Figure 2-1
The economy continues to suffer from gaps in economic growth,
private-sector jobs, and real income growth, lagging far behind the
average post-1960 recovery. If real GDP had grown at the average
rate of other post-1960 recoveries, real GDP would be nearly $2.0
trillion (2009 dollars) larger (see Figure 2-2).
Figure 2-2
36
The current recovery continues to rank last among post-1960
recoveries in terms of real economic growth. Since the recession
ended in the second quarter of 2009, real GDP has grown at an
average annual rate of 2.1 percent. In other post-1960 recoveries,
real GDP expanded at an average annual rate of 3.9 percent during
the comparable six-and-one-half year period (see Figure 2-3).
Figure 2-3
CBO projected in the January 2016 release of its Budget and
Economic Outlook that real GDP will grow at a much slower rate
during the 2015-2026 period—an average of 2.1 percent
annually—than it did during the 1980s and 1990s, and slower than
its previous August 2015 projection of 2.3 percent annually over
the 2015-2025 period. 113 A growth of roughly 2 percent over the
next decade and beyond is significantly lower than the average of
nearly 3.4 percent growth enjoyed over the previous 50-year
period prior to the recent recession, resulting in a smaller economy
than previously anticipated going forward.
Labor Market
The Report highlights the last two years as the best job growth
since 1999 and reiterates that the past year continues to post
37
impressive job growth, adding 2.7 million jobs in 2015, bolstering
the slightly stronger gains seen in 2014. 114 However, in today’s
economy, many people would like to work more hours, it takes
longer for the unemployed to find a job, and wage growth remains
tepid. The current economy is marked by slower economic
growth, productivity and entrepreneurship.
The current recovery also suffers from a large and persistent
private-sector jobs gap. Compared to the end of the recession in
the second quarter of 2009, the private-sector jobs gap stands at
6.0 million compared with the average of other post-1960
recoveries (see Figure 2-4).
Figure 2-4
A recent Georgetown University Center on Education and the
Workforce study found that the economy would have 6.4 million
more nonfarm payroll jobs than it does today if the recession had
never occurred, achieving more than 155 million payroll jobs in
total based on pre-recession trends. 115
For measuring progress on job gains, the Administration typically
focuses on the period since February 2010, when private-sector
payroll employment hit bottom, rather than the June 2009 end of
38
the recession. Even on that more favorable basis, the privatesector jobs gap stands at 2.8 million compared to the average of
other post-1960 recoveries. Over the last six months, the economy
has added an average of 213,000 private-sector jobs per month.
Even if that pace were to continue through the end of 2016, the
private-sector jobs gap measured from the end of the recession
would be 4.6 million compared with the average of other post1960 recoveries.
As with the growth gap in real GDP, closing the private-sector jobs
gap by the end of 2016 will require much more rapid job growth
than the Obama recovery has delivered to date. To eliminate the
6.0 million private-sector jobs gap by the end of 2016, the
economy will need to add 630,000 jobs each month over the next
11 months. That mark has not been achieved once during the
current recovery.
CBO and other institutions have continued to revise GDP growth
projections downward to account for demographic trends and for
slower workforce growth in the years ahead, dulling expectations
for stronger growth in the United States. Global growth has also
slowed, and the trends in the United States and abroad kindled
implications of the beginning of a “new normal” of slower
economic growth. CBO’s latest projections demonstrate muted
expectations for nominal GDP growth over the next decade,
revising nominal GDP down by approximately $5 trillion in 2025
compared to August projections. 116 In this projected slow-growth
environment, it is estimated that standard of living growth will
slow by half compared to previous growth rates over the past halfcentury. 117 Growth of real private nonresidential fixed investment
has continued to steadily expand, but taxes, the ACA, and the everincreasing accumulation of regulations continue to raise the aftertax cost of new investment.
39
Figure 2-5
The relatively sluggish income growth over the course of the
recovery has left many American households feeling bereft of the
stronger gains seen in previous recoveries and on tighter budgets.
Over the last six-and-one-half years, real disposable personal
income per capita has increased 7.9 percent, or $2,834 (2009
dollars). In an average post-1960 recovery, the per capita increase
would have been 15.6 percent or $5,582 (Figure 2-5). As
aforementioned, median household income, at $53,657 in 2014,
remains 6.5 percent below its recent 2007 peak of $57,357 (in
2014 dollars). 118
Payroll Jobs
While jobless claims continued to trend downward over the year,
nonfarm payroll growth averaged 228,000 and private-sector
payrolls averaged 220,000 per month over the course of 2015
(Figure 2-6). The total recovery average is 155,000 for total
nonfarm payrolls and 162,000 for private-sector job payrolls.
40
Figure 2-6
In addition, CBO projects nonfarm payroll employment to rise by
an average of 196,000 jobs per month in 2016, slowing to less than
75,000 nonfarm payroll jobs added on average per month by
2026. 119
Unemployment
The Report highlights the continued decline of the unemployment
rate, decreasing to 4.9 percent in the latest estimate for January
2016. The unemployment rate continued to decline over the
course of 2015 since its October 2009 peak of 10 percent, but longterm jobless workers still comprise more than a quarter of the
unemployed. Long-term unemployed (unemployed 27 weeks and
longer) fell from one-third to one-quarter of unemployed persons
in the first six months of the year, and has hovered near that share
for the final six months, still nearly double its 40-year historical
pre-recession average of approximately 14 percent.
Recent research from the Federal Reserve Board finds that the
prospects for the long-term unemployed remain relatively dim. St.
Louis Federal Reserve Vice President Stephen Williamson
suggests that the evidence points to the long-term unemployed
41
lacking the necessary skills to attain a job, and that if history is a
guide, many will drop out of the labor force altogether, as “[t]hey
are unlikely to be hired under any conditions.” 120 As it stands, the
median and average duration of unemployment remains
significantly elevated in the aftermath of the recent recession at a
median 11 weeks and an average 29 weeks.
CBO estimates that if the unemployment rate returned to its
natural rate and the labor force participation rate equaled its
potential, there would have been 2.5 million more workers in the
fourth quarter of 2015. CBO expects the unemployment rate to fall
below its natural rate from 2016 through early 2019, thus
narrowing the employment shortfall, but the slack between the
labor force participation rate and its potential rate is projected to
fall but not completely disappear over the same time frame. 121
Labor Force Participation and Employment-to-Population Ratio
The labor force participation rate remains subdued, near a
recovery low, and the share of part-time workers looking for fulltime work remains elevated. The overall labor force participation
rate continued to decline, as did the participation rate for primeage workers (ages 25-54). The long-term trends continue to show
steady declines overall and among prime-age workers, which
slightly accelerated during the recession and through the recovery.
While a decline in the overall participation rate was expected well
in advance of the recession, the decline appeared sooner and at a
faster rate than any previous predictions anticipated (Figure 27). 122
42
Figure 2-7
After holding steady between 62.7 and 62.9 percent for more than
a year between April 2014 and May 2015, the labor force
participation rate hit a new recovery low of 62.6 percent in June
2015, and remained there for three consecutive months in total
before falling to yet a new recovery low of 62.4 percent in
September 2015. As of January 2016, the labor force participation
rate remains near a recovery low at 62.7 percent, down 3.0
percentage points since the recovery started (Figure 2-8).
43
Figure 2-8
The workforce is also smaller among Americans in their prime
working years. This is not just baby boomers aging out of the
workforce; as mentioned in Chapter 1, at 81.1 percent, the
participation rate for prime working age Americans remains 1.8
percentage points below its recovery start. As mentioned in last
year’s Response, prime-age workers have also seen their labor
force participation in decline as a group since the early 2000s, and
more rapidly over the course of the recession. 123 While the primeage labor force participation rate has fallen 3.5 percentage points
from its high in January 1999, the participation rate for workers
age 55 and older has increased by 8.5 percentage points to 40.0
percent over the same time frame.
More recently, as shown in Figure 2-9, when broken down into
five-year age cohorts, only workers age 60 and older have seen
their participation increase since the start of the recovery. By
comparison, workers age 59 and younger, particularly ages 16 to
19 and men ages 20 to 24, have seen their workforce participation
decline significantly over the course of the recovery.
44
Figure 2-9
According to CBO, growth of the potential labor force is less than
previous estimates. As was discussed at great length at the JEC
hearing, “What Lower Labor Force Participation Rates Tell Us
about Work Opportunities and Incentives,” while many believe
that America has entered a “new normal” characterized by lower
economic growth and workforce participation, and subsequently
requires policies that lessen negative consequences, it is perhaps
too soon to claim that these trends are permanent features of the
American economy. Manhattan Institute scholar Scott Winship
stated in his written testimony, “Policies to help low-income
individuals and families should not presume that the American
job-creation machine is broken, or that our recent cyclical
challenges portend a ‘new normal’ in the coming decades.” 124
In her testimony before the Committee, American Enterprise
Institute scholar Aparna Mathur cited reduced job mobility, the
decline in demand for “middle-skill” labor, and job quality among
the reasons for the decline in workforce participation. 125 Winship
testified that Federal disability benefits “increasingly serve as a
shadow long-term unemployment program for able-bodied men
who struggle to find work.” 126 For Americans still in their prime-
45
earning years, periods spent out of the labor force, underemployed,
and jobless can have far-reaching implications for their wellbeing, including lower income, lower lifetime earnings, and less
time to accumulate assets and financial security.
BLS, CBO, and the Social Security Administration (SSA) have
known for some time that labor force participation would decline
in the coming years as baby boomers retired. Yet none of these
institutions predicted that the overall rate would fall this fast and
this soon. Back in 2007, none of them could have predicted the
lasting impact that the recent recession would have on the labor
market, and the extent to which the recession introduced structural
changes as well as cyclical ones remains a subject of debate today.
As Mathur pointed out in her testimony, the fall in participation is
troubling because participation is also declining among younger
generations as well.
The employment-to-population ratio remained relatively
unchanged over the course of 2015. The overall employment-topopulation ratio is 0.2 above the recovery start level, but it is still
3.1 percentage points below its pre-recession level. For prime-age
workers, the employment-to-population ratio is up 0.3 percentage
point since the recovery’s start, but remains 2.0 percentage points
below its pre-recession level. Though the employment-topopulation ratio has continued to show an upward trend, the
January 2016 rate of 59.6 percent still remains well below the prerecession level of 62.9 percent (see Figure 2-10). Despite recent
gains in the ratio, it would appear that the return to the prerecession peak in the employment-to-population ratio will not
occur in the near term.
46
Figure 2-10
Over the course of the recession and part of the recovery, the
number of Americans between the ages of 25 and 54 actually fell
by roughly a million, before beginning to recover again starting
around the beginning of 2013.
Despite this interesting
demographic turn of events, using the employment-to-population
ratio nonetheless shows the ratio of the population, regardless of
its size, which is working.
47
Figure 2-11
As shown in Figure 2-11, even accounting for changes in the
prime-age worker population, there would be approximately 2.5
million more prime-age workers employed if the employment-topopulation ratio for prime-age workers was the same rate as it was
in December 2007, when the recession began.
Full-time and Part-time Employment
For the first time since the recession began, full-time employment
achieved its pre-recession level briefly in August 2015, and
subsequently regained and surpassed that level in October 2015
and beyond. Nearly eight years later, it now stands at 123,141,000
in January 2016. As a share of total employed, however, full-time
employment remains more than a percentage point below its prerecession share of employed as part-time employment continues
to gain. Part-time jobs jumped during the recession and remain
elevated by more than 2 million compared to pre-recession levels.
As a share of the employed, part-time work is up 1.3 percentage
points compared to its pre-recession level.
48
Figure 2-12
The share of those working part-time for economic reasons has
fallen considerably over the past year, yet still remains elevated
above its pre-recession average, and as noted in the Report still
contributes to the elevated U-6 unemployment rate of 9.9 percent,
also frequently termed the “real” unemployment rate given that it
captures a broader array of labor underutilization data.
The Effects of the Affordable Care Act on Labor
The Response to last year’s Report outlined numerous negative
effects of the ACA on the supply of labor. The ACA continues to
cast a long-term shadow over the labor market.
As
aforementioned, CBO’s most recent projections indicate that the
ACA will reduce the labor supply by 0.86 percent by 2025,
translating to 2 million fewer full-time equivalent workers in the
labor force than if the ACA had never become law. 127 This
projected labor supply reduction is due to various disincentives to
work created by provisions of the ACA designed to subsidize
health insurance coverage, mandate the purchase or provision of
health insurance coverage, and raise revenue through different
taxes and penalties.
49
Half of the total labor supply reduction projected by CBO (0.43
percent) is attributable to the health insurance premium and costsharing subsidies available through the ACA marketplace. 128
Premium subsidies are available to individuals with incomes
between 100 and 400 percent of the Federal Poverty Level (FPL)
who lack access to employer-sponsored health insurance. Because
premium subsidies on the marketplace decrease as income rises,
the result is an increased effective marginal tax on work. 129 This
disincentive to work is compounded for individuals with incomes
between 100 and 250 percent of FPL who obtain health coverage
through the marketplace because the effective marginal tax on
work is more pronounced as a result of the sharp phase-out “cliffs”
built into the ACA’s cost-sharing subsidy formula.
Subsidized health coverage is also available to individuals with
incomes below 138 percent of FPL in states that have either
expanded traditional Medicaid as originally envisioned by the
ACA or in states that have expanded coverage through an
alternative model incorporating waivers from Medicaid’s rules.
Because state Medicaid programs generally provide more heavily
subsidized coverage in comparison to subsidies gained through the
ACA marketplace, individuals whose incomes rise above the
Medicaid eligibility threshold are therefore subject to a subsidy
cliff and increased effective marginal tax on work. Individuals
with incomes just above the eligibility threshold also have an
incentive to work less in order to land on the more advantageous
side of the Medicaid eligibility threshold, thereby gaining access
to lower-cost health insurance.
However, the exact design of Medicaid programs vary by state,
largely depending on whether the program is viewed as more of a
temporary bridge to self-sufficiency as opposed to a permanent
entitlement. For example, Indiana’s alternative to traditional
Medicaid, Healthy Indiana Plan, mitigates the subsidy cliff by
requiring personal health account contributions from all enrollees
50
who choose the more robust “HIP Plus” plan and from all enrollees
with incomes above the poverty line. The required contribution
amount, 2 percent of income, in fact matches exactly the ACA
exchange premium cap for individuals up to 138 percent FPL.130
Other Indiana reforms, such as a 6-month “lock-out” period for
non-payment and the absence of retroactive coverage, replicate
standard policies found in the private insurance market as well as
the ACA marketplace. Indiana’s plan also incorporates a
“Gateway to Work” referral program to help participants develop
and hone marketable skills and matches them with prospective
employers, thereby enhancing the participant’s prospects for
upward mobility.
The ACA imposes new taxes on individual income that will reduce
the incentives to work, save, and invest, thereby reducing
employment. Wages and self-employment income over $200,000
(single) or $250,000 (married) are now subject to an additional 0.9
percent Medicare payroll tax. Investment income, such as rent,
interest, dividends, and capital gains, for this same group of
earners is subject to an additional 3.8 percent tax. According to a
Tax Foundation study, these taxes will reduce the number of fulltime equivalent jobs by 0.3 percent. 131
Small and medium-sized employers with 50 or more full-time
equivalent employees are mandated to offer health insurance
coverage or face a tax, prorated monthly, per each full-time
employee over the first 30 employees. The tax is indexed each
calendar year to the premium growth rate, and in 2016 the annual
tax rises to $2,160. Larger employers offering health insurance
could face $3,240 tax in 2016 for each full-time employee
receiving a subsidy to purchase health insurance coverage through
the marketplace. The employer mandate creates an incentive for
employers to hire less full-time employees and shift some existing
full-time employees to part-time employment. Employers may
also choose instead to reduce wages as an offset to the cost of the
tax. However, in light of the relatively recent imposition of this
51
tax, it remains to be seen how exactly employers will alter their
structure and compensation to manage its full costs.
Economist Casey Mulligan, Professor of Economics at the
University of Chicago, estimates that the ACA’s explicit and
implicit taxes will affect nearly half of the working population,
reducing average wages by $1,000 per year, or about four percent
for low-income families and nearly two percent for higher-income
families. 132 Mulligan also estimates that, by 2017, the ACA’s
labor effects will translate to roughly three percent less in weekly
employment, three percent fewer total hours worked, two percent
less in labor income, and two percent less GDP compared to the
economy in absence of the ACA. 133 CBO notes that, when
factoring in labor supply elasticities, it will take some time for
workers to fully adjust to the harmful incentive structures created
by the ACA, meaning that the overall impact of the ACA on the
supply of labor will become progressively worse as time goes
by. 134 This also means that it is not too late for Congress to step
in and prevent the bulk of the labor market damage projected to
occur as a result of the ACA’s existence.
Housing Market
The weak recovery of the past seven years has been barely
apparent to middle-class families, whose income growth remains
muted, and to retirees, whose retirement savings earn little interest
as a result of years of low rates driven by Federal Reserve policies.
One of the few financial benefits they have seen is an increase in
the value of their home. The residential real estate market has
achieved steady gains since the recession, and American
households’ balance sheets show higher equity.
The Report finds that the housing market’s recovery is well
underway, 135 and net housing wealth is nearing 2008 levels.136
However, the Administration has not taken advantage of
improving market conditions to push for reforms that could
strengthen the government-sponsored housing enterprises, Fannie
52
Mae and Freddie Mac. As a result, Federal Housing Finance
Agency Chairman Watt is warning that taxpayers may again be
asked to bail out Fannie Mae, as they did in 2008. 137 The
Administration should take immediate action to improve
underwriting, discourage lending criteria that is leading to higher
default risk in an improving market, and protect the taxpayer.
However, several variables present risks to continued residential
real estate market gains. First, the mortgage market remains
dominated by Federal agencies, 138 offering consumers a limited
range of mortgage options and “one-size-fits-all” approval criteria
that freeze out would-be homeowners. 139 Second, Federal lending
is returning to the low-down-payment programs that contributed
to the real estate bubble of a decade ago, and contributed to a
financial crisis that wiped out the equity many homeowners
believed they had. 140 Third, as aforementioned, graduating
millennials have started careers in a weak job market; this slow
start in their independent adult lives means they delay marriage
and purchases of their first homes. 141 Federal policy should take
action to mitigate these risks and encourage a thriving privatemarket economy that rewards work and innovation, supports
families, and provides a backstop against imprudent borrowing
and lending. Furthermore, if Americans adjust to a “new normal”
lifestyle supported by the two percent real GDP growth rate
characterized by the current recovery, fewer may ever achieve
sufficient income and savings to move up from their “starter
home,” leaving “move-up” homeowners in a market that has fewer
buyers than sellers. 142
Fiscal Policy
The Report repeats the claim President Obama touted in his State
of the Union address that the Federal budget deficit has been cut
“by almost three-quarters.” 143 While technically correct, the
Report’s lack of context misrepresents the issue. It is misleading
to emphasize deficit reduction without also noting that the
President’s starting point for such a comparison was one of the
53
most expensive years in U.S. history. Due to the coupling of a
weak economy and a large growth in Federal spending from the
stimulus, Federal outlays reached 24.4 percent of GDP in fiscal
year 2009—the President’s starting point. Since 1930, only three
other years have had higher outlays than this starting point: 19431945. 144
According to CBO and the President’s Office of Management and
Budget (OMB), Federal deficits are actually expected to increase
in fiscal year 2016 from the previous year. 145 Deficits are
projected to continue to rise, even though revenues are expected
to be higher than historical averages. The historical average of
Federal outlays over the past 50 years is 20.2 percent of GDP,
while revenues average 17.4 percent of GDP during the same
time. 146 As shown in Figure 2-13, revenues are expected to hover
around 18 percent of GDP through 2026, whereas outlays will
continue to climb above the historical average and will hit 23.1
percent of GDP in 2026.
Figure 2-13
54
Under President Obama, outlays have averaged over 22 percent of
GDP. 147 The OMB even expects deficits to be higher than CBO’s
calculations, with OMB estimating a $616 billion deficit in
2016, 148 compared to CBO’s $543 billion. 149 Such trends make
the President’s blanket-claim of reduced deficits all the more
dubious, particularly when he and this Report fail to mention the
burgeoning growth of gross and publicly held Federal debt.
The President’s Fiscal Year 2017 Budget, however, seeks to
remove the previously-established budget caps in favor of
additional spending, offset by increased taxes. The President’s
budget would increase Federal spending by $2.5 trillion and raise
taxes by $3.4 trillion over the next 10 years. Even with this
additional $3.4 trillion in proposed taxes, the President’s budget
never balances and would result in $24.7 trillion in debt—an
increase of 30 percent—by 2027. 150
The day President Obama was first sworn into office, the total
Federal debt held by the public stood at $10.6 trillion. 151 Due to a
rapid expansion of Federal spending, the debt now tops $19
trillion.152 In fact, President Obama managed to add more to the
Federal debt in his first 7 years of office than during the combined
16 years Presidents Bill Clinton and George W. Bush held
office. 153
Monetary Policy
In December 2015 the FOMC of the Federal Reserve (Fed) ended
seven years of holding the Federal funds rate at the zero bound.
The Fed raised the target Federal funds rate to a modest 1/4
percent, and maintained this level at the January 2016 FOMC
meeting. 154 Federal Reserve Chair Janet Yellen has stressed that
the rate increase trajectory will be slow and gradual, though recent
data signals that trajectory may be even slower. Important though
this rate hike was, the Fed remains nowhere close to a normalized
monetary policy, evidenced by several factors. These include the
Fed’s elevated balance sheet—which can be the fuel for
55
inflation—and the FOMC’s policy of reinvesting, rather than
unwinding, principal from its holdings in agency mortgage-backed
securities.
It is troubling that the Fed has not found a way to normalize
monetary policy in the years following the 2008 financial crisis.
Certainly, the Fed is not alone among its global central banking
peers, and perhaps it should even be commended for resisting the
temptation to engage in further quantitative easing, like the
European Central Bank, or the move to negative interest rates, like
the Bank of Japan. Nonetheless, the current policy has pushed
many, including those on fixed incomes, into equities and other
investments that may not be appropriate for their age and
circumstances. Equity prices have surged in this loose monetary
policy environment, but the recent market volatility, owing
partially to developments in the energy sector and China,
demonstrates that such investments are not without risk.
Moreover, when the economy is flying “low-and-slow” as it has
throughout this weak economic recovery, the effect of external
economic shocks can be much more dramatic. Absent a
normalized monetary policy, the Federal Reserve has no playbook
with tested scenarios to which it can turn. Rather, it must learn as
it goes in an environment where not much separates appropriate
boldness from rash hubris, leading to national fiscal peril. Such is
the case when the ordinary tools of monetary policy have been
exhausted and not reset.
Meanwhile the effects of Administration policies—with respect to
the national debt and deficits, having one of the highest corporate
tax rates in the world, and an ever increasing regulatory burden
such as that imposed by the ACA—weigh on the national
economy and hinder our global competitiveness. In response, the
Fed has directed monetary policy on a course to try and achieve
what monetary policy simply cannot achieve. The Fed would do
well to return its monetary focus to the one thing that it can
achieve—stable prices over the long term—and leave removal of
56
fiscal and regulatory obstacles to long-term economic growth and
job creation to their rightful domain, the Congress and the
Administration.
LONG-TERM OUTLOOK
Once again, in this year’s Report, as in last year’s, there is little to
no discussion regarding the dangers of the nation’s increasing debt
burden, despite the fact that CBO expects deficits to begin rising
again in 2016, one year sooner than projected in the Budget and
Economic Outlook released in August 2015. In fact, CBO projects
trillion-dollar deficits will return in 2022, three years earlier than
previously projected, with deficit growth projected to outpace
economic growth by 2019. 155 As aforementioned, debt is expected
to reach levels never before seen in the United States, with debt
held by the public rising to 155 percent of GDP within the next 30
years under current law (Figure 2-14). 156
Figure 2-14
The Risk of High and Rising Debt
The accumulation of such staggering levels of debt are nothing
short of reckless, and this Report does a serious disservice by
57
downplaying the impacts of such egregiously high levels of debt.
The consequences of the United States’ unmanageable debt
include reduced private capital in the economy, lower productivity
and wages, and higher interest rates—discussions of which are
noticeably absent in the Report.
Ironically, the Report notes the global economic harm that has
resulted from high levels of debt in other countries, yet the Report
and the Administration fail to extend its analysis to the destructive
consequences of the U.S. Federal Government’s debt. The Report
rightfully mentions that high levels of debt in major advanced
economies—except the United States—has decreased demand and
private investment in those countries, resulting in “persistently
disappointing world growth over the last half-decade,” 157 while
not acknowledging that the United States is following suit.
Instead, the Report claims that long-term debt will stabilize under
the President’s proposed budget, but relies on dramatic tax
increases and unrealistic economic conditions to achieve such debt
stabilization.
For example, the Report emphasizes the “dangers [that] have
materialized in Japan” as a result of unsustainable debt levels, an
aging population, and fewer workers to support pensions. The end
result is a stagnant economy that is expected to persist in the
coming years. The Report also emphasizes the increased
challenges Japan faces in attempts to manage government debt and
finance future government commitments—all of which are having
global reverberations that “are now coming to the forefront of the
global economy.” 158
Interestingly, the Report omits the obvious similarities that the
United States will soon have to grapple with. The number of
Americans age 65 or older is already more than twice what it was
only 50 years ago, and as the baby boomer generation continues
to retire, the number of Americans over 65 is expected increase by
more than 30 percent in the next decade. 159 Similar to Japan, the
aging population equates to increased Federal spending for this
58
population’s pensions, Social Security and Medicare benefits.
Also like Japan, the labor force participation rate in the United
States has been on a continual decline in recent years and that trend
is expected to continue for at least the next decade. 160 Even though
the United States will be in an eerily similar situation to that
currently facing Japan—with remarkably high debt, an aging
population and declining labor force participation—the Report
does not provide a shred of concern for impending consequences
to the U.S. economy and financial burden being placed on younger
generations.
The Congressional Research Service (CRS) has also concluded
that increased Federal debt dampens economic growth and
burdens future generations:
The current consensus view among economists is
that the source of the burden associated with the
national debt is the government budget deficit that
gives rise to the debt. In a fully employed economy,
the deficit “crowds out” private sector spending,
especially spending on capital goods. Thus, a
smaller private capital stock and a lower level of
output are passed along to future generations and
it is this lower level of output that is the burden of
the national debt. And, it is a burden that is largely
shifted forwarded [sic] to future generations.
Thus, according to the consensus view, the burden
of a national debt is borne by future generations.161
The average share of the Federal debt for children born in 2016 is
over $58,800 and that burden is expected to rise to nearly $84,000
by the time they are 10 years old. 162 Forcing children to pay the
price—both financially and economically—for our spending is the
worst kind of intergenerational theft.
Beyond the “crowding out” effect of the Federal deficits and debt,
increased debt would make it riskier to invest in the United States.
59
This would deter investors from financing the Federal
Government’s continued deficit spending, unless they receive
substantially higher interest rates from the government. CBO
estimates that interest payments on the debt will account for about
13 percent of Federal outlays in 2026, more than double the 2016
expectations of 6 percent. 163 Diverting potentially even more
money than CBO currently anticipates just to pay for the interest
on the Federal debt, let alone address the principle, will further
contribute to the decline in private capital and economic growth.
Simply put, debt prevents the economy from reaching its full
potential. The Report names employment and economic growth
as key goals in the coming years. However, the “crowding out”
effect of increased Federal outlays makes it virtually impossible to
achieve these goals without reducing our debt burden.
Perhaps the most glaring omission in this Report, especially during
this period of geopolitical unrest, is the lack of discussion
concerning debt’s adverse effects on national security. High levels
of debt increase the likelihood of a fiscal crisis in the United States,
as lawmakers will have less flexibility to respond to unexpected
challenges—whether they be military or fiscal. 164
Former Chairman of the Joint Chiefs of Staff U.S. Navy Admiral
Michael Mullen rightfully stressed this, stating, “The most
significant threat to our national security is our debt,” in large part
because the United States must have a strong economy in order to
provide the resources necessary to defend its citizens. Adm.
Mullen went on to say, “That’s why it’s so important that the
economy move in the right direction, because the strength and the
support and the resources that our military uses are directly related
to the health of our economy over time.” 165 When Adm. Mullen
made those remarks, our debt was $13 trillion, so it stands to
reason that it is an even larger security threat today. 166
The U.S. debt has historically risen during war times, but it has
typically been paid down shortly thereafter. 167 The Report
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reiterates the President’s repeated calls for increased spending and
deficits, reversing the historical trends of cutting spending after
military drawdowns in order to reduce the debt. As has previously
been noted, increased debt weakens economic growth. Without a
vibrant economy, the United States risks losing its unparalleled
creditworthiness, thereby making it more difficult to finance the
resources necessary to protect the country.
To prevent the looming debt explosion, we must address the key
causes of increased spending: interest payments on the debt and
mandatory spending. 168 As aforementioned, by 2026, interest on
the debt and mandatory spending programs will consume nearly
99 percent of all Federal revenues. 169
Reducing our debt naturally becomes more difficult as levels
increase, primarily due to higher interest costs associated with the
greater risk of sovereign default. Within only 10 years, the
nominal interest payments alone on the debt held by the public will
have nearly quadrupled, costing taxpayers $830 billion in 2026.170
Net interest payments, which are the third-largest driver of
increased spending—behind only Social Security and mandatory
health care programs—can only truly be addressed by paying
down debt and restructuring programs so that the United States
borrows less.
Mandatory Spending Programs Drive Debt
Similar to interest payments, mandatory programs run on autopilot and, unlike discretionary programs, are not subject to the
annual appropriations process. This status has enabled them to
grow to 69 percent of all spending, or 14.7 percent of GDP, on
track to rise to 78 percent within 10 years—16 times higher than
the level in 1966. 171
Social Security and major health care entitlement programs—
including Medicare, Medicaid, Children’s Health Insurance
Program, and the ACA—are unquestionably the two primary
drivers of increased Federal outlays. In fact, Social Security and
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Medicare alone will account for nearly half of all increased
spending over the coming decade. 172 Rather than confronting
these mandatory program, this Report doubles-down on President
Obama’s failed tax-and-spend policies that have only exacerbated
the impending debt crisis.
Without taking serious action, the two primary trust funds
associated with Social Security and Medicare are all projected to
be exhausted by 2030 173 and 2026, 174 respectively. This means
that by the time a current 50-year old becomes eligible for
retirement at age 65 (and full retirement by age 67), the trust funds
used towards paying for traditional Medicare and Social Security
retirement benefits will be exhausted. Put starkly, the government
will be unable to keep its promise to seniors.
Since 2010, the annual outlays for Social Security—including
Social Security Disability Insurance (SSDI) and Old-Age and
Survivors Insurance (OASI)—have exceeded non-interest
revenues. This funding gap has continued since and without any
changes, the combined outlays for OASI and SSDI will exceed
revenues by nearly 30 percent in 2025. 175
One of the most significant pieces of legislation impacting the
Social Security trust funds in recent years is the Balanced Budget
Act of 2015. This law extended the life of SSDI, which was
expected to hit insolvency by 2017, but it was done at the expense
of OASI. Rather than fixing the majority of the underlying causes
pushing SSDI and OASI towards insolvency, the law extended the
life of SSDI by four years by cutting the life expectancy of OASI
by a year. CBO now estimates that the SSDI trust fund will be
exhausted in fiscal year 2021, followed by the OASI trust fund’s
exhaustion in 2030. When measured together, the trust funds will
now be exhausted by 2029. 176
Though the Report attempts to downplay the upcoming Social
Security crisis, all 500 economic simulations run by CBO found
that Social Security outlays will exceed or be equal to revenues by
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2030. 177 When the trust funds are exhausted, the Social Security
Administration will be forced to shift from the current system of
“scheduled benefits” to “payable benefits,” in which Social
Security benefits would be reduced so that annual outlays would
not exceed annual revenues. 178 As a result, without changes,
Social Security benefits would be cut by nearly one-third
beginning in 2030. This funding shortfall is expected to persist
through the end of CBO’s projections in 2089. 179 The JEC
estimates that it will cost over $5.9 trillion just to maintain
scheduled benefits through 2040 and about $12.2 trillion 180 to
maintain benefits through 2050 (Figure 2-15). 181
Figure 2-15
Major health care entitlement programs are the other key drivers
of Federal spending and debt. The ACA is one of the primary
reasons for the recent spikes in spending for mandatory health care
entitlement programs. In 2015, major health care entitlement
programs accounted for 40 percent of all gross mandatory
spending, or approximately $1 trillion. Outlays for these programs
are expected to double, costing $2 trillion in 2026. 182 In addition,
the Report indicates that “health care price growth remained at low
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levels,” 183 yet it is health care price inflation that is buoying core
inflation, and has increased sharply over the past two years. 184
Medicare outlays will encompass $1.3 trillion of the $2 trillion in
total outlays in 2026 for mandatory health care entitlement
programs, 185 the same year in which CBO expects the Medicare
Hospital Insurance (HI) trust fund to be exhausted. 186 Even after
accounting for offsetting receipts, the HI trust fund is expected to
run deficits every year through the next decade, except in 2018,
until the fund is exhausted in 2026. 187
The Medicare Trustees have a slightly more optimistic outlook,
estimating that the HI trust fund will not be exhausted until 2030.
After the fund is exhausted, the Trustees expect that Medicare
revenues will only be sufficient to pay for 86 percent of the HI
costs. 188 However, there is no provision of the Social Security Act
outlining what would happen when the HI trust fund becomes
insolvent. Additional legislation would need to be enacted to
provide the necessary funding to cover the costs of HI services. 189
The JEC estimates that it will cost approximately $7.7 trillion to
make up for the HI shortfall through 2045. 190 The Report does not
account for the increased outlays in such a scenario and it fails to
provide a framework for response, much less a preemptive plan.
Yet, the likelihood of such an event happening and having a large
financial impact is high.
In fact, the Centers for Medicare and Medicaid Services (CMS)
Actuary and the Medicare Trustees warn that the underlying law
used for their estimates assumes much rosier economic growth
than is likely to occur. In its most recent findings, the Trustees
stressed that the current assumptions that funding will remain
available until 2030 “assumes a substantial long-term reduction in
per capita health expenditure growth rates relative to historical
experience,” and that “current-law projections indicate that
Medicare still faces a substantial financial shortfall that will need
to be addressed with further legislation.” 191
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Medicaid is in similarly poor financial shape, most recently
because of the expansion of the program resulting from the ACA.
Outlays have been higher than was previously estimated, and CBO
actually increased its cost estimates for the program between its
August 2015 projection and its January 2016 projection. CBO
noted that the actual enrollment numbers for Medicaid were so
much higher than expected that the increase in Medicaid outlays
was one of the “most significant adjustments” in projected
spending since its August 2015 projection, 192 accounting for an
additional $187 billion in outlays than previously expected.193
Medicaid outlays increased by $48 billion, or 16 percent, between
2014 and 2015. This is on par with the enrollment increase of 55
percent between 2014 and 2015. The increase in enrollment and
outlays is particularly substantial when the increase between 2013
and 2014 already witnessed sharp spending increases of $36
billion, or 14 percent, which was the largest annual increase in
spending. 194
CBO projects Medicaid costs will continue to grow at these
elevated rates, increasing by another $31 billion in 2016. 195 About
two-thirds of the increased growth of Medicaid “resulted from
enrollment of people who were newly eligible because of the
ACA,” according to CBO. 196 Beginning in 2017, Federal outlays
for Medicaid are expected to grow more slowly, but only because
the Federal Government’s share of the costs associated with ACAeligible enrollees will decline. 197 The growing aggregate financial
burden increasingly will be borne by the states, allowing the
Federal Government to erroneously claim fiscal discipline at the
expense of states’ finances.
This is yet another reason why the Federal Government must give
states the flexibility to administer Medicaid in a fashion that works
best for them. Medicaid was established as a state-administered
program, yet Federal Medicaid rules and mandates have created a
one-size-fits-all system that does not work for all states and makes
it challenging for states to develop ways to reduce costs and
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improve health outcomes. 198 Even the Medicaid demonstration
waiver process is bureaucratically cumbersome and time
consuming. The potential for state-level innovation was first
recognized under President Harry S. Truman, whose 1949
Commission on the Organization of the Executive Branch
developed the concept, stating that “a system of grants should be
established based upon broad categories—such as highways,
education, public assistance, and public health—as contrasted
with the present system of extensive fragmentation.” 199 Rather
than unleashing the potential of Medicaid block grants, the Report
entirely ignores the consequences of traditional Medicaid’s
rigidity for enrollees and states.
The ACA Compounds Long-Term Fiscal Issues
The subsidies for individuals to purchase insurance is the most
expensive provision of ACA, accounting for over 70 percent, or
$27 billion, of ACA-related spending in 2015. The cost of these
subsidies is projected to jump to $39 billion in 2016, consuming
the majority of the $56 billion in ACA-related outlays. By 2026,
outlays for ACA subsidies are expected to hit $93 billion
annually. 200
The costs associated with the ACA are particularly concerning
when the number of enrollees in exchanges is substantially lower
than initial projections. In 2014, CBO and CMS estimated that 13
million—18.6 million people would be enrolled through the
exchanges in 2015, and that 21 million—24.8 million people
would be exchange enrollees by 2016. 201 In reality, CBO found
that only 9.5 million people were enrolled through the exchanges
in 2015 and only 8 million of those people received subsidies to
purchase health insurance on the exchanges. 202
After the open enrollment period for 2016 coverage, 12.7 million
individuals were enrolled in a plan through the exchanges. 203
However, previous years have shown that a number of individuals
do not remain enrolled through the duration of the year. 204 That is
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why, by the end of 2016, the Department of Health and Human
Services (HHS) expects that 2.7 million consumers will have
dropped their coverage, leaving only 10 million consumers
enrolled through the exchanges. 205
These poor projections resulted in a $2.5 billion aggregate loss for
insurers within the individual marketplace in 2014. 206 This $2.5
billion loss comes after calculating for the risk corridor, meaning
the $2.5 billion is only a portion of the insurers’ losses. Brian
Blase with the Mercatus Center estimates that the actual losses,
without adjustments for the risk corridor, are closer to $4 billion
within the individual market in 2014. 207
The high cost of coverage is the predominant reason why millions
of people are actively choosing not to enroll in health insurance,
particularly those that are relatively young and healthy. 208
Researchers have found that healthy individuals who do not
qualify for large premium subsidies are consistently worse off if
they buy insurance than they are by remaining uninsured, 209 even
after considering the penalty in 2016 is the greater of $695 or 2.5
percent of household income. 210
However, the ACA was constructed such that, without these
healthy enrollees, insurance risk, premiums, and the risk of
program deficits would all rise. This is exacerbated by the fact
that people with preexisting conditions cannot be denied coverage
under the ACA nor be subject to higher premiums because of their
health. The end result is a much sicker risk pool within the
exchanges, since the insurance is most attractive to the sick people
that need the coverage which, in turn, leads to a much more
expensive population to insure.
To make up these losses, the average cost of health insurance
premiums is increasing across the country, which only compounds
the already massive functional and financial problems with the
ACA. It is also why President Obama’s repeated promises that the
average family will save $2,500 annually after the ACA’s
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enactment have proven false. 211 Premiums for plans offered on
the exchange continued to increase, on average, each year since
their implementation. According to CMS, the average rate
increase for the 37 states using the Federal HealthCare.gov
exchange was 7.5 percent in 2016. 212 However, the amount by
which a premium changed from 2015 to 2016 varied widely,
depending on the consumer’s age, health status, and location. For
example, the Kaiser Family Foundation’s analysis of 2016
premium changes in the ACA marketplaces found that the national
average premium increase was just over 10 percent, or about $300
per month, for a 40-year old non-smoker earning $30,000
annually. 213
Even insurers that were given $2.4 billion in Federal support to
create the Consumer Operated and Oriented Plans (CO-OPs) were
incapable of financially sustaining the CO-OPs due to the
magnitude of problems that have arisen as a result of the ACA.
The Administration originally provided funding for 24 CO-OPs,
one of which failed before open enrollment even began, creating
23 CO-OPs across 23 states. The likelihood of these CO-OPs
failing was clear from the beginning—even HHS initial estimates
stated that about one-third of all loans would not be repaid, which
is roughly $792 billion not including any forgone interest. 214 Yet,
the Administration never established criteria to determine whether
a CO-OP was viable or sustainable, 215 further increasing the risk
to the Federal Government. As a result of the ACA’s failure, 21
of the CO-OPs reported net losses in 2014. 216 Another was
forcibly taken over by the Iowa State Insurance Commissioner
because of financial instability and was ultimately liquidated. 217
As of 2016, over half of the 23 CO-OPs have failed and many of
the others are suffering financially. 218 The cost of these failing
CO-OPs will be borne by the taxpayers, based upon the
Administration’s initial assumptions. Unlike HHS’s estimates that
one-third of the CO-OP loans will not be repaid, 219 the JEC
estimates it is the more likely scenario that HHS’s high-cost
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estimate of less than 50 percent, or about $1.2 billion, of the COOPs loans will be repaid. 220
Higher insurance premiums lead to higher Federal subsidies,
which in turn increases Federal deficits. The Report and President
Obama ignore the fact that as health insurance premiums outpace
GDP growth, the annual cost to the Federal Government will also
increase accordingly. ACA subsidies are tied to the recipients’
income: families with incomes between 100 and 133 percent of
the FPL receive subsidies to ensure they do not pay more than two
percent of their annual income in premiums and a family between
300 and 400 percent of the FPL does not pay more than 9.5 percent
of their income in premiums. 221 Over the next 10 years, the annual
cost of health insurance premiums are expected to outpace per
capita income by two percentage points. 222 This is just one of the
reasons why the true costs of the ACA are not yet reflective in the
current ACA outlays.
Beyond the ACA outlays, the productivity adjustment factor is the
single largest non-revenue, cost-saving provision within the ACA
and is specifically indexed to produce outcomes that merely
appear to save money, rather than reflect the true costs. Similar
mechanisms have been used in previous legislation, as discussed
in this chapter, but Congress later passed legislation to prevent the
automatic cuts from going into effect. If history repeats itself and
the automatic productivity adjustment cuts from the ACA are
averted, then the ACA could end up costing trillions more than
expected. Furthermore, the ACA productivity “savings” are
nothing but a budget gimmick, achieved by cutting funding for
Medicare, undermining the ACA’s core mission of providing
health care for all.
The law requires Medicare payment rates to be updated based
upon a “productivity adjustment factor.” This productivity factor
is a measure of output per worker across the entire economy, not
specifically within the health care industry. While there may be
changes in the level of additional goods and services individual
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workers can produce across the economy, it fails to capture the
actual cost of care for Medicare beneficiaries. Under the ACA, as
the productivity factor increases across the economy, Medicare
payments to providers decrease by the same percentage. 223
This productivity factor assumes that Medicare services will
achieve the exact same productivity improvement as the rest of the
economy, regardless of whether such levels of productivity are
actually plausible. The productivity factor and other ad hoc
reductions took effect for Medicare payments to hospitals in 2012
and the adjustment will continue to be used to update payments
each year going forward. 224
CBO found that this Medicare cut will reduce costs by about $196
billion over 10 years, whereas the CMS Actuaries predict savings
of $205.3 billion.225 However, CBO has expressed concerns that
the ACA’s Medicare cuts are unlikely and may be “difficult to
sustain over a long period of time,” in part because the ACA
assumes that “Medicare spending would increase significantly
more slowly during the next two decades than it has increased
during the past two decades…” Further, CBO noted that past
attempts to reduce Medicare provider costs by simply cutting their
payments has proven ineffective. 226
Similar indexing measures were included in the 1997 Balanced
Budget Act (BBA) to reduce Medicare payments to physicians
through what became known as the Sustainable Growth Rate
(SGR). Rather than tying the payments to the cost of the services,
the payments were indexed to grow no faster than GDP. 227 When
the BBA was enacted, the SGR was projected to save $11.7 billion
over 10 years. 228
Because the indexing provisions in the BBA were not in sync with
the actual cost of care, Congress subsequently passed legislation—
which became known as “doc fixes”—to prevent the automatic
Medicare reductions. 229 These subsequent fixes cost $170 billion
from 2003 through 2015, until subsequent legislation was enacted
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to fully repeal the SGR. CBO projected that the full repeal of the
SGR will increase deficits by $175 billion, compared to the current
baseline that assumed a 21 percent cut in Medicare payments to
physicians beginning in April 2015. 230
In the end, rather than saving $11.7 billion within 10 years, the
United States spent $345 billion in the long-run fixing the SGR
problem. In March 2010, CBO estimated the productivity factor
alone would reduce Medicare spending by $196 billion over 10
years. 231 Should Congress and the President suspend or repeal the
productivity factor provisions of the ACA, which is plausible
given the history of the SGR, then the budgetary effects of the
ACA will result in a worse financial outcome for the United States
than the Report indicates.
It is astounding that the Report again fails to provide a single plan
of action to address these key areas of spending. This failure only
increases the magnitude of the country’s ticking debt bomb, and it
will only make future actions to address the debt more painful.
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CHAPTER 3: THE GLOBAL MACROECONOMIC
SITUATION
Chapter 3 of the Report assesses trends in the global economy,
focusing on slowing growth around the world and the
ramifications this will have for U.S. growth. Further, the
Report underscores the benefits of U.S. trade with the world.
Trade agreements such as the Trans-Pacific Partnership (TPP)
provide comprehensive benefits including increased exports,
higher gross domestic product (GDP), and more jobs across
America.
The extensive economic problems around the world illustrate
why the President’s claim that America enjoys the “strongest,
most durable economy in the world” is not a remarkable
achievement. Also, regarding trade, several specific elements
of the TPP agreement the Administration negotiated are cause
for concern.
Finally, absent from the Report is any serious discussion of
increasing international competitiveness and boosting growth
by reforming America’s tax system. Currently, the United
States has the highest corporate tax rate in the OECD and is
one of the few OECD countries with a worldwide tax system.
Such an uncompetitive system has led many companies to
move headquarters and capital overseas. Instead of seriously
addressing the fundamental reforms required, the
Administration instead proposes higher taxes and spending
that would drive more companies offshore and hinder
economic growth.
Chapter 3 of the Report focuses on economic growth throughout
the world and trade policies that would boost both American and
international growth. While the Report begins with a message
from the President, echoing his State of the Union address, that
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America has “the strongest, most durable economy in the
world,” 232 the litany of problems around the world gives context
to why this is not surprising. In fact, claims about America’s
current economic strength relative to the rest of the world are much
like taking pride in—as House Speaker Paul Ryan termed it—“the
nicest car in the junkyard.” 233
Eurozone
Overall, 2015 was a tumultuous year for the Eurozone. The
Eurozone’s growth rate of 1.6 percent annually in the third quarter
and its low year-over-year inflation rate of 0.4 percent belie the
fluctuations which occurred in the Eurozone in 2015. While
consumers benefitted from the decline in oil prices last year and
the European Union (EU) is largely unaffected by the supply-side
effects, the Eurozone continued to be adversely affected by
economic slowdowns in China and other emerging markets, which
accounted for nearly 25 percent of the area’s exports. 234 It also
remains to be seen how southern European countries will handle
their high debt-to-GDP ratios and how countries like Greece will
fare after the bailout negotiations of last year.
In the beginning of 2015, the Greek parliament could not elect a
President and had to have a special election, which put Alexis
Tsipras and the Syriza party in charge. 235 Tsipras and Syriza
quickly called for an end to austerity and began demanding
renegotiations of the previous rescue agreement. Starting in
February 2015, the Greek government negotiated a four-month
extension to Greece’s bailout in exchange for lifting some antiausterity measures.
In the middle of 2015, the European Central Bank (ECB) ended
emergency funding to Greece. Facing a crisis, the Greeks closed
banks and instituted capital controls, leading Greek voters to
overwhelmingly reject the European Union’s bailout terms in a
July referendum. By June, Greece was facing a potential exit from
the Eurozone and an impending bankruptcy. 236 In the end, Greece
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and its creditors agreed to a third bailout dependent upon the very
tax increases and spending cuts that Syriza pledged to end when
the party took power. 237
Like many major central banks, including the Federal Reserve, the
European Central Bank had trouble hitting its inflation target of 2
percent in 2015. Plagued by weak growth, the ECB pursued a
strategy of large-scale asset purchases, commonly called
“quantitative easing.” In March 2015, the ECB began purchasing
securities including central government bonds and bonds issued
by recognized agencies, international organizations and
multilateral development banks located in the euro area. 238 The
monthly purchases of these assets—totaling 60 billion euros—
were initially set to continue until March 2017, though the ECB
left further action on the table. In December 2015 the Bank
announced that the program would continue until “the Governing
Council sees a sustained adjustment in the path of inflation that is
consistent with its aim of achieving inflation rates below, but close
to, 2% over the medium term.” 239
Further stimulative attempts by the ECB occurred this year to
boost the lackluster recovery the Eurozone has experienced in the
wake of the 2008 financial crisis. 240 Current projections for
Eurozone growth are currently 1.8 percent for the year, 241 and if
the projection is met, it would be one of the stronger years since
the end of the 2008 financial crisis.
Japan
As aforementioned in Chapter 2, the Japanese economy has been
stagnating for years, slowed by an aging and shrinking population,
outdated and rigid regulations, and increasing debt. In 2012, the
Japanese legislature elected Shinzo Abe to be Japan’s prime
minister. Prime Minister Abe quickly laid out a new economic
plan, nicknamed “Abenomics,” to revive Japan’s stagnating
economy.
Abenomics had three principles or “arrows”:
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accommodative monetary policy, expansionary fiscal policy, and
structural reforms.
The monetary arrow set a 2 percent inflation target for the Bank of
Japan (BoJ) to achieve through monetary policy. Financial
markets were stunned in late 2014 when the BoJ announced it was
pursuing stepped-up quantitative easing to shake the deflationary
mindset. 242 Even with quantitative easing, the BoJ still had not
achieved its 2 percent inflation target as of January 2016, leading
the BoJ governors to vote 5-4 to begin using negative interest
rates. 243
The fiscal policy arrow first involved a massive stimulus package
focused on infrastructure and private investment in 2013 with
supplementary fiscal measures in 2014 and 2015. 244 Although the
Report highlights the recent labor negotiations and “flexible”
stimulus aspects of this arrow, absent is any mention of Prime
Minster Abe’s efforts to lower the corporate tax rate. Prime
Minster Abe has been clear he wants to lower Japan’s corporate
tax rate of 35.6 percent, the second highest in the G-7 countries
behind the United States, to spur investment and encourage more
foreign investment. 245 However, Japan’s fiscal measures have to
be limited because its public debt is approaching 245 percent of
GDP, the highest among countries in the OECD. 246
The final arrow of Abenomics promised structural reforms to
Japanese markets. As aforementioned, Japan has both a shrinking
population and labor force. Prime Minister Abe wants to spur
population growth and encourage more women to join the
workforce. Besides labor market reforms, Abenomics hopes to
liberalize the agricultural market by curtailing government
subsidies and opening up Japan to the international market through
trade agreements such as the Trans-Pacific Partnership. 247
Growth effects from Abenomics have yet to materialize, and slow
growth continues. Japan’s GDP contracted from the second
quarter of 2014 through the second quarter of 2015. 248 After
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returning to growth temporarily, Japan again contracted by 1.4
percent in the fourth quarter of 2015. 249 The opportunities from
structural reform have yet to give Japan the boost it was looking
for, and larger government spending has increased the public debtto-GDP ratio to nearly 250 percent. The Report obliquely refers
to Japanese debt trends and demographics, but it fails to make
parallels to the similar challenges facing America, which are also
discussed in Chapter 2 of this Response.
China and Other Emerging Markets
The four largest emerging market economies are Brazil, Russia,
India, and China (BRIC). All four were part of the ten largest
countries by GDP in 2014. 250 As the Report notes, India and
China accounted for half of the underperformance of the G-20
economies compared to 2010 projections.
China’s economy grew 7.3 percent in 2014 and only 6.9 percent
last year after years of double-digit growth—its lowest rate of
growth since 1990 according to official data. Much of the
deceleration has been concentrated in the country’s industrial and
construction sectors. China’s industrial sector has been slowing
over the past few years, weighed down by weak demand from
many of its trading partners and appreciation in the Chinese
yuan. 251 Slowing demand and yuan appreciation led to a
surprising devaluation by the People’s Bank of China in August
that stunned financial markets. 252
Over the past few years, China’s housing market experienced a
severe contraction. In January 2014, China’s year-over-year
housing starts were growing at almost a 10 percent rate. Growth
in housing starts began to slow in September 2014 and continued
for 12 months. Fortunately, housing starts began to rebound at the
end of 2015. 253
Meanwhile, other BRIC countries are experiencing slow growth
or outright recession. Brazil is in the midst of its deepest recession
since 1901. Analysts estimate the Brazilian economy contracted
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by 3.7 percent last year and project it will contract by roughly 3
percent in 2016. 254 Inflation in the Brazilian economy rose to 10.7
percent in 2015, its highest rate in 13 years. 255
Russia is experiencing similar problems, albeit for different
reasons. According to official preliminary estimates, its economy
contracted 3.9 percent in 2015. 256 While gridlock and corruption
may play a part, low oil prices and international sanctions appear
to continue weighing on the Russian economy. The International
Monetary Fund (IMF) and the World Bank project further
contraction in 2016. 257 Although the Central Bank of Russia has
been able to lower inflation, it remains elevated at 12.9 percent. 258
India is the outlier among the BRIC economies. India experienced
year-over-year growth of 7.3 percent 259 with an inflation rate of
5.6 percent in December. 260 Unlike many of the other emerging
markets, low oil prices have been a boon for India since it imports
so much crude oil. Although headline growth is solid, the numbers
mask an economy in need of reforms. Prime Minister Modi has
been trying to push through land and labor reforms to boost
employment and investment, but the pace has been slower than
anticipated. 261
Oil
A common threat to oil-producing emerging markets is the
precipitous decline in the price of crude oil. Although cheaper oil
helps consumers, it harms the bottom line of oil producers, which
includes many emerging market economies. While the Report
briefly mentioned declining oil prices, it did not discuss root
causes. The fall in the price of oil can be traced to three main
causes: the U.S. fracking revolution, weak global demand, and a
glut of crude oil exacerbated by high levels of production by the
countries that make up the Organization of Petroleum Exporting
Countries (OPEC)—primarily Saudi Arabia.
As detailed in Chapter 6, the fracking revolution in the United
States has fundamentally changed the global oil market. For the
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first time in decades, there is a substantial source of incremental
supply outside of OPEC that expanded quickly at costs far below
the $100 per barrel price that had prevailed. Even as the oil price
fell, technological innovation continued to reduce shale oil
extraction costs, which made the U.S. production rate surprisingly
resilient. 262
Technology is not the only development that will make U.S. oil
production more resilient; recent policy changes are helping as
well. The Report makes no mention of last year’s removal of
America’s 40-year-old oil export ban. 263 Independent analysis has
shown this will further increase U.S. production and investment
through 2030 while lowering prices for American consumers. 264
Further analysis by the U.S. Energy Information Administration
confirmed that gasoline prices either will not change or will
decline as production increases. 265
Another factor in the falling price of oil is the economic
deceleration in China and other countries that has considerably
weakened global demand. This decrease has hit the U.S. energy
sector especially hard since these struggling countries have not
been able to absorb the incremental supply as expected. To the
extent stock traders interpret an oil price decline as reflecting
weakening demand and infer that economic growth is slowing,
stock prices tend to go down. However, different forces are acting
on demand and supply simultaneously, and it can be difficult to
discern the reasons for, and implications of, oil price movements.
Finally, the international boycott of Iranian oil has come to an end,
and it is unclear how much additional supply will enter the world
market as a result. Saudi Arabia has been increasing its rate of
production in the face of falling oil prices to prevent U.S. firms
and the Iranian government from gaining market share. 266
International Trade
In general, America benefits from entering into trade agreements.
Because the United States already has open markets and low
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tariffs, trade agreements generally have the effect of further
opening foreign markets for American goods and services while
requiring relatively little sacrifice on the part of the United States.
Businesses benefit when new foreign markets and customers
become available. They also benefit from lower input prices.
Workers benefit from trade through greater demand for their
products and the higher wages that accompany export-related jobs.
Additionally, trade benefits consumers through lower prices due
to reductions in tariffs and restrictions.
Last year, Congress enacted legislation to reauthorize Trade
Promotion Authority (TPA) for the first time since 2002. TPA
provides the President with the necessary authority to negotiate
trade agreements with other nations. It also reaffirms the special
function performed by Congress in determining U.S. trade policy.
Under the U.S. Constitution, the President can negotiate trade
agreements, but only Congress can approve or reject an agreement
and enact the terms of the agreement into U.S. law. TPA set forth
the priorities of Congress relative to trade policy, and it provides
the President with instructions on how to conduct trade
agreements that will engender congressional support. TPA also
establishes a detailed process for congressional review and
consideration of trade agreements. These provisions guarantee
that our system of checks and balances remains intact with regard
to international trade policy.
Enactment of TPA has been particularly important for the
President’s negotiations relative to the Trans-Pacific Partnership
(TPP) agreement. As mentioned in the Report, the TPP is a
proposed Asia-Pacific free trade agreement involving 12
countries, including the United States, Canada, Japan, Australia,
New Zealand, Mexico, Vietnam, Singapore, Malaysia, Brunei,
Chile, and Peru. The TPP offers tremendous potential for new
markets and increased exports for U.S. businesses. According to
the International Trade Administration, goods exported to TPP
countries support 3.1 million U.S. jobs. Services exports to these
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countries support an additional 1.1 million U.S. jobs. Upwards of
177,000 U.S. businesses export goods to TPP countries, and 97
percent of those are small- and medium-sized businesses. 267
A strong TPP agreement holds great promise in terms of
increasing America’s economic and strategic influence in the
region. Indeed, the Administration has positioned the TPP as the
key economic component to a “rebalancing” in the Asia-Pacific
Region relative to China. Lawmakers on both sides of the aisle
see the TPP as a crucial measure to ensure that America establishes
the rules of the road in the new global economy, rather than ceding
that role to China. The TPP offers the United States the
opportunity to both generate new, high-paying jobs here at home
and establish an economic framework that will benefit American
interests over the long term.
Nonetheless, Congress will only approve an agreement that
achieves the standards prescribed in TPA. Unfortunately, at this
stage it seems the President has fallen short in the negotiations
with regard to a number of significant elements. For example, the
President has failed to achieve adequate intellectual property
protections for innovative American pharmaceuticals. 268 Such
protections are foundational for U.S. trade and must be robust to
give American businesses the confidence to sell their products
abroad. The current deal also fails to protect proprietary data
stored by financial services companies. It also inexplicably denies
market access for certain U.S. goods.
Hopefully, the
Administration will choose to address these concerns prior to any
congressional action on the TPP agreement.
In a positive development, Congress recently enacted the largest
legislative reform in customs and enforcement policy in nearly 20
years. The Trade Facilitation and Trade Enforcement Act
authorizes the U.S. Customs and Border Protection and
modernizes operations for more efficient flow of trade across the
border. 269 It also establishes robust tools that will strengthen
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enforcement of U.S trade laws and better ensure a level playing
field.
International Tax Competitiveness
Last year’s Economic Report of the President contained an entire
chapter dedicated to business tax reform and its potential to boost
economic growth. 270 In addition, the budget submitted by the
Administration last year contained a reserve fund for “business tax
reform that is revenue neutral in the long run.” 271 The reserve fund
for business tax reform is missing from the President’s FY2017
budget. In fact, the Administration’s budget plan now represents
a net tax increase on both businesses and individuals that totals
$2.8 trillion. This is hardly a constructive first offer to spur
bipartisan action on tax reform. Similarly, this year’s Report
seems to indicate a lack of enthusiasm for reforming the tax code,
since it only contains passing references to business tax reform. In
fact, the largest discussion in the Report is a single paragraph in
Chapter 2. 272
Any discussion of the global macroeconomic situation must
address the severe uncompetitive nature of the U.S. tax system
compared to those of our trading partners. Among the 34
advanced economies in the OECD, the U.S. corporate rate is the
highest at 39 percent, including the 35 percent Federal rate and
state taxes (Figure 3-1). 273 The President’s FY2017 budget
contains a brief reference indicating that it still endorses the
Administration’s past framework for business tax reform, which
proposed a Federal corporate rate of 28 percent. 274 While this
would be an improvement, it falls short of the 25 percent rate
supported by many in Congress. A corporate income tax rate of
25 percent (not including state taxes) would be closer to the
average of other developed countries, while a 28 percent rate
would still place the U.S. rate among the highest.
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Figure 3-1
Additionally, America is facing new competitive pressures
because many of our trading partners have adopted “patent boxes”
or “innovation boxes,” which are also discussed in Chapter 5 of
this Response. These arrangements tax the income from
intellectual property at rates far below the statutory rate of the host
country, and could entice companies to locate valuable intellectual
property and related jobs overseas.
International Tax Systems
In addition to facing the highest corporate rate in the developed
world, U.S. businesses are burdened with an uncompetitive
worldwide tax system rather than a territorial system. Territorial
systems allow active income earned overseas to be brought back
to the home country with little or no tax. In contrast, the
worldwide system of the United States is an outlier, subjecting all
income of companies to U.S. tax, regardless of where in the world
it is earned. Because the tax is triggered when the profits are
brought back to the United States, companies have a strong
incentive to leave earnings overseas. This creates a “lock-out”
effect, which results in reduced levels of investment by these
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companies in the United States. Figure 3-2 below illustrates the
trend of our international competitors choosing to adopt territorial
tax systems, while the United States has been left behind.
Figure 3-2
In testimony last year before the Senate Finance Committee that
echoed past testimony before the JEC, Laura D’Andrea Tyson,
former CEA Chair during the Clinton administration, argued that
the United States should move to a territorial system. This would
allow U.S. multinationals to compete more effectively in foreign
markets, which comprise roughly 80 percent of the world’s
purchasing power. 275 However, the Administration instead clings
to international tax reform that it describes as “hybrid,” in which
an immediate 19 percent minimum tax would be imposed on all
new foreign earnings of U.S. companies going forward. 276 In her
testimony, Tyson argued forcefully against the competitive
disadvantage of such an approach, which she explained would
amount to an effective rate of at least 22.4 percent and incentivize
American companies to move their headquarters overseas. 277
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Corporate Inversions
In a recent speech before the New York Bar Association Tax
Section, CEA Chairman Furman highlighted the disturbing trend
of U.S. companies merging with foreign companies and moving
their headquarters to the lower-taxed jurisdiction, known as
“corporate inversions.” 278
However, the Administration’s
proposed legislative solution to corporate inversions is deeply
flawed.
Under current law, an “inverted” company continues to be taxed
as a U.S. corporation if 80 percent or more of the shareholder
ownership does not change after the inversion, unless there are
“substantial business activities” in the foreign jurisdiction. 279 The
Administration’s anti-inversion proposal would lower the 80
percent threshold of shareholder ownership to 50 percent,
effectively meaning that foreign ownership would have to
dominate following the merger or acquisition in order for the new
entity to change tax headquarters.
Requiring the American share of the business to be smaller than
the foreign share would create several unintended consequences.
For example, this could encourage larger U.S. companies to
splinter into smaller spin-offs that would then be acquired by more
dominant foreign competitors. It would also make American
companies attractive takeover targets for large foreign
multinationals, a phenomenon that is already occurring. 280 The
President’s framework would give a greater advantage to foreign
competitors than already exists. While foreign competitors could
be nimble with their investments and already enjoy more favorable
tax systems, U.S. companies would be stuck in an even more
uncompetitive tax system.
In addition to the 50 percent of shareholder ownership threshold,
the Administration would also tax inverted companies as U.S.
corporations if the “management and control” of the company is
primarily in the United States. This test would chase high-quality
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management jobs outside the United States, as domestic and
foreign companies would respond by moving jobs. This concern
was echoed by Senator Charles Schumer when he spoke about
legislation similar to the Administration's proposal. 281
Further, while the Administration’s plan is aimed at trapping
American-headquartered companies in the U.S. tax system, the
proposal is likely to discourage new companies from choosing
American headquarters. Every day, entrepreneurs launch new
companies and decide where to place the headquarters. Selecting
a location that attempts to trap its businesses in an uncompetitive
tax system indefinitely would be illogical.
Like the United States, Great Britain underwent a period of
“headquarter flight,” but responded as the United States should:
by lowering its corporate tax rate and moving to a competitive
international tax system. As a result, companies have returned to
Great Britain and new companies are incorporating there. 282 The
best solution for stemming inversions is to treat the root of
problem—an uncompetitive tax system—rather than enact
punitive measures to treat the symptoms.
Using New Taxes for Spending Programs Rather Than
Competitiveness
The President’s proposed framework would impose a 14 percent
tax on existing earnings of American companies invested
overseas, known as “deemed repatriation.” However, rather than
using this revenue to transition to a more competitive international
tax system, the Administration would use these revenues solely to
pay for infrastructure spending, as explained more fully in Chapter
6 of this Response. The President’s proposed tax is substantially
higher than rates outlined in other reform plans, such as the one
introduced by then-House Ways and Means Chairman Dave Camp
in the last Congress, and does not contribute to American
companies’ competitiveness in the world marketplace.
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Passthrough Businesses
While the Administration has proposed lower tax rates for C
corporations, no similar rate reduction is offered to the 95
percent 283 of businesses that pay taxes at the individual level rather
than corporate level, known as passthrough businesses. The vast
majority of small businesses are organized as passthroughs, and as
such, a lower corporate rate would be of little help. When
President Obama took office, the top Federal tax rate paid by small
businesses was identical to the top rate paid by large corporations,
35 percent. However, because of ACA taxes and the President’s
insistence on raising the top individual rate and imposing other
penalties, the top rate paid by small businesses is now 44.6
percent. 284
The President’s framework would put small businesses in an even
worse position. If certain business tax preferences are eliminated,
and the proceeds used only to lower the corporate rate, then many
small businesses will face even higher effective tax rates. CEA
Chairman Furman’s recent speech, as referenced earlier, argued
that higher passthrough rates are justified because C corporations
face a double tax, at both the corporate and shareholder level,
while passthroughs generally pay only a single layer of tax. Such
a statement seems to suggest that the effective tax rates of
passthroughs must already be far lower than the rates paid by
double-taxed corporate taxpayers. However, CBO has determined
that even with just a single level of tax, passthrough businesses
only enjoy a four percent lower effective tax rate of 27 percent,
compared to the C corporation effective rate of 31 percent. 285
Under the President’s framework, C corporations would
experience a top rate reduction from 35 percent to 28 percent,
while small businesses would be taxed at a top rate of 44.6 percent
and lose many of the tax preferences that lower their effective rate.
Chapter 5 of the Report discusses technology and innovation, and
one section laments the decline of “business dynamism” and start-
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ups. 286 Ironically, while the Report acknowledges that barriers to
market entry play a role in discouraging start-ups, the
Administration does not seem to recognize that rising tax burdens
on small businesses may be a source of declining
entrepreneurship, representing another significant market barrier.
Lost Opportunities for Pro-Growth Reform
In the last Congress, policymakers seemed focused on
comprehensive tax reform to boost economic growth and fix our
broken tax system for businesses, families, and individuals alike.
Unfortunately, the President’s insistence on massive tax increases
on the individual side of the tax code diminished possibilities for
fundamental reform. Then discussions turned to business tax
reform, since the Administration had indicated openness to
revenue neutrality in that context. However, the Administration’s
refusal to address the tax rates paid by small businesses further
limited the possibility of reform.
More recently, the conversation narrowed to international tax
reform, a subset of business tax reform. However, the President’s
recent budget submission with large net tax increases on the
business side of the code seems to destroy the possibility of either
broad business tax reform or even limited international tax reform
occurring during the current Administration. Declining prospects
for reforming the tax code in a holistic way will only continue to
further disadvantage American businesses competing abroad and
at home while making foreign headquarters more attractive. The
Administration’s apparent waning enthusiasm for reform also
represents a tragic lost opportunity to boost economic growth and
create more jobs at a time when the country is in dire need of both.
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CHAPTER 4: OPPORTUNITY FOR ALL
The Report devotes much attention to the economic conditions
facing low-income families and proposes several ways to
address poverty. In doing so, the Report largely relies on the
continuation of existing government programs that were
created decades ago for a different time and economy. This
chapter highlights how these programs far too often end up
hindering the very people they are designed to help.
To break the cycle of poverty, public policy must remove the
government-imposed barriers that impede economic mobility
and develop smarter solutions that empower individual
success. Smart reforms include: 1) increased economic
growth, which expands opportunity; 2) strong, properly
aligned incentives that promote savings, investment, and
learning; and 3) long-term sustainability for the programs and,
in turn, the beneficiaries.
The Report chronicles numerous challenges facing low-income
families in America today. Too often, children who are born into
poverty receive substandard nutrition, live in unsafe
environments, or attend failing schools. These conditions are not
easy for families to overcome, and the Report correctly notes that
breaking the cycle of poverty is indeed a challenging endeavor for
policymakers.
The Federal Government certainly has an important role to play in
assisting individuals and families in need. However, real longterm progress for low-income families must start with strategies
that foster individual empowerment and attainment of selfsufficiency. As economist Arthur C. Brooks notes form his
research:
What I found was that economic inequality doesn’t
frustrate Americans at all. It is, rather, the
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perceived lack of economic opportunity that makes
us unhappy. To focus our policies on inequality,
instead of opportunity, is to make a grave error—
one that will worsen the very problem we seek to
solve and make us generally unhappier to boot. 287
Sound public policy in this area must therefore involve the
removal of government-imposed barriers that impede upward
economic mobility. One example of such a mobility barrier is the
exorbitant tax rate that public assistance programs impose on those
at or near the poverty line. The interaction between taxes and the
phase-outs of public assistance benefits as household income
increases frequently imposes an extremely high effective marginal
tax—in some cases, exceeding 100 percent—on earning additional
income. 288
This overall phenomenon, commonly referred to as the “poverty
trap,” discourages individuals in low-income households from
entering the labor force, working extra hours, or seeking career
advancement that would contribute to their economic mobility and
well-being. As Scott Winship points out, existing government
programs intended to create a safety net can also create a ceiling
to success. Though these programs have helped lift many poor
Americans out of destitution, they often come with the unintended
consequence of discouraging the upward mobility of low-income
families. 289 In fact, a study from the Cato Institute finds that
public assistance benefits can pay more than the minimum wage
in 35 states, even after accounting for the Earned Income Tax
Credit (EITC), and in 13 of those states, welfare can pay more than
$15 per hour. 290
Policymakers can encourage relative mobility by reforming
programs that currently discourage saving, investing, and learning.
Basic economic theory and, more importantly, practical
experience is instructive when assessing what programs to reform
and how. The policy spectrum is rife with opportunities for smart
reform, including welfare reform, amending the tax penalty on
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married couples, education reforms such as school choice, and
developing novel programs to slow the cost growth of higher
education that has risen due to, not despite, the increasing
prevalence of Federal student loans. 291
Smart reform—especially in this policy area—is guided by
fundamental principles by which potential solutions can be
judged. A useful checklist by which to judge policies designed to
ensure all Americans have equal access to opportunity and upward
mobility includes:
1. Increased economic growth: As the economy
expands, so does opportunity. Opportunity in the
form of more, better-paying jobs closely tracks
economic growth, and policy should aim to foster a
fertile economy.
2. Strong, properly aligned incentives: Any policy
should create or enhance incentives to save, invest,
and learn skills, each of which boosts relative
mobility and reduces inequality of opportunity.
3. Long-term sustainability: Reforms cannot and
should not be undertaken on a nearsighted basis.
Inflating the well-being of working generations at the
expense of their children does not constitute real
reform. When smart policy is implemented, there
will not be any can to kick down the road.
The public sector can play an important role in helping those in
poverty or on the cusp of poverty harness their individual talents
and attain a greater sense of dignity through self-sufficiency.
However, the Report generally advocates for a continuation and
expansion of longstanding Federal policies and programs focused
more towards alleviating short-term symptoms rather than
offering sustainable pathways toward earned success.
Unfortunately, Federal anti-poverty programs have so far failed to
achieve their original goals, mostly because they too often contain
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perverse incentives that effectively penalize low-income
individuals for maintaining employment. 292
When President Lyndon B. Johnson’s (LBJ) Great Society
programs were implemented in 1966, the Federal poverty rate was
14.7 percent. Shortly after signing these programs into law, LBJ
said that “Our American answer to poverty is not to make the poor
more secure in their poverty but to reach down and help them lift
themselves out of the ruts of poverty and move with the large
majority along the high road of hope and prosperity.” 293 However,
nearly 50 years and $15 trillion spent since President Johnson
declared a “war on poverty,” the Federal poverty rate at the end of
in 2014 was 14.8 percent, as demonstrated by Figure 4-1. 294
Figure 4-1
Similarly, the year-end labor force participation rate in 2015 was
62.6 percent—the lowest point since 1976. 295 These numbers are
particularly concerning since employment opportunities have
become available for a larger share of the population. Women
have made great progress in their ability to enter the workforce,
with 56.8 percent of women are now in the workforce, up from 41
percent at the end of 1966. However, these gains have been
mitigated as the percentage of men in the labor force has been
steadily declining since the implementation of LBJ’s anti-poverty
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initiatives, falling from 80.5 percent participation in 1966 to 68.9
percent by the end of 2015. 296
Families do not remain in poverty because they do not want to
work. Surveys of those enrolled in welfare programs “consistently
show their desire for a job.” 297 The outdated Federal welfare
system no longer works for the 21st century and in turn harms the
very people they are designed to help.
The Federal Government now funds 126 different programs
targeted towards helping low-income Americans. 298 These
programs have been largely ineffective at addressing the
underlying problems, as evidenced by the essentially stagnant
level of poverty across the nation since 1966. The Report
rightfully notes that children born into poverty are more likely to
have a difficult time finding steady employment as adults.299
Unfortunately, the Report fails to recognize broader shortcomings
of the Federal system for providing public assistance and instead
proposes a continuation of the same policies and programs that
have locked many families in a cycle of poverty for generations.
The Illinois Policy Institute demonstrated this fact using the
example of a single mother of two in Cook County, Illinois earning
$12.00 per hour, or approximately $22,100 annually. The value
of the welfare benefits the mother receives is $41,476 annually,
bringing her total take-home (benefits plus salary) to about
$64,000. Should this mother be offered a job that pays twice as
much per hour, she would lose over $39,000 in benefits. In part
because welfare benefits are not taxed as income, 300 this mother
would have to earn $38.00 per hour, which is the equivalent of
$80,000 annually, in order to make up for the loss of benefits she
received making only $12.00 per hour. 301 Rather than providing
an opportunity to gradually increase her earnings over time, the
welfare benefit structure incentivize her to remain in a low-paying
job.
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Supplemental Nutrition Assistance Program
One of the largest public assistance programs highlighted in the
Report is the Supplemental Nutrition Assistance Program (SNAP),
formerly known as food stamps. The concept of SNAP began after
the Great Depression, but the program as we know it today was
created as part of LBJ’s Great Society. 302 SNAP is now the largest
of the 18 separate food assistance programs 303 and accounted for
over $74 billion of the more than $100 billion spent on these
programs in 2014. 304
The Report asserts that SNAP is an important tool in improving
the health and economic outcomes of children born into poverty.
Unquestionably, these programs provide a lifeline to millions of
Americans in need. However, the Report focuses on research
comparing outcomes to impoverished children with a stable food
source verses the outcomes of children from low-income families
that do not have the same level of access to food. 305 It’s
understandable that children have better outcomes when they are
not living in hunger.
The bigger picture that the Report fails to capture is that all
impoverished children are best served when their parents are given
the opportunity to lift the family out of poverty. This was one of
SNAP’s primary goals; however, changes to the program over
time that have expanded or waived eligibility criteria, as noted in
Figure 4-2 below, have resulted in SNAP’s key role in the poverty
trap. 306
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Figure 4-2
Selected Expansions in SNAP
2008 Farm Bill
Provisions
Increased
minimum
standard
deduction for certain households to
$144
Eliminated cap on dependent-care
deductions
Increased minimum benefit for
certain households to 8% of Thrifty
Food Plan
Indexed asset test to inflation
Excluded tax-preferred retirement
plans from asset test
Let states exclude or deduct childsupport payments from household
income
Excluded
certain
educationassistance payments from means
test
Excluded certain state assistanceprogram payments from means test
Excluded certain types of income
from means test
Reduced households' reporting
requirements
Raised asset-test threshold for
households with disabled members
Let states exclude certain resources
from means test
Increased transitional benefits for
certain households
Benefit
Eligibility
Expansion Expansion
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Source: "War on Poverty: 50 Years Later," A House
Budget Committee Report, 2014.
This fact is apparent when considering that, since 2009, the
national unemployment rate has been cut in half to 4.9 percent, 307
while the number of SNAP enrollees has actually increased by
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more than 12 million people. 308 SNAP is largely countercyclical;
therefore, it’s expected that enrollment will increase as the
unemployment rate rises. When the opposite occurs, it shows that
SNAP program is not achieving its goal of bringing people out of
poverty.
Earned Income Tax Credit
SNAP is only one of the programs creating an aggregate system
of government dependency. The Report barely touches the surface
of this problem by promoting the EITC, which is traditionally a
policy tool of the Administration used to reduce inequality and
strengthen families. While some believe the EITC is an effective
policy tool for encouraging work and reducing poverty, others
have concerns about using the tax code as a transfer payment
program and the high level of improper payments and fraud
associated with EITC. 309
As a whole, the Report fails to acknowledge the significant
consequences that have resulted from Federal public assistance
programs and, instead, simply proposes throwing more good
money after bad. This includes programs created by LBJ and the
subsidies created under the ACA, which is expected to further
reduce work incentives, as discussed in Chapter 2.
Head Start Program
Another component of LBJ’s war on poverty that the Report
promotes is the Head Start program, which is a Federal grant to
help low-income children attend preschool. The program has
since repeatedly been reauthorized, most recently in 2007. 310 The
Report attempts to bolster President Obama’s efforts to expand
Head Start through his “preschool for all” initiative, along with
Early Head Start for toddlers and infants. 311 The Report uses of
only a handful of studies—some of which are decades old—in
order to justify a top-down, one-size-fits-all preschool program
across the country.
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The Report conveniently does not mention a comprehensive study
of the Head Start program conducted by President Obama’s own
Department of Health and Human Services (HHS). HHS’s 2010
study found that Head Start has had little to no impact in the long
run, across 22 different cognitive measures. Any area in which
Head Start did have an impact, those gains were completely
nullified by the time the students entered 3rd grade. Even more
concerning, the study concluded that three-year-olds who attended
Head Start were actually worse in math than their peers that did
not attend Head Start. 312
The Obama administration continues to advocate for Head Start,
despite these findings. While there may be some benefits to early
education programs, the Federal Government’s insistence on
having a highly restrictive, top-down approach leaves little room
for flexibility at the state or local level. Not surprisingly, some
states are instead developing solution-oriented preschool
programs that meet the needs of their states.
For example, On My Way Pre-K is Indiana’s pre-kindergarten
pilot program, which pays for low-income four-year-old’s
preschool. Signed in 2014 by Governor Mike Pence, On My Way
Pre-K is unique in it allows parents to send their children to the
preschool of their choice. In 2015, Governor Mike Pence
expanded the program and invested in improving preschool
facilities around the state. 313 Even local area leaders and
nonprofits are fundraising to help enroll four-year-olds in the
program. 314 Early on, Governor Pence had the option of utilizing
Federal preschool funds. However, the Federal requirements
would have forced Indiana to launch their program before it was
even ready. 315
K-12 and School Choice
Given Head Start’s shortcomings, it becomes increasingly
important for children from low-income families to have access to
a quality K-12 education. As previously mentioned in the
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chapter’s opening, too many children born into poverty are forced
to attend failing schools district, simply because of where the
child’s family lives—or can afford to live.
Despite claims to the contrary, school choice does exist within the
traditional public school system. Those with the financial means
are able to choose a home located in a good school district, or they
can choose to send their children to private school. However, the
choices available for families living in poverty are much more
limited and the children of these families are often forced into
failing schools.
President Obama’s answer to this problem is not to provide
families in poverty with more choices, but to spend more money
on education. However, the United States already allocates about
$115,000 to educate each student. 316 Globally, the United States
ranks fifth out of 34 in the amount spent per student, but places
17th in math and reading, which is only slightly better than its 21st
place in science. 317
This misnomer that increased education spending equates to better
outcomes is further exemplified in the District of Columbia (the
District). In 2013, the nation’s capital ranked third in the amount
it spends per pupil enrolled in public school, which was nearly
$18,000 annually. 318 Yet, researchers found that out of all 50
states and the District, the District’s overall rank was 50. The
District also ranked dead last, or second to last, in reading, math,
SAT scores, and dropout rates. 319
Congress created the D.C. Opportunity Scholarship Program
(OSP) in 2003 to provide low-income students in underperforming schools with the opportunity to receive vouchers to
attend a better-performing public charter school or private
school. 320 The OSP independent evaluator identified substantial
improvements and noted that OSP “increased the likelihood of a
student graduating by 21 percentage points.” The evaluator
further stressed that, “in scientific terms, we are more than 99
97
percent confident that access to school choice through the OSP
was the reason why students in the program graduated at these
much higher rates and not some statistical fluke.” 321
The impact of school choice should not be overlooked, but should
be used as a framework for Congress and the President to improve
the educational opportunities for impoverished children. The
Federal Government created a public school system that limits the
educational opportunities for children from poor families and
owes it to these families to take the necessary steps to alleviate the
consequences of government dependency—starting with
expanding school choice to all families, regardless of income.
The Impact of Two-Parent Families
The Report correctly acknowledges the important role of parents
and caregivers during the early years of a child’s life. The
correlation between stable, two-parent households and better
outcomes for children is striking. Brookings Institution’s Isabel
Sawhill notes that gaps in family structure and parenting styles are
creating very unequal starts for American children, affecting
income inequality and potentially slowing economic mobility for
those on the low end of the economic ladder. 322 Sawhill goes on
to say that, “family formation is a new fault line in the American
class structure.” 323
For those born into poverty, the impact of marriage is even more
profound. Richard Reeves of Brookings Institution found that the
child of a poor, unwed mother has a 50 percent risk of remaining
at the bottom of the economic ladder and only a five percent
chance of rising to the top income level. 324
Similarly, when comparing the economic performance of states
with higher rates of marriage against states with the lowest rates
of marriage, researchers found that children in states with the
highest rates of marriage had a 10.5 percent greater chance of
upward income mobility. The states with higher marriage rates
also had a 13.2 percent lower rate of child poverty than states with
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the lowest rates of marriage. 325 What is important to note about
this study is that the data controlled for numerous variables
including the parent’s education, race, age, and even the state’s
environment, such as minimum wage, education expenditures,
crime, and tax rates. 326
The median age that women have their first child (25.7 years) is
now younger than the median age at which women are first
married (26.5 years). This phenomenon, referred to as the “Great
Crossover,” first occurred decades ago for the most economically
underprivileged women, and more recently for women who have
at least a high-school degree or some college. Today, about half
of the children born in the United States are born to unwed
parents. 327
In light of the substantial evidence demonstrating the positive
impact marriage has on children, particularly children from lowincome families, it is important that public policy not discourage
the practice. Yet, many public policies can create a financial
disincentive for low-income, single parents to marry. Research
has found that the structure of Federal welfare programs includes
a marriage penalty where “many low-income couples with
children face substantial penalties for marrying that can amount to
almost one-third of their total household income.” 328
Using the aforementioned Illinois Policy Institute’s example of the
single mother of two in Cook County, Illinois earning $12.00 per
hour, the welfare marriage penalty could actually put this same
mother in a worse financial situation if she chooses to get married,
particularly if she married someone who was also a low-income
earner. If this mother and her spouse earned a combined salary of
$22.00 per hour, their Federal welfare benefits would drop from
the prior level—when she was unwed—of $41,476 annually to
$6,814. As a married couple earning $22.00 per hour, their takehome value (income plus benefits) would total $47,210
annually, 329 compared to approximate $64,000 she received
unmarried. 330
99
A similar marriage penalty exists within the Federal tax code
where couples may have a higher tax burden if they are married.
While this marriage penalty does not affect all couples, it typically
occurs when both partners have similar earnings, 331 and would be
more difficult for couples with lower-incomes to bear. A lowincome couple with similar incomes and with one child would owe
almost $1,100 more in Federal taxes each year as a married couple
than if they were unmarried. 332 This is yet another example of
how the Federal tax system is broken, as discussed in the previous
chapter.
In order to create a smarter system that promotes achievement and
helps Americans fulfill their desires of employment, the President
and Congress must recognize the power of opportunity. These
steps must include providing states more flexibility in
administering welfare programs and job training programs. States
and local communities are better assessors of their needs, and the
Federal Government should afford them the opportunity to
develop ways to meet those needs. The policies of the LBJ era
have proven that a one-size-fits-all system cannot serve the entire
country. It’s time to shift the focus from Federal control to state
flexibility through the utilization of block grants.
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CHAPTER 5: INNOVATION, TECHNOLOGICAL
CHANGE, AND AUTOMATION
The Report highlights the concerning trends of less dynamism
in the business sector, lower productivity growth, and subdued
startup rates that pre-date the recent recession. These trends
highlight a recurrent theme in this era of slower growth
expectations: a divergent path that yet remains unclear for the
future of America and worldwide. In the optimistic view, the
Report suggests that investment will return to its historical
trend after the capital overhang following the recent recession.
In the pessimistic view, it is possible that the recent slowdown
in investment may reflect lower capital intensity, slower labor
force growth, or fewer startups going forward. Implementation
of pro-growth policies remains important as ever in fostering a
competitive business environment both here and abroad, as
well as recognition of government’s role in removing barriers
to entry, protecting property rights and promoting the rule of
law,
thereby
bolstering
economic
activity
and
entrepreneurship.
When the Administration talks of the middle class, it is usually in
the context of insulating that demographic (however they define
it) from disruptions in the economy. The Administration wants to
ensure that the labor market is strong enough to encourage people
to retrain to find work and reenter the labor force, yet participation
remains at low levels not seen since the Carter administration.
With these priorities in mind, it is curious that the Obama
administration pursues, in the name of income security and
redistribution, policies that would be counterproductive to
reducing slack in the U.S. labor market. As Greg Ip notes in his
book, Foolproof, “[S]ocieties and economies...are not inherently
stable. They are constantly changing, evolving, and usually
getting better in the process. Stability is blissful, but it may also
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be illusory, hiding the buildup of hidden risks or nurturing
behavior that will bring the stability to an end.” 333 In favor of
increased stability, this Administration has sacrificed the
entrepreneurial spirit that seeks to introduce new products,
services and technologies. The policies proposed and passed into
law may have simply redirected the underlying risks it seeks to
mitigate into areas as yet unanticipated, which will likely result in
the continuation of unfortunate, unintended consequences that
have become a hallmark of the Administration.
Productivity Growth
Although productivity data is notoriously volatile, the
Administration teases out three distinct 15-year periods of average
annual growth: 1948-1973 averaging 2.9 percent annually; 19731995 averaging 1.5 percent annually; and 1995-2014 averaging
2.2 percent per year. 334 However, the San Francisco Fed sees a
slightly altered version of these periods (Figure 5-1).
Figure 5-1
Noting that output grows as a result of increased hours worked,
productivity (output per hour), or both, the San Francisco Fed
finds that labor productivity was relatively robust in the 1948-
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1973 and 1996-2003 periods, averaging nearly 3.5 percent
annually. Growth in hours accounted for another approximate
percentage point in contributions to output growth over those time
periods. In contrast, the time periods including 1973-1995, 20042007, and 2008-2014 are characterized by relatively sluggish
productivity growth, but with the exception of the 2008-2014
period, nonetheless exhibit stronger growth in hours worked. The
2008-2014 period saw a decline in hours worked on average of
nearly 0.5 percent annually in combination with a sluggish 1.5
percent growth in productivity. The research further finds that
capital per hour worked “has continued to grow modestly.” 335
Total factor productivity (TFP) represents another challenge,
according to the Report. TFP is the productivity that results from
employing both labor and capital. It grows when a fixed value of
aggregate resources (i.e. labor and capital) produces more
economic output. One of the downfalls of relying on TFP as an
economic indicator is that it is subject to significant measurement
error. 336 Yet the Administration relies heavily on TFP in
economic forecasts for the President’s ambitious fiscal year 2017
budget.
The Report points out that, compared to other G-7 nations, labor
productivity growth in the United States is performing well.
Further, the Report argues that the recent slowdown is mostly due
to capital deepening (a.k.a. a declining pace of investment per
worker). 337 Overall, the Report suggests that the recent weakness
is due to cyclical, rather than structural factors. Hopefully this
turns out to be the case. If not, however, the Report notes that,
“…if sustained, slower productivity growth will mean…slower
improvements in living standards.” 338
Declining Dynamism
The Report highlights that business dynamism, “the so-called
churn or birth and death rate of firms” has been in decline since
the 1970s, thereby increasing the age of existing firms. 339 New
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business creation fell by more than 30 percent during the recession
and has been slow to recover. 340 A study by the Kauffman
Foundation found that the rate of new entrepreneurial activity has
fallen to new recovery lows for Americans age 20-34. In other
words, millennials are not starting companies at the same pace as
baby boomers did. 341 Furthermore, studies by economists at the
Brookings Institution found that the share of start-ups (firms less
than 1 year old) had fallen from 15 percent of all businesses in
1978 to 8 percent in 2011. By contrast, the share of older firms
(older than 16 years) jumped from under a quarter to more than a
third of all businesses. 342
The Report argues that there are three puzzles relating to slower
investment growth: (1) the effect of technology on investment, (2)
rising returns to capital, and (3) potential mismeasurement.
However, how these bode for long-term trends remains to be seen.
The Report posits two contrasting views, one optimistic and one
pessimistic. The optimistic perspective suggests that dissipating
headwinds from the recent recession have left investment poised
to return to its prior trend of stronger growth going forward. In
the pessimistic view, however, “there are decades-long trends of
less dynamism in the business sector which could suggest a shift
in previous patterns of investment. The share of new firms among
all firms—the startup rate—has trended down over the past
decades.” 343 The potential of a structural slowdown in the startup
rate is concerning for a few reasons.
Many unintended consequences of the cumulative burden of
regulation, redistribution efforts, and the current tax and welfare
structures serve to negatively affect investment and
entrepreneurialism. As noted in Chapter 1, the Report spends
pages deriding rent-seeking behavior while at the same time
defending the Administration’s regulatory regime. However, it is
this regulatory overreach that incites rent-seeking behavior and
draws entrepreneurial activity away from more productive
pursuits.
104
Administrative and bureaucratic compliance costs borne by firms
have increased significantly. The annual costs of federally
imposed rules is nearly $1.9 trillion in compliance according to the
Competitive Enterprise Institute. 344
As measured by the
Economic Freedom of the World Index, economic freedom in the
United States has dramatically worsened since 2000, precipitating
a decline within the overall Economic Freedom rankings from 2nd
to 16th. 345
It is difficult to overstate how harmful regulation can be to
business investment, but the economic effects of deregulation in
the United States and United Kingdom in the 1970s and 1980s
were clear. As the utility, communications, and transportations
were deregulated, investment in these sectors as a percentage of
capital stock more than doubled. In stark contrast, European
countries—such as Italy, France, and Germany—that did not
undertake these large-scale reforms saw a five percent decline in
investment. 346
Entrepreneurship is the seed of creative destruction. In an effort
to make themselves better off, entrepreneurs develop new
products and services. Entire industries and the firms within them
survive by improving the lives of their customers with better
performance, lower prices, greater convenience, and new features.
For example, technological advancements in telecommunications
have enabled the industry to enable 96 billion more calls with
106,000 fewer operators today compared to three decades ago.
One obvious benefit for consumers was that all of this efficiency
was achieved while simultaneously costing consumers less to
make long-distance calls. 347 However, it appears in recent years
that all the “low-hanging fruit” in technological gains may have
been plucked. 348 Technological innovation still occurs, but rather
than making economic gains by leaps and bounds, improvements
are incremental and less valuable. Just think of how much value
harnessing electricity and inventing the telephone created, versus
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what the innovations of social media have done for society from
an economic standpoint.
Economist Joseph Schumpeter originally coined the phrase
“creative destruction” as a way to describe the dynamic evolution
of the economy as markets change, industries rise and fall,
businesses open and close, and workers gain and lose jobs. He
argued that it is an essential fact of capitalism:
The opening up of new markets, foreign or
domestic, and the organizational development
from the craft shop to such concerns as U.S. Steel
illustrate the same process of industrial mutation—
if I may use that biological term—that incessantly
revolutionizes the economic structure from within,
incessantly destroying the old one, incessantly
creating a new one. This process of Creative
Destruction is the essential fact about
capitalism. 349
Creative destruction makes scarce resources more productive by
“shifting resources from declining sectors to more valuable ones
as workers, inputs, and financial capital seek their highest
returns.” 350 By allowing creative destruction as a natural process
of economic evolution, societies grow more productive and richer
over time as they see the benefit of new and improved products,
less dangerous jobs, and higher living standards. 351 In many ways,
both measurable and immeasurable, Americans are better off than
generations before them as their living standards have increased
over time. Modern conveniences like the refrigerator, for
example, now occupy space in approximately 99.2 percent of
households, according to the Census Bureau. 352
However, as economic growth slows, so too do gains in standard
of living. Recent analysis finds that annual productivity increases
of three percent double the U.S. standard of living every 24 years.
Unfortunately, annual productivity increases have fallen by half of
106
that figure to roughly 1.5 percent on average per year—which
translates to a 23-year increase in the time it takes to double the
standard of living (bringing the total time to 47 years). 353 The
sluggish recovery has led many institutions, including CBO and
BLS, to reduce projected estimates of potential GDP growth, labor
force participation, productivity. As such, recent analysis finds
that there is “little room for gains in real incomes.” 354 It is perhaps
even more unsettling that it is unclear for how long these trends
will continue.
One bright spot for the United States is that population and
workforce projections point to positive growth over the next halfcentury, albeit significantly slower than the historical norm.
Compared to other countries, however, the United States remains
“demographically fortunate” over the long term given that its
working-age population is expected to grow 10 percent by 2050.
In contrast, other advanced economies will see their workforces
shrink by at least one-quarter in many cases over the same
period. 355
Research and Development and the Role of Patents
Real private research and development (R&D) trends are a
positive signal for future strength in U.S. productivity growth.
Fortunately, the Report is quick to note that private R&D
investment has grown by nearly five percent annually since the
start of 2013 and that “2015 was the best year for private R&D
growth since 2008.” 356 The focus on the benefits of private
spending, however, is fleeting. The Report then shifts its focus
almost exclusively to the misguided notion that federally funded
research is more important than that undertaken by the private
sector. To make this argument, the Report points to the fact that
“basic research” is primarily funded by the government.
However, this obfuscates the overall picture showing that the
private sector outspends the Federal Government on R&D by a
ratio of greater than two to one. 357
107
Other than direct spending, another means by which countries
incentivize private R&D is preferential tax treatment. In the
United States, some form of tax incentive supporting R&D has
been in place since 1981 when President Reagan signed the
Economic Recovery Tax Act into law. 358
The R&D staple in the tax code is formally known as the Research
and Experimentation (R&E) Tax Credit. The R&E credit is equal
to a certain percentage of a business’ qualified research
expenses in excess of a base amount. The credit can be claimed
by corporations or by shareholders in S-corporations or other types
of pass-through entities, in which case business income is taxed at
the individual level. However, only recently did the R&E tax
credit become permanent. Until December 2015, it was one of
many “tax extenders,” a set of Federal tax provisions that expire
every one or two years and are sometimes renewed retroactively
after their expiration. 359 However, the R&E credit finally gained
“permanent” status when the Protecting Americans from Tax
Hikes (PATH) Act was signed into law late last year. 360
In addition to the R&E credit, tax code section 174 allows
businesses to fully deduct R&D expenses in the year they are
incurred (known as “expensing”) rather than amortizing and
deducting them over a number of years like other capital
expenditures. Since expensing and the R&E tax credit are applied
when a firm invests in research and development, they are referred
to as “front-end” tax incentives.
The past 15 years, however, have seen growth of “back-end” tax
incentives in countries around the world, especially in Europe. As
opposed to front-end incentives which allow R&D credits or
deductions when the expense is incurred, these incentives tax the
income derived from the development of intellectual property (IP)
at rates much lower than the country’s corporate tax rate. Tax
systems that treat IP income preferentially in this way are referred
to as “patent boxes” (a.k.a. innovation boxes or license boxes).
Their proliferation among the tax codes of America’s competitors
108
(see Figure 5-2) has brought the debate to Washington. In fact,
members of Congress have already begun to explore, in a
bipartisan fashion, how such a regime would work in the United
States.
Figure 5-2
R&D Tax Incentives by Country
R&D
Country
Patent Box
Credit
Austria
X
Belgium
X
Canada
X
France
X
X
Hungary
X
X
Ireland
X
Italy
X
X
Netherlands
X
X
Portugal
X
Spain
X
Switzerland
X
X
X
United Kingdom
X
United States
X
X
Source:
PricewaterhouseCoopers, 2015
The preferential tax treatment of both R&D expenses as well as IP
income is common throughout the developed world and beyond.
Countries seem to be intent on fostering innovation and keeping
the resulting IP—as well as the income derived from it—within
their borders since many economists note that the creation of IP in
the United States generally leads to innovators developing and
expanding their businesses domestically rather than
headquartering in another country solely for tax reasons. 361 Put
109
simply, the more innovation-driving entrepreneurs in one
economy, the better. These persons and the companies they create
are part of an integral process known as “creative destruction”—
the abrupt disruption of an industry, typically creating positive
externalities and making the economic pie bigger for everyone. 362
Technological Advancement and the Sharing Economy
The Report notes that the sharing economy, or “on-demand”
economy, disrupts incumbent businesses. The on-demand
economy is not new, but it is changing. Temporary-hire workers,
from writers and artists to home health professionals and computer
technicians, have a storied experience in earning their income as
freelancers, and a third of the workforce earns some temporary
income. 363 Computers and smartphones expand the possibilities
of finding freelance “gigs” through an “on-demand platform” that
facilitates communication between providers and users. Younger
generations most readily adopt this new technology; workers
between the ages of 25 and 34 make up more than a quarter of
today’s on-demand workforce. 364 Aided by technology, the
number of on-demand workers grew at a faster rate from 2002 to
2014 than the overall job market. 365 In innovative services like
drive-sharing, companies like Uber and Lyft, which began
business is 2009 and 2012 respectively, have created 22,000 jobs
in just a few years.
Like many emerging technologies, existing regulations can serve
as a barrier to entry that protects incumbents. 366 Due to their
contractual nature and low barrier to entry, gig work is readily
available and very flexible, allowing gig workers to set their own
hours. By the same token, gig work lacks the usual protections
and benefits associated with a traditional employer-employee
relationship. 367 However, the Report also notes that consumers
appear to benefit from the on-demand economy because of lower
prices and greater choice. 368 Gigs offered by on-demand
platforms are growing because consumers who use them find them
affordable and convenient, 369 and the services offered expand
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continuously. New platforms help consumers shop, sell goods
they no longer want, park their cars, and walk their dogs. 370
Economist Dwight Lee takes a long view on the potential of this
on-demand or “sharing economy”: “What is now seen as the
sharing economy is really a continuation of a long history of
sharing through markets that enriches all our lives.”371
Technology may give entrepreneurs a marketing reach that only
established businesses had in the past, and may broaden consumer
options.
Appropriate regulations will provide consumer
assurances while protecting on-demand innovation. 372 The
challenge of meeting this balance is a key factor in determining its
growth and appeal to consumers.
Education for the 21st Century
As economist Alex Tabarrok argues in The Chronicle of Higher
Education, while there appears to be a need for a greater focus of
funding toward science, technology, engineering, and
mathematics (STEM) education—which have the potential to
confer greater benefits to society through technological
innovations—there remains a pressing need to focus more on
students that have fallen behind, including millions of college and
high school dropouts. Tabarrok points out that the “obsessive
focus” on attaining a college degree has not served taxpayers or
students well. Given that the United States has the highest college
dropout rate in the developed world, it is perhaps problematic that
the U.S. education system has developed only one path to
knowledge, when there are “many roads to education.” 373
In the United States, vocational high school programs frequently
receive a bad reputation as only for struggling and “at risk”
students, and in many cases, lack a connection to real jobs. In
contrast, many OECD countries boast high school graduation rates
that exceed 90 percent. Instead of college, high school students in
Germany often start apprenticeship programs in high school, and
go on to graduate with the equivalent of a technical degree, better
111
equipped than most American students for the workforce. 374 In
fact, 40 to 70 percent of students in Austria, Denmark, Finland,
Netherlands, Norway, and Switzerland will opt for a high school
education that combines classwork with learning in the workplace.
These programs allow students to be paid while receiving highskill technical training in apprenticeship programs that acclimate
them to success-yielding attitudes and practices. As Tabarrok
concludes, “We need to provide opportunities for all types of
learners, not just classroom learners. Going to college is neither
necessary nor sufficient to be well educated.” 375
The President’s budget has called for nearly $6 billion in funding
for employment training, apprenticeship programs, and
partnerships with private companies. Approximately $2 billion
would be dedicated over five years to a mandatory Apprenticeship
Training Fund to assist employers and states in creating
apprenticeship programs. 376 Such funding is duplicative of money
currently spent on the Registered Apprenticeship (RA) program
administered by the Department of Labor in conjunction with
State Apprenticeship Agencies. The Federal Government already
registers programs and apprentices in 25 states, while programs
are run at the state level in the other 25 states and the District of
Columbia. 377 More mandatory spending will simply add to the
future debt burden of the potential apprentices the Fund would be
meant to help.
The high variance of the quality of education students receive
across America is also worrisome. Many students find themselves
unprepared for even the most basic post-secondary courses. While
the President’s call for K-12’s “new basic” skill of computer
science is a laudable goal, it seems unwise to totally refocus
education policy when American students’ aptitude for truly
fundamental skills—such as arithmetic—lags behind that of their
international peers. The recently enacted Every Student Succeeds
Act places quality improvements to K-12 education systems under
112
state purview, enabling them to determine how best to equip
students with fundamental skills. 378
The existing deficiencies in education quality have compounded
over time and resulted in the unfortunate skills gap that has partly
driven unemployment and lower labor force participation. As was
mentioned in last year’s Response, part of making participation in
the labor force more attractive involves strengthening the
connection between workers and employers, empowering workers
with the skills they need to fill the jobs that employers offer.
Government can encourage thriving employer-employee
relationships through smart regulatory reform that accomplishes
two goals: 1) a reduction the cost of hiring workers, and 2) a
relinquishment of business resources otherwise spent on
compliance.
As emphasized above, the traditionally healthy increase in living
standards is slowing. Many are still struggling in the aftermath of
the recession. Most alarming is the possibility that—unlike their
parents and grandparents—today’s youngest generations may not
be able to attain the standards enjoyed by the generations that came
before them. If they are left burdened with legacy debt caused by
excessive Federal spending, there promises to be a dearth of
socioeconomic mobility and a flagging economy.
The
Administration is right that a number of long-term issues remain
to be tackled but, sadly, fiscal sustainability—and its importance
for American entrepreneurship, innovation, and well-being—was
not listed among them.
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CHAPTER 6: INFRASTRUCTURE & ENERGY
In the Report, the Administration discusses the economic
benefits of investing in U.S. infrastructure. It proposes a series
of new clean technology programs and expanded public transit.
The Report minimizes the role of the private sector, despite the
encouraging prospects for public-private partnerships. The
Administration proposes to pay for its clean energy agenda
with a deemed repatriation tax on multinational corporations
and a new tax of $10.25 per barrel on crude oil and imported
petroleum products. An analysis prepared by the Tax
Foundation found that the oil tax would reduce GDP by $48
billion and cost 137,000 full-time jobs.
The Report provides diminutive discussion of the energy sector
or the Administration’s aggressive regulation of American
energy production. Absent from the Report is any discussion
of the economic costs of the Clean Power Plan or the Paris
Agreement on greenhouse gases. NERA Economic Consulting
has estimated that the Clean Power Plan will cost between $220
billion and $292 billion. The Report also misses a chance to
substantively highlight the revolutionary innovation in the
energy sector related to hydraulic fracturing and horizontal
drilling in an entire Chapter 5 dedicated to innovation.
INFRASTRUCTURE
In the Report, the Administration rightly notes that America needs
an efficient transportation system to remain competitive globally.
In recent years, the lack of a long-term highway bill has
undermined economic growth and stymied private sector job
creation by relying on short-term extensions that failed to give the
private sector the certainty it needed to make investments and
create jobs.
114
Figure 6-1
The situation changed significantly in 2015 with the passage of a
comprehensive, long-term bill to improve America’s surface
transportation infrastructure (see Figure 6-1). 379 The Fixing
America’s Surface Transportation (FAST) Act provides long-term
certainty for improving our roads, bridges, transit systems, and rail
transportation network. The FAST Act is set to have an immediate
impact to fuel economic growth, enhance global competitiveness,
and empower the private sector to create new quality jobs.
Notwithstanding Congress’s achievement, the challenge of how to
fund infrastructure improvements remains a central focus for
policymakers. CBO estimates that infrastructure outlays will
continue to outpace revenues from motor fuel taxes stretching into
the future. 380 Notably, the FAST Act provided sources of funding
to offset the Highway Trust Fund shortfalls without raising taxes.
115
The Report Favors New Taxes to Fund Infrastructure
In contrast, the President’s Fiscal Year 2017 Budget proposes to
divert funds from international tax reform to fund infrastructure.
Lawmakers from both sides of the aisle have expressed support for
the concept of an international tax reform that would include a
one-time tax on the overseas profits of U.S. businesses. The
purpose would be to transition to a more competitive tax system
in which businesses could return profits earned overseas to the
United States without high tax penalties. This one-time transition
tax is known as “deemed” repatriation because it would impose a
tax as if the earnings had been repatriated, but in reality the funds
could either be brought back or left overseas. 381
As noted in Chapter 3 of this Response, U.S. companies are
currently at a competitive disadvantage with businesses based in
countries with more favorable tax systems. While the vast
majority of OECD competitors have territorial regimes in which
their businesses can bring overseas profits back to their home
countries with little or no tax, the United States has a worldwide
tax system that imposes the full corporate tax rate (the highest in
the developed world) when overseas profits are repatriated to the
United States. This creates a “lock-out” effect whereby businesses
are incentivized to leave profits overseas in order to avoid high
domestic taxes.
Under the President’s transportation framework, the revenues
from deemed repatriation would be solely used to finance highway
trust fund spending, rather than to lower other tax rates or
otherwise transition to a more competitive tax system. 382
In addition, the rate of tax the Administration proposed for deemed
repatriation is 14 percent. This is much higher than the rates in
other tax reform plans, such as the one proposed by then-Ways and
Means Chairman Camp in the last Congress. 383 This 14 percent
tax could be very painful for U.S. companies, particularly since
not all overseas earnings are liquid. Some may already be invested
116
in brick and mortar. In addition, U.S. financial institutions may
need to retain foreign earnings overseas due to the capital
requirements of the host country.
Moreover, Federal highway spending has traditionally been
financed by a “user pays” system in which those who use the roads
generally pay for road construction and maintenance. 384 Imposing
a high tax on U.S. businesses with international operations that
bears no relationship to their use of roads and does nothing to
improve our international competiveness sets a very dangerous
precedent.
In addition, the Report endorses the President’s proposed $10.25per-barrel oil tax (discussed further below) that would be used not
to improve our nation’s roads, but for mass transit, high-speed rail,
and other so-called “Clean Transportation” options that already
account for an increasing portion of the revenues that fund the
Highway Trust Fund and do not directly benefit many of those
paying these taxes. The Report also praises the President’s Build
America Bonds program from the 2009 stimulus bill, which the
Government Accountability Office chided for both a lack of
efficiency and transparency. 385
Efficiency and the Private Sector
The President’s preference for tax and spend policies is no longer
tenable. This country can and must live within its means. Doing
so will require us to make more efficient use of the resources
available. A study conducted by the Indiana Department of
Transportation found that it could replace a bridge in Indiana at a
cost 10-25 percent lower using local funds rather than Federal
funds, due to costly Federal regulations. 386 Such Federal
regulatory “strings” include Davis-Bacon wage controls, National
Environmental Protection Act requirements that open the door for
huge litigation costs, set-aside contracting requirements, and “Buy
American” mandates. Using local funds also allows a state to
avoid a diversion of funds into non-motorized federally-mandated
117
programs, such as so-called enhancement projects, nature trails,
parking lots, and ferry boats.
Living within the nation’s means will also require finding new
resources from non-traditional venues. For instance, rather than
pursuing traditional government-run spending policies, we need to
pursue pro-growth infrastructure policies that better leverage the
private sector. The Report acknowledges that public-private
partnerships—or “P3s”—get the private sector off the sidelines
and put new resources to work to meet our growing transportation
needs. P3s allow the private sector to assume more responsibility
in one or more stages of infrastructure development: including
planning, financing, design, construction, operation, and
maintenance.
Some P3s involve the leasing of existing
infrastructure from the public sector to the private sector, while
other projects entail the financing and construction of new
infrastructure. 387 Evidence suggests that significant private capital
sits available for investment today. In 2008, the U.S. Department
of Transportation estimated that $400 billion in private capital was
ready to pour in from the sidelines to finance infrastructure
projects. 388
P3s offer advantages beyond providing new money. Studies
conducted by the International Monetary Fund, among others,
have concluded that the private sector can build infrastructure
cheaper than the public sector. 389 P3s can also effectively
accelerate projects and thereby allow states and localities to reap
the benefits of new or improved infrastructure much earlier.
Rather than wait ten years for sufficient funds, states can go ahead
and build that connector, or widen that vital artery, to encourage
economic development and growth today.
Another major advantage of P3s is risk allocation. In addition to
the financial risks, the private sector often assumes most or all of
the project risk. If a design flaw increases the costs of
construction, or if demand falls unexpectedly, P3s can shift the
risk from the taxpayer to the private partner. In this way, P3s can
118
serve as an insurance policy for the public partner. Often the
private partner can better manage these risks and does so at a lower
cost.
Finally, P3s represent genuine user financing. The motorists who
use the road pay directly for what they use. Of course, P3s won’t
solve all of our nation’s infrastructure problems. But as we look
for new and innovative ways to pay for highways, P3s can play an
important role.
Box 6-1. Indiana Toll Road
One major P3 success worth highlighting occurred in the state
of Indiana. After his election in 2004, then-Governor Mitch
Daniels tasked his cabinet with finding a way to fund the
hundreds of roads and bridges projects that had been promised
for years that did not involve raising taxes or taking on more
debt. He began exploring the feasibility of leasing the Indiana
Toll Road to a private entity. After a bidding process involving
11 proposals, a 75-year lease concession was awarded to a
private consortium for a single lump-sum payment of $3.8
billion. That figure is nearly four-times the yearly allocation
that Indiana receives from Federal highway programs.
Prior to its leasing, the Toll Road had operated at a loss, needed
repairs, and expansions had been chronically postponed. As
part of the lease agreement, the consortium agreed to spend
millions to improve the road and ensure a higher level of
maintenance. Governor Daniels used the proceeds from the
lease to fund a large number of highway construction and
preservation projects under his monumental Major Moves
initiative. Major Moves fully funded the State’s 10-year
transportation plan, including 65 roadway projects completed
or under construction and 720 bridges rehabilitated or replaced
by 2012, and accelerated critical highway arteries. In addition,
the seven counties through which the toll road passes received
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payments of between $15 million and $40 million for local
transportation projects.
As mentioned previously, P3s allow states to shift risk over to
the private partner. In this case, the recession and sluggish
recovery distorted some of the economic assumptions made at
the deal’s signing and the consortium declared bankruptcy.
However, a new buyer stepped forward last year, and this new
buyer will be liable for the same obligations of maintenance
and improvements as the original consortium. The fact that
there is a new buyer demonstrates the value of the Toll Road
and of P3 projects more generally. There is clearly interest in
the private sector for P3s.
ENERGY AND CLIMATE CHANGE
The Report provides very little discussion about energy or how the
energy sector has become revolutionized by innovative
technologies. It also noticeably fails to discuss the economic costs
of the Administration’s aggressive clean air agenda.
Fracking Technology Lowers the Price of Oil
The price of crude oil has gone into steep decline over the past
year-and-a-half, in large part due to the incremental supply
brought on by fracking and horizontal drilling technology. The
price has fallen, presently to around $30 per barrel, and many
North American oil producers have come under severe pressure
from imported oil, but a fundamental change has occurred in the
domestic oil supply. Fracking and horizontal drilling enable
substantial and relatively rapid supply increases at costs per barrel
that are far below the $100-plus level prevailing before adoption
of the technology started to spread in the United States. At
present, it appears that large amounts of oil can be produced with
the technology on a sustained basis at a cost per barrel in an
approximate range of $40 to $60, and the cost is still falling.
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The long-term significance of this development for the economy
is that the threat of an oil shock is much reduced. The domestic
oil fracking supply curve, in effect, limits how high a price OPEC
can charge. Prices between about $40 and $60 per barrel will not
push the economy into a recession, as the economy has managed
far higher crude oil prices for an extended period of time.
At around $30 per barrel, the oil price may force some operators
to exit the market. A study by Deloitte suggests that up to 35
percent of independent oil companies could declare bankruptcy in
2016. 390 However, the oil industry’s ability to frack vast oil and
gas deposits in the United States remains. New operators can take
over the production facilities and continue to produce and sell oil
at prices that do not threaten to cause a recession in the United
States. That is an important development the Report fails to note,
even as it discusses the impact of oil price declines. 391
Toward a Secure and Stable Supply of Oil
Fracking combined with horizontal drilling in the United States,
oil sands production in Canada, and a liberalized oil field
development policy in Mexico that permits foreign companies to
participate, may make it possible for North America to meet its
own oil demand in the future without dependence on overseas
imports. 392
If allowed to operate more freely, the marketplace will settle how
much oil is efficient to import from overseas based on the relative
costs of supply from the United States, Canada, and Mexico, and
while not necessarily zero, the level of overseas oil imports should
constitute a lower market share and command a much lower price
than would be the case if North American sources are artificially
constrained by government.
The chance for North American independence from unreliable
overseas sources of oil rests on the supply capability in North
America. Restraining the U.S. domestic and the North American
oil and gas supply will most directly increase the supply from
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outside sources, and is unlikely to significantly increase supply
from alternative forms of energy whose costs at scale are much
higher and whose supply cannot be increased rapidly in response
to price changes.
Since the Arab oil embargo of 1973, oil price shocks have
repeatedly caused or contributed to economic recessions in the
United States and posed a threat to national security. 393 The
Report misses the fact that U.S. shale oil production technology,
Canadian oil sands development, and the opening of Mexico’s oil
and gas sector to foreign investment together present a historic
opportunity to greatly reduce the threat that oil shocks pose to the
United States and North America.
Administration’s Proposed Oil Tax
Consistent with the Administration’s theme of raising taxes to
cover new spending, the President’s budget has proposed a new
oil fee of $10.25 per barrel on domestic and imported crude oil as
well as imported petroleum products. The fee—which is
essentially a new tax on production—would phase in over a fiveyear period. The White House estimates the new oil tax will raise
approximately $319 billion in revenue over ten years. 394 The
President plans to use the revenue to fund broad new spending on
this Administration’s preferred green energy initiatives.
The White House Fact Sheet on the Budget affirms that oil
companies would shoulder the burden of the new tax hike, 395
ignoring the basic economic reality that producers will pass along
this new cost to consumers. Indeed, CRS concluded that, as a
result of the new tax, “[C]onsumers will likely see higher prices,
not only directly for gasoline and other consumer products, but, in
general, for many products to varying degrees.” 396 Even the
President’s own director of the National Economic Council, Jeff
Zients, estimates that the oil tax will increase the cost of gasoline
by 24 cents per gallon. 397 Zients further conceded that oil
122
companies would likely shift the burden of the fee to
consumers. 398
The nonpartisan Tax Foundation analyzed the oil tax to evaluate
the effects it would have on the economy broadly. It found that
the tax would reduce GDP by $48 billion and cost 137,000 fulltime jobs. 399 Furthermore, the tax would disproportionately
impact poor and lower-income households. 400 Besides gasoline
prices, the proposed tax would apply to a myriad of oil products
unrelated to transportation, such as plastics, dyes, lubricants,
asphalt, toothpaste, lipstick, and many other products.
Notably, while some of the most direct impacts of the President’s
oil tax would be felt through gasoline prices, the proposal would
do little or nothing to improve the solvency of the Highway Trust
Fund. It calls instead for significant new spending for transit,
high-speed rail, a new “Climate Smart Fund,” clean fuel
technology, and heating oil support in the Northeast. 401 None of
these initiatives would result in new roads, improved
transportation efficiency, or the repair of aging infrastructure.
The Paris Climate Agreement, GHG Regulations, and the
Economy
The President has made greenhouse gas (GHG) emission
reduction a major goal of his Administration. For the 2015 United
Nations Climate Change Conference held in Paris from November
30 to December 12, the State Department made a pledge for the
year 2025 that the United States will reduce its GHG emissions by
26 to 28 percent below the 2005 level, substantially surpassing the
targeted reduction pledged at the Copenhagen Conference for
2020 (see Figure 6-2).
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Figure 6-2
The Environmental Protection Agency (EPA) has issued
increasingly stringent emission mandates. The Administration has
announced that the EPA’s Clean Power Plan (CPP), issued in
August of last year, is expected to reduce the carbon dioxide
emissions of electric power generation from 2005 levels by 32
percent in 2030, and there are other reductions expected from
efficiency standards for heavy- and medium-duty trucks, for
example. The Administration has not committed to policies and
measures that could reach the Copenhagen Climate Conference
target with certainty or that are able to reach the Paris Climate
Conference target range, though it has identified additional
measures that, under optimistic assumptions, could result in the 26
percent reduction by 2025 pledged in Paris. 402
The CPP itself is controversial; 27 states are contesting it in court.
The EPA made debatable assumptions in its impact analysis, 403
and NERA Economic Consulting has estimated the present value
of energy sector expenditures will increase by $220 billion to $292
billion from 2022 to 2033 as a result of implementing the CPP, not
including potential increased costs for transmission and
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distribution infrastructure. According to NERA, some states could
experience average electricity price increases of 30 percent or
more. 404
It is puzzling that the CEA does not address the economic
implications of such a major undertaking as the Paris Climate
Agreement, especially since the Administration apparently has
changed the energy mix it envisions will be utilized in the United
States to pursue its emission targets. The President used to speak
of an “all-of-the-above” energy strategy 405 and endorsed increased
use of natural gas, in particular, as a relatively clean “bridge” fuel.
He does so no more, 406 even as he touts substantial emission
reductions in recent years that would not have been possible
without increased use of natural gas. The CPP would leave the
market share of natural gas flat. 407 Nuclear power has zero CO2
emissions, but the President has not expressed support for nuclear
power either. Nuclear power accounts for 19 percent of electric
power generation and 8 percent of total U.S. energy consumption
as of 2014 (see Figures 6-3a and 6-3b).
Figure 6-3a
125
Figure 6-3b
The power industry has made and continues to make substantial
capital investments in emissions reduction from coal-fired electric
generating units to comply with EPA policies that began well
before the most recent CPP. The cumulative investments made
since 2000, not counting the incremental operating costs, in air
pollution control alone reached more than $110 billion as of
2015. 408
However, the Administration’s pursuit of more
ambitious climate goals and its preference for alternative fuels—
to the extent of waging what some call a “war on coal”—is forcing
many coal plants to close. EPA policy-induced shut downs and
fuel conversions are causing 410 electric generating units
representing nearly 67,000 megawatt (MW) of generating
capacity, which is 21 percent of total coal-generating capacity, to
abandon the use of coal. 409 Hence, the turn away from an “all-ofthe-above” energy strategy is stranding emissions control
investments. It also has disruptive employment effects in coal-
126
producing regions, where tens of thousands of jobs have been
destroyed.
While clearly not among this Administration’s preferred energy
sources, oil, natural gas, coal, and nuclear power together account
for 85 percent of electricity generation and 90 percent of total
energy consumption in the United States, whereas solar and wind
account for 0.4 percent and 1.8 percent of energy consumption,
respectively. Wind and solar power generation have increased
during this Administration but continue to hold very small shares
of the U.S. energy market. Furthermore, non-fossil fuels are by
no means free of unwelcomed impacts that can provoke opposition
to them, such as against new hydroelectric power projects and the
placement of windmills, and they face difficulty scaling up
commercial production, which is a particularly troublesome
problem for meeting Federal cellulosic ethanol mandates. The
biofuel supply consists mostly of corn ethanol whose use in
gasoline is constrained by the so-called blend wall, the limited
tolerance of engines for concentrations of ethanol in gasoline
above 10 percent. Wind generated electricity requires extensive
use of land. 410 These are only selected examples of the challenges
facing efforts to expand the supply of renewable fuels. As a result,
the Energy Information Administration (EIA) projections for the
nation’s energy mix through 2040 show only a marginal increase
in the share of all renewables (see Figure 6-4).
127
Figure 6-4
(EIA Annual Energy Outlook 2015)
Shifting from sources that provide 90 percent of the energy supply
to sources that currently supply 10 percent is an enormous
undertaking. How will this be accomplished and at what cost? In
the 2013 Report, the CEA wrote:
As the economy improves, GDP will rise, and the
weakness of the economy in 2007-09 will no longer
restrain energy consumption. Thus if the recent
reductions in emissions are to be continued, a
greater share will need to be borne by fuel
switching into natural gas and into zero-emissions
renewables, and by accelerating improvement in
economy-wide energy efficiency. 411
This statement was followed by Figure 6-3 of the 2013 Report
(Figure 6-5 below) showing the contribution of slower economic
growth and fuel switching to emission reductions. 412
128
Figure 6-5
If the Administration no longer believes that large emissions
reductions require substantially increased use of natural gas, does
not want to rely on more zero emission nuclear power plants, and
now believes that emissions reductions do not reduce economic
growth, then the CEA should explain the reasons. However, the
Report says not a word about the Paris Agreement or the Clean
Power Plan in either its macroeconomic outlook (“The Outlook,”
p. 106-117) or any other part of the Report. The President’s State
of the Union Address this year did not go into the huge changes
required in the economy to meet his pledges, nor does the
President’s Fiscal Year 2017 Budget. The Administration’s 2017
budget does not address quantitatively what its climate policies
mean for economic growth. In the section entitled “Economic
Assumptions and Interactions with the Budget,” OMB discusses
its economic forecast at length and mentions policies related to
trade agreements, immigration reform, business tax reform,
infrastructure investment, community college subsidies, and
boosting the labor supply (p. 15), but not climate change.
Economic analysis should inform setting quantitative targets,
identify the most cost effective policies to achieve them, and show
129
the public what material sacrifices to expect. Unfortunately, the
Report does not address the costs to the economy of the retooling
that would be required or the efficiency of the policies to be
pursued in an effort to meet the pledges made at the Paris Climate
Conference.
Among the key questions the Administration has failed to answer
are:
•
How do different emission levels relate to the rate of
economic growth (or decline), and how did the
Administration decide to set its emission targets?
•
What will be the anticipated energy mix and energy
technologies used to support the economy and
achieve the emission reductions pledged by the
Administration?
•
What are the alternative policies that might achieve
the targets, what are their comparative costs, and how
did the Administration choose the policies it is using?
Inadequacy of the Administration’s Energy Policies
The President has never made his climate policy priorities explicit
with respect to their impact on economic growth and national
security. The President has also not explained how his
Administration sets emissions targets or justified how his chosen
policies, which rely primarily on regulatory mandates, are the best
way to achieve them. 413 Unfortunately, this year’s Report also
fails to elaborate on these particulars.
It appears anything that increases the use of wind, solar power and
biofuels is a good thing in the view of the Administration, and
together with mandated conservation measures, it apparently
expects these fuels to deliver the huge CO2 emissions reductions
it has pledged. However, the supply of all the alternative fuels is
difficult to scale up, and they are not environmentally harmless
130
either. The Administration also appears to support anything that
reduces the use of all other domestic energy sources, even if it
increases the use of imported oil.
For decades, Administrations of both parties have sought to break
the dependence on oil from unreliable sources, and now that the
goal is within reach, the Administration seems at best disinterested
and at worst is working at cross-purposes, as exemplified by its
denial of the Keystone pipeline.
If the Administration is serious about meeting the emissions
targets it has pledged and is not merely waging a campaign in
favor certain industries and against others, there are a number of
unanswered fundamental questions that the Report fails to address.
131
CHAPTER 7: 70TH ANNIVERSARY OF THE JOINT
ECONOMIC COMMITTEE
Chapter 7 of the Report Commemorates the 70th Anniversary
of the Council of Economic Advisers, which was created by
the Employment Act of 1946. The same statute created the Joint
Economic Committee.
The legislative history of the 1946 Act illustrates the tension
that exists between interventionist and free-market economic
philosophies. This chapter commemorates the 70th anniversary
of the JEC by discussing its history, prestige over the years,
and continuing role in advising Congress and contributing to
sound economic policy.
The Employment Act of 1946, signed into law on February 20,
1946, established two advisory panels: the President’s Council of
Economic Advisers, and its congressional counterpart, the Joint
Economic Committee. The legislative history behind the Act
illustrates the competing political philosophies in the 20th
Century—which continue today—about the proper role of
government in influencing economic conditions.
Origins of the Employment Act of 1946
With the Great Depression in recent memory and World War II
not yet ended, Senator James E. Murray of Montana introduced
the Full Employment Bill of 1945. 414 As a strong supporter of
President Roosevelt’s New Deal, Senator Murray had an
interventionist view of the economy and aimed to establish full
employment as a “right” to be assured by the Federal Government.
The bill’s “Statement of Policy” declared that:
All Americans able to work and seeking work have
the right to useful, remunerative, regular, and fulltime employment, and it is the policy of the United
132
States to assure the existence at all times of
opportunities to enable all Americans who have
finished their schooling and who do not have
housekeeping responsibilities to freely exercise
that right.415
The bill seemed to contemplate unlimited Federal spending to
enforce this right, stating that:
[I]t is the further responsibility of the Federal
Government to provide such volume of Federal
investment and expenditures as may be needed to
assure continuing full employment. 416
To that end, the bill directed the President to submit an annual
“National Production and Employment Budget” to be referred to
as the “National Budget.” The National Budget would evaluate
and provide estimates of the labor force and the extent to which
investments by the private sector and other non-Federal sources
would provide the necessary conditions for full employment. To
the extent the National Budget deemed these non-Federal
investments “insufficient to provide a full employment volume of
production,” the bill directed the President to submit a program for
Federal spending that would sustain the level of production the
National Budget determined necessary for full employment. 417
The bill also created a congressional Joint Committee on the
National Budget to study and advise Congress on the National
Budget. The proposed Joint Committee would include chairmen
of some of the most powerful committees in both the Senate and
House of Representatives.
Legislative Compromise
In the year following the bill’s introduction, World War II ended.
Congress remained concerned about employment opportunities,
particularly for the veterans returning home from the battlefield.
However, as the bill was revised while moving through the
133
legislative process, it became less interventionist and placed more
emphasis on the role of the private sector. 418
President Truman signs the Employment Act of 1946
Source: Federal Reserve History
By the time President Harry S Truman signed the Employment Act
of 1946 into law, the term “full employment” was removed from
the title of the bill, as was the characterization of full employment
as a “right” that should be enforced by the spending power of the
Federal Government.
While the 1946 Act still envisioned a strong role for Federal
policymakers in the economy and a goal of “maximum”
employment, this was softened to focus more on creating
opportunities and fostering certain conditions. It also placed a
greater emphasis on the private sector, reflecting a compromise
between interventionists and those with a more free-market
philosophy.
The new Declaration of Policy stated that it is the Federal
Government’s role to use its resources “for the purpose of creating
and maintaining, in a manner calculated to foster and promote free
134
and competitive enterprise and the general welfare, conditions
under which there will be afforded useful employment for those
able, willing, and seeking work, and to promote maximum
employment, production, and purchasing power.” 419
By the time of the final compromise, the National Budget had
become the Economic Report of the President. While this report
would still evaluate economic conditions and outline the
President’s programs for improving them, it no longer assumed
that Federal spending programs were the necessary tools of those
policies.
Recognizing that the President would need economic expertise to
assist with the Economic Report of the President, the 1946 Act
created the Council of Economic Advisers within the Executive
Branch. Among its duties, the Council was charged with
submitting an annual report to the President. The Economic
Report of the President and CEA’s annual report are the genesis
of this year’s Report issued by CEA.
Similarly, the advisory committee for Congress—termed the Joint
Committee on the National Budget in the original bill—became
the Joint Economic Committee on the Economic Report, later
renamed the Joint Economic Committee. The duties outlined for
the JEC included a continuing study of matters in the Economic
Report of the President, a study of ways to coordinate programs in
order to achieve the goals of the 1946 Act, and a response to the
Economic Report as a guide to Congress. The latter duty of the
JEC is being fulfilled by the issuance of this Response.
The JEC was designed to include an equal number of members of
the House and Senate, in a manner reflecting the party composition
of Congress. For this reason, while the CEA has generally served
and promoted the views of one President, the JEC has reflected the
diversity of views that exist within Congress.
135
Later Amendments to the 1946 Act
When Senator Hubert H. Humphrey was Chairman of the JEC, he
noted in a 1976 hearing, “It is my judgment that [the 1946 Act]
has, from time to time, been conveniently ignored.” 420 He
believed Congress should enact legislation to set more explicit
employment objectives, and wanted the government to provide
jobs should these employment goals not be achieved. 421 In the
following Congress, the Full Employment and Balanced Growth
Act of 1978 was enacted, known as “Humphrey-Hawkins.” 422
Although Senator Humphrey passed away before President Jimmy
Carter signed the bill into law, his widow, Muriel Humphrey,
succeeded him in the Senate and attended the signing ceremony.
Senator Muriel Humphrey shakes the hand of President
Carter at the signing ceremony for the 1978 Act
Source: Associated Press
Humphrey-Hawkins made several amendments to the
Employment Act of 1946, which—like the 1946 Act—reflected a
number of compromises between those in Congress who were
interventionist and those who were concerned about fiscal
responsibility and maintaining the primary role of the private
sector in maximizing employment.
136
The Declaration of Policy in the 1946 Act was amended to change
“maximum” to “full” employment and include additional
economic and policy goals beyond employment and production,
including price stability (given the high level of inflation in 1978)
and increased real income. Other goals included “balanced
growth, a balanced Federal budget, adequate productivity growth,
proper attention to national priorities, [and] achievement of an
improved trade balance through increased exports.”
While stopping short of having Congress establish full
employment as a statutory right to be enforced by the Federal
Government, the 1978 Act referred to full employment as if it were
an inherent right that already existed. Rather than establishing a
national right, the Statement of Policy established a national
“goal” of fulfilling a nebulous “right to full employment” it
assumed already existed beyond statute.
In a nod to fiscal responsibility and the role of the private sector,
the 1978 Act amended the 1946 Act to clarify that its purpose is
“to rely principally on the private sector for expansion of
economic activity and creation of new jobs for a growing labor
force.” To promote private-sector reliance, the amendment
clarified that the law’s purpose was to encourage “the adoption of
fiscal policies that would establish the share of the gross national
product accounted for by Federal outlays at the lowest level
consistent with national needs and priorities.”
Significantly, as detailed in Chapter 2, CBO recently determined
that outlays as a share of GDP are above their historical average
and on a decidedly upward trend over the next decade, 423
seemingly contrary to the purpose enumerated in the amended
1946 Act.
Role of the Joint Economic Committee
As the economic and fiscal policy goals outlined in the 1946 Act
expanded in 1978, so did the breadth of the JEC’s mandate to study
economic policy and programs that would achieve those goals.
137
Through the 1978 amendments, the JEC’s authority grew to
issuing a monthly economic indicators report and analyzing the
short- and medium-term goals of the Economic Report of the
President for the House and Senate Budget Committees. 424
Regarding economic indicators, Colleen Healy—long-time staffer
for the Joint Economic Committee—recalls the days before
economic data was widely available electronically. In that era, the
JEC was considered the preeminent source of the most recent and
comprehensive information on economic indicators. Members of
Congress, congressional staff, members of the media, and many
others frequently visited the Committee’s office in order to
procure paper copies of the latest data. Today, the JEC still
distributes and analyzes economic data, but does so chiefly
through electronic means.
Under its current structure, the JEC is composed of 10 Members
of the House of Representatives and 10 Members of the Senate, in
proportions reflecting the party composition of Congress. The
chairmanship of the JEC alternates between the House and Senate
each Congress. Due to the changing leadership and composition
of the Committee, the JEC over the years has chosen to emphasize
different goals within the 1946 Act, as well as different means of
achieving them. One constant has been the JEC’s role as the
economic think tank and incubator of ideas for Congress.
Prestige of the Joint Economic Committee
Taking stock of the JEC’s growing contributions to public
discourse, President Eisenhower wrote, “The JEC and the
Congress through special studies and public hearings have become
a major instrument in promoting better economic
understanding.” 425
As noted by former Senate Historian Richard Baker, a 1952
Nation’s Business article stated the following:
138
[The Joint Economic Committee] has been called
the country's 'most important economic policy
group.’ … The committee… has been a major force
in shaping American economic policy not only in
Congress but in the [Eisenhower] Administration
and business world as well. Its studies and
publications are must reading among economists.
The accomplishments of the Joint Economic
Committee, in the decade following its creation,
confirmed the goals of congressional reformers
who had long sought to strengthen the quality and
independence of expertise available to members of
Congress. 426
The Committee has also drawn a number of renowned economists
in its 70-year history. In fact, economist Paul Douglas chaired the
Committee in its infancy. It was Douglas who, in part, constructed
the Cobb-Douglas utility function, one of the foundations of
modern microeconomic theory.
In 1957, Business Week featured the talented team of staff
economists on the Joint Economic Committee:
They perform many of the tasks that economists
perform for private business, and that the Council
of Economic Advisers performs for the President.
But there’s this difference: Instead of working in
the quiet retreat preferred by economists, [they]
perform always in the glare of political
controversy. They deal with such explosive matters
as taxation, tight money, and rising prices—and do
it with powerful [Members] of both parties looking
over their shoulders. 427
As the Committee’s reputation grew, it attracted some of the most
well-known economists of the modern era who would help foster
debate on what would become the two main competing theories in
139
public economics—Keynesian and supply-side theory and
practice.
Norman Ture, one of the foremost advocates of supply-side
economics and one of the architects of the 1964 and 1981 tax cuts,
began his career as a JEC staffer. His primary duty was to
organize tax policy hearings, information from which he would
later use when crafting policies for Presidents Kennedy, Johnson,
and Reagan. His focus on creating a simpler and less burdensome
tax code culminated in the first hearing to be held on the notion of
a flat tax—a concept that permeates almost any contemporary
discussion of tax reform to this day. 428
Other important milestones in the history of the JEC include its
role in moving away from the gold standard, recommending tax
cuts in the 1960s, and providing leadership during the vast tax
reforms of the 1980s. 429
In the 1960s, the JEC recommended broad-based tax cuts to
promote economic growth and reach full employment. In its Joint
Economic Report of 1961, Members recommended a “review [of]
the tax structure with a view to recommending a downward
revision of taxes—not a temporary ‘tax cut’—and that it make
further periodic reviews for the same purpose, say, every five
years.” 430 This forced the CEA to concur in its Economic Report
of the President and ultimately paved the way for the 1964 tax
cuts.
The Committee once again called for tax cuts and simplification
of the tax code during the Reagan administration. In the 1980
Joint Economic Report, the Committee outlined why cutting taxes
had become so difficult:
Policymakers have not viewed tax reductions as an
important device to improve the structure of the
economy because of the absence of economic
models capable of adequately assessing the effects
of supply side tax policies. 431
140
Not long thereafter, the Committee worked to create such a model
and remove one of the barriers to progress. The model showed
that “tax policies, such as depreciation schedule adjustment, can
lower the inflation rate substantially over the decade.” Senator
Lloyd Bentsen, Chairman of the JEC in 1980, wrote, “This new
model is an important tool which will help policymakers
implement the supply side policies which are being advocated by
the JEC.” The model would prove instrumental in gaining support
for the 1981 and 1986 tax rate reductions.
Additionally, the Committee has followed a tradition of hearing
annual testimony from the Chair of the Federal Reserve Board of
Governors, dating back to Chairman Marriner Eccles in 1947. In
December 2015, Chair Janet Yellen testified before the JEC
shortly before the Fed announced its much-anticipated increase in
interest rates.
The Joint Economic Committee also boasts an extraordinarily
distinguished group of alumni. In alphabetical order, some
notable names include:
•
Lloyd Bentsen, Democratic Vice-Presidential nominee,
Secretary of the Treasury, and U.S. Senator from Texas
•
Sam Brownback, Governor of Kansas and U.S. Senator
from Kansas
•
J. William Fulbright, founder of the Fulbright scholarship
program and U.S. Senator from Arkansas
•
Barry Goldwater, Republican Presidential nominee and
U.S. Senator from Arizona
•
Al Gore, Vice President, Democratic Presidential
nominee, and former U.S. Senator from Tennessee
•
Hubert H. Humphrey, Vice President, Democratic
Presidential nominee, and U.S. Senator from Minnesota
141
•
John F. Kennedy, 35th President of the United States and
U.S. Senator from Massachusetts
•
George McGovern, Democratic Presidential nominee and
U.S. Senator from South Dakota
•
Donald Rumsfeld, two-time Secretary of Defense and U.S.
Congressman from Illinois
•
Paul Ryan, current Speaker of the House of
Representatives, Republican Vice-Presidential nominee,
and U.S. Congressman from Wisconsin
•
Robert Taft, former Senate Majority Leader and U.S.
Senator from Ohio
•
James Webb, Secretary of the Navy and U.S. Senator from
Virginia
Commemorating the 70th Anniversary
With each anniversary, the JEC takes time to reaffirm its
dedication to promoting fiscal policy that achieves America’s
economic goals. Fifty years ago, President Truman wrote,
“Twenty years ago today, as President, I signed into law the
Employment Act of 1946. It is significant that the JEC has chosen
this anniversary date for a bipartisan rededication to the great
objectives of the Employment Act and a reconsideration of our
national goals and the means of achieving them.” 432
Chairman Dan Coats recently issued the following statement in
honor of the Committee’s 70th anniversary:
For 70 years the Joint Economic Committee has
served as Congress’s incubator of economic
thought and a vital sounding board for fiscal policy
proposals. The JEC continues to foster important
discussion on ways to encourage growth in our
changing world. 433
142
Over the last 70 years, the U.S. economy has experienced a great
amount of turbulence that has required the attention of the JEC.
Since the 1946 Act was enacted, 12 Presidents have been in the
White House, 11 recessions have roiled the economy, and
countless booms and busts—for example, the housing and dotcom bubbles—have tested America’s policymakers. 434
The Joint Economic Committee remains dedicated to fulfilling the
mandates set out by the Employment Act of 1946 by advising
Congress on the appropriate policy tools for achieving economic
goals, as well as examining and presenting data in new and
creative ways. As the economy changes, the Committee will
continue to adapt and provide insightful analyses and advice to
Congress. Lawmakers have relied and called upon the Committee
and its staff for 70 years. The Joint Economic Committee looks
forward to answering whatever calls lie ahead in the next 70.
143
Figure 7-1
Joint Economic Committee Leadership (1946-present)
Name of
PartyChairman/Chair
State
Date(s) Served
Congress
Sen. Dan Coats
(R-IN)
2015-present
114th
Rep. Kevin Brady
(R-TX)
2013-2014
113th
Sen. Robert Casey Jr.
(D-PA)
2011-2012
112th
Rep. Carolyn Maloney
(D-NY)
2009-2010
111th
Sen. Charles Schumer
(D-NY)
2007-2008
110th
Rep. Jim Saxton
(R-NJ)
2005-2006
109th
Sen. Robert Bennett
(R-UT)
2003-2004
108th
Rep. Jim Saxton
(R-NJ)
2001-2002
107th
Sen. Connie Mack
(R-FL)
1999-2000
106th
Rep. Jim Saxton
(R-NJ)
1997-1998
105th
Sen. Connie Mack
(R-FL)
1995-1996
104th
Rep. David Obey
(D-WI)
1993-1994
103rd
Rep. Kweisi Mfume
(D-MD)
April 1994
103rd
Sen. Paul Sarbanes
(D-MD)
1991-1992
102nd
Rep. Lee Hamilton
(D-IN)
1989-1990
101st
Sen. Paul Sarbanes
(D-MD)
1987-1988
100th
Rep. David Obey
(D-WI)
1985-1986
99th
Rep. Gillis Long *
(D-LA)
January 1985
99th
Sen. Roger Jepsen
(R-IA)
1983-84
98th
Rep. Henry Reuss
(D-WI)
1981-82
97th
Sen. Lloyd Bentsen
(D-TX)
1979-80
96th
Rep. Richard Bolling
(D-MO)
1977-78
95th
Sen. Hubert Humphrey
(D-MN)
1975-76
94th
Rep. Wright Patman
93rd
(D-TX)
1973-74
Sen. William Proxmire
92nd
(D-WI)
1971-72
Rep. Wright Patman
(D-TX)
1969-70
91st
Sen. William Proxmire
(D-WI)
1967-68
90th
Rep. Wright Patman
(D-TX)
89th
1965-66
Sen. Paul Douglas
(D-IL)
1963-64
88th
Rep. Wright Patman
(D-TX)
1961-62
87th
Sen. Paul Douglas
(D-IL)
1959-60
86th
Rep Wright Patman
(D-TX)
1957-58
85th
Sen. Paul Douglas
(D-IL)
1955-56
84th
Rep. Jesse Wolcott
(D-MI)
1953-54
83rd
Sen. Joseph O'Mahoney
(D-WY)
1951-51
82nd
Sen. Joseph O'Mahoney
(D-WY)
1949-50
81st
Sen. Robert Taft
(R-OH)
1947-48
80th
Sen. Joseph O'Mahoney** (D-WY) February 20, 1946
79th
Rep. Edward Hart**
(D-NJ) February 20, 1946
79th
* Passed away before committee organized
**Co-Chairmen
144
ENDNOTES
1
“Remarks of President Barack Obama – State of the Union Address As
Delivered” (State of the Union 2016), The President’s speech at the State of
the Union, U.S. Capitol, January 13, 2016, https://www.whitehouse.gov/thepress-office/2016/01/12/remarks-president-barack-obama-%E2%80%93prepared-delivery-state-union-address
2
“Fed’s Yellen cites global risks but says U.S. should motor through,”
Reuters, February 10, 2016, http://www.reuters.com/article/usa-fedidUSW1N15N005; see also: Greg Robb, “Fed Beige Book confirms
consumer-led moderate growth seen by Yellen,” MarketWatch, December 2,
2015, http://www.marketwatch.com/story/fed-beige-book-confirmsconsumer-led-moderate-growth-seen-by-yellen-2015-12-02-141031125
3
“The Budget and Economic Outlook: 2016 to 2026,” Congressional Budget
Office, January 25, 2016, https://www.cbo.gov/publication/51129
4
“Economic Growth and the Future Prospects of the U.S. Economy,” Growth
and Prosperity Series, Vol. 1, Joint Economic Committee, October 1999,
http://www.jec.senate.gov/public/_cache/files/035debc9-87e8-4e46-b8246bc530c39bd6/growth-prosperity-series-vol-1-economic-growth-and-thefuture-prospect-of-the-us-economy-oct-1999.pdf, p. ii, 58.
5
“The 2015 Long-Term Budget Outlook,” Congressional Budget Office, June
2015, https://www.cbo.gov/sites/default/files/114th-congress-20152016/reports/50250-LongTermBudgetOutlook-4.pdf, p.15.
6
“Ten Things to Know about CBO’s Updated Budget and Economic Outlook
Summary,” Joint Economic Committee, January 20, 2016,
http://www.jec.senate.gov/public/_cache/files/ae533bc0-2057-4178-a6fd6b85fbf55853/10-things-you-should-know-about-cbo-january-baseline.pdf
7
CBO, Budget and Economic Outlook: 2016 to 2026, p. 4.
8
State of the Union 2016
9
Ibid.
10
Nick Timiraos, “White House Sees Workforce as Best Bet to Tackle
Deficits,” The Wall Street Journal, February 19, 2015,
http://www.wsj.com/articles/obama-in-economic-outlook-paints-picture-of-atough-slog-1424356804
11
Keith Hall, “CBO Testifies on the Long-Term Budget Outlook,”
Congressional Budget Office, June 17, 2015,
https://www.cbo.gov/publication/50299
12
“The U.S. economy to 2024,” Monthly Labor Review, United States Bureau
of Labor Statistics, December 2015,
http://www.bls.gov/opub/mlr/2015/article/the-us-economy-to-2024-9.htm
13
John E. Silvia, et al, “2015 Federal Long-Term Fiscal Outlook: How
Dramatically Does Policy Have to Change?” Wells Fargo Economics Group,
July 30, 2015, https://www.wellsfargo.com/com/insights/economics/specialreports
14
“2015 Joint Economic Report,” Joint Economic Committee, March 2015,
http://www.jec.senate.gov/public/_cache/files/da7e6a82-f02f-43ac-a037-
145
a22ad081d637/3-17-2015-joint-economic-report-response-w-minority-viewsfinal.pdf
15
“The American Middle Class Is Losing Ground: No longer the majority and
falling behind financially,” Pew Research Center, December 2015,
http://www.pewsocialtrends.org/files/2015/12/2015-12-09_middleclass_FINAL-report.pdf
16
Drew Desilver, “The many ways to measure economic inequality,” FactTank, Pew Research Center, September 22, 2015,
http://www.pewresearch.org/fact-tank/2015/09/22/the-many-ways-tomeasure-economic-inequality/
17
“About Income,” United States Census Bureau,
https://www.census.gov/hhes/www/income/about/
18
https://www.washingtonpost.com/news/storyline/wp/2014/12/24/the-casethat-the-middle-class-is-doing-better-than-we-think/
19
Scott Winship, “Has Income Inequality Really Risen?”, Economics 21, The
Manhattan Institute, October 9, 2013,
http://www.economics21.org/research/has-income-inequality-really-risen-0
20
Frank Newport, “Fewer Americans Identify as Middle Class in Recent
Years,” Gallup, April 28, 2015, http://www.gallup.com/poll/182918/feweramericans-identify-middle-class-recent-years.aspx
21
“The Cost of Living in America,” Experian, https://www.edq.com/dataquality-infographics/cost-of-living-in-america/
22
Libby Kane and Andy Kiersz, “How much you have to earn to be
considered middle class in every US state,” Business Insider, April 2, 2015,
http://www.businessinsider.com/middle-class-in-every-us-state-2015-4
23
Scott Winship, “Being a Member of the ‘Hollowed Out’ Middle-Class
Never Felt So Good,” National Review, December 14, 2015,
http://www.nationalreview.com/article/428450/middle-class-not-losingground
24
“The American Middle Class Is Losing Ground: No longer the majority and
falling behind financially,” Pew Research Center, December 2015,
http://www.pewsocialtrends.org/files/2015/12/2015-12-09_middleclass_FINAL-report.pdf
25
Tyler Cowen, “It’s Not the Inequality; It’s the Immobility,” The Upshot,
The New York Times, April 3, 2015,
http://www.nytimes.com/2015/04/05/upshot/its-not-the-inequality-its-theimmobility.html?_r=0
26
Scott Winship, “Does America Have Less Economic Mobility? Part 1,”
Economics 21, The Manhattan Institute, April 20, 2015,
http://www.economics21.org/commentary/winship-economic-mobilityinequality-us-04-20-2015
27
“Economic Mobility in the United States,” Pew Charitable Trusts and the
Russell Sage Foundation, July 2015,
http://www.pewtrusts.org/~/media/assets/2015/07/fsm-irs-report_artfinal.pdf
28
ERP, p. 31.
29
“Economic Policy Reforms: Going for Growth 2010,” Chapter 5: A Family
Affair: Intergenerational Social Mobility across OECD Countries, OECD,
2010, http://www.oecd.org/centrodemexico/medios/44582910.pdf
146
30
Scott Winship, “Mobility Impaired,” Brookings Institution, November 9,
2011, http://www.brookings.edu/research/articles/2011/11/09-economicmobility-winship
31
Eileen Patten and Richard Fry, “How Millennials today compare with their
grandparents 50 years ago,” Fact-Tank, Pew Research Center, March 19,
2015, http://www.pewresearch.org/fact-tank/2015/03/19/how-millennialscompare-with-their-grandparents/#!11
32
Anthony P. Carnevale, Andrew R. Hanson, and Artem Gulish, “Failure to
Launch: Structural Shift and the New Lost Generation,” The Generations
Initiative and Georgetown Public Policy Institute, October 2013,
http://online.wsj.com/public/resources/documents/workforce092913.pdf
33
Ben Casselman, “Enough Already About the Job-Hopping Millennials,”
FiveThirtyEight, May 2, 2015, https://fivethirtyeight.com/datalab/enoughalready-about-the-job-hopping-millennials/#fn-1; see also: Jonnelle Marte,
“Millennials aren’t job hopping as much as previous generations. Here’s why
that’s bad.,” The Washington Post, December 5, 2014,
https://www.washingtonpost.com/news/get-there/wp/2014/12/04/millennialsarent-job-hopping-as-much-as-previous-generations-heres-why-thats-bad/
34
Claire Cain Miller, “A College Major Matters Even More in a Recession,”
The Upshot, The New York Times, June 20, 2014,
http://www.nytimes.com/2014/06/21/upshot/a-college-major-matters-evenmore-in-a-recession.html
35
Richard Florida, “Baby Boomers Were Job-Hopping Before It Was Cool,”
City Lab, The Atlantic, March 31, 2015,
http://www.citylab.com/work/2015/03/baby-boomers-were-job-hoppingbefore-it-was-cool/389207/
36
Steve Matthews, “Here’s Evidence that Millennials Are Still Living with
Their Parents,” Bloomberg Business, September 18, 2015,
http://www.bloomberg.com/news/articles/2015-09-18/here-s-evidence-thatmillennials-are-still-living-with-their-parents
37
Eric Morath, “Seniors, Not Millennials, Are Creating New Households,”
Real Time Economics, The Wall Street Journal, August 18, 2015,
http://blogs.wsj.com/economics/2015/08/18/seniors-not-millennials-are-theones-creating-new-households/
38
“Millennials’ Slow Start Down the Road of Life,” Joint Economic
Committee, http://www.jec.senate.gov/public/_cache/files/788a366b-87bf486b-ad00-cdcf384f8aff/millennials-life-report.pdf
39
William R. Emmons, “Generations X and Y: Facing Economic and
Financial Challenges in the Shadow of the Baby Boom,” EconLowdown,
March 6, 2014,
https://www.stlouisfed.org/~/media/Files/PDFs/HFS/assets/Emmons-LittleRock-Mar-6-2014.pdf
40
“The MetLife Report on The Oldest Boomers: Health, Retiring Rapidly, and
Collecting Social Security,” MetLife Mature Market Institute, May 2013,
https://www.metlife.com/assets/cao/mmi/publications/studies/2013/mmioldest-boomers.pdf
41
Jen Hubley Luckwaldt, “Introducing Generations at Work: Career Trends
Among Baby Boomers, Gen X, and Gen Y,” PayScale Human Capital,
October 24, 2013, http://www.payscale.com/career-
147
news/2013/10/introducing-generations-at-work-career-trends-among-babyboomers-gen-x-and-gen-y
42
“Civilian labor force participation rate by age, gender, race, and ethnicity,”
December 2015 Monthly Labor Review, Bureau of Labor Statistics,
December 2015, http://www.bls.gov/emp/ep_table_303.htm
43
Greg Ip, “How Demographics Rule the Global Economy,” The Wall Street
Journal, November 22, 2015, http://www.wsj.com/articles/howdemographics-rule-the-global-economy-1448203724
44
ERP, p. 24.
45
Laurent Belsie, “Who Owns U.S. Business? How Much Tax Do They
Pay?,” The NBER Digest, The National Bureau of Economic Research,
January 2016, https://www.nber.org/digest/jan16/w21651.html
46
Patrick Sharma, “Estimating Inequality with Tax Data: The Problem of
Pass-Through Income,” Sidney I. Robersts Student Writing Prize in the Field
of Taxation, Harvard Law School, June 2015,
https://dash.harvard.edu/bitstream/handle/1/16386593/Sharma%20-%20PassThrough%20Entities%20and%20Income%20Data.pdf?sequence=1
47
“2015 Joint Economic Report,” Joint Economic Committee, March 2015,
http://www.jec.senate.gov/public/_cache/files/da7e6a82-f02f-43ac-a037a22ad081d637/3-17-2015-joint-economic-report-response-w-minority-viewsfinal.pdf
48
Scott Winship, “What Piketty Left Out of His Inequality Argument,” The
Fiscal Times, May 4, 2014,
http://www.thefiscaltimes.com/Articles/2014/05/04/What-Piketty-Left-OutHis-Inequality-Argument
49
Joint Economic Committee Republicans, “Addressing the Opportunity Gap:
Increasing Economic Mobility: An Update,” Joint Economic Committee,
February 25, 2014, http://www.jec.senate.gov/public/_cache/files/16289365ad00-4e99-ba02-bd23b87f3b09/addressing-the-opportunity-gap-increasingeconomic-mobility-update-2-25-14.pdf
50
ERP, p. 28.
51
“On Pay Gap, Millennial Women Near Parity – For Now,” Pew Research
Center, December 11, 2013, http://www.pewsocialtrends.org/2013/12/11/onpay-gap-millennial-women-near-parity-for-now/
52
Belinda Luscombe, “Workplace Salaries: At Last, Women on Top,” Time,
September 01, 2010,
http://content.time.com/time/business/article/0,8599,2015274,00.html; see
also: Conor Dougherty, “Cities Where Women Outearn Male Counterparts,”
Real Time Economics, The Wall Street Journal, September 1, 2010,
http://blogs.wsj.com/economics/2010/09/01/cities-where-women-outearnmale-counterparts/
53
Scott Winship, “The Great Gatsby Curve: All heat, no light,” Brookings
Institution, May 20, 2015, http://www.brookings.edu/blogs/social-mobilitymemos/posts/2015/05/20-opposition-great-gatsby-curve-winship
54
Jim Tankersley, “Economic mobility hasn’t changed in a half-century in
America, economists declare,” The Washington Post, January 23, 2014,
https://www.washingtonpost.com/business/economy/economic-mobilityhasnt-changed-in-a-half-century-in-america-economistsdeclare/2014/01/22/e845db4a-83a2-11e3-8099-9181471f7aaf_story.html
148
55
ERP, p. 22.
ERP, p. 38.
57
Clyde Wayne Crews, “Bureaucracy Unbound: 2015 Is Another Record Year
for the Federal Register,” Competitive Enterprise Institute, December 30,
2015, https://cei.org/blog/bureaucracy-unbound-2015-another-record-yearfederal-register
58
ERP, p. 22.
59
Wayne Brough, “Political Entrepreneurs Are Crowding Out the
Entrepreneurs,” Real Clear Markets, October 23, 2014,
http://www.realclearmarkets.com/articles/2014/10/23/political_entrepreneurs_
are_crowding_out_the_entrepreneurs_101347.html
60
ERP, p. 49.
61
Bruce Yandle, “Bootleggers and Baptists-the education of a regulatory
economist,” Regulation 7, 1983,
http://news.heartland.org/sites/default/files/v7n3-3.pdf
62
Mark J. Perry, “The Tyranny of the Status Quo,” Carpe Diem, March 20,
2007, http://mjperry.blogspot.com/2007/03/tyranny-of-status-quo-irontriangle.html
63
Mancur Olson, The Rise and Decline of Nations: Economic Growth,
Stagflation, and Social Rigidities, New Haven: Yale University Press, 1982.
See also: Matthew Mitchell, “Economic Freedom and Economic Privilege,”
published in Heritage Foundation’s 2013 Index of Economic Freedom,
Mercatus Center at George Mason University, January 10th, 2013,
http://mercatus.org/publication/economic-freedomand-economic-privilege
64
Joint Economic Committee Republicans, “Curing America’s Growth Gap:
Addressing Causes Instead of Symptoms,” Joint Economic Committee,
September 19, 2013, http://www.jec.senate.gov/public/_cache/files/e93890f86f37-450b-84a2-b80b5821eb46/curing-america-s-growth-gap-9-19-13.pdf
65
ERP, p. 43.
66
John Hood, “Does Occupational Licensing Protect Consumers?,”
Foundation for Economic Education, November 01, 1992,
http://fee.org/articles/does-occupational-licensing-protect-consumers/
67
Brittany La Couture, “Primer: Interstate Sale of Health Insurance,”
American Action Forum, October 7, 2014,
http://americanactionforum.org/research/primer-interstate-sale-of-healthinsurance
68
ERP, p. 39.
69
Morris M. Kleiner and Alan B. Krueger, “Analyzing the Extent and
Influence of Occupational Licensing on Labor Market,” Discussion Paper No.
5505, Institute for the Study of Labor, February 2011,
http://ftp.iza.org/dp5505.pdf
70
Evan Soltas, “Occupational licensing is replacing labor unions and
exacerbating inequality,” Vox, April 18, 2014,
http://www.vox.com/2014/4/18/5627630/occupational-licensing-is-replacinglabor-unions-and-exacerbating
71
ERP, p. 39.
72
Joint Economic Committee Republicans, “From Impeding to Empowering
Entrepreneurs: A Review of State Occupational Licensing Laws,” JEC, July
25, 2014, http://www.jec.senate.gov/public/_cache/files/bd001b72-7d0e-4ba156
149
88be-5c5ca9d19464/from-impeding-to-empowering-entrepreneurs---a-reviewof-state-occupational-licensing-laws.pdf
73
ERP, p. 39.
74
David Neumark, “Reducing Poverty via Minimum Wages, Alternatives,”
Economic Letter, Federal Reserve Bank of San Francisco, December 28,
2015, http://www.frbsf.org/economic-research/publications/economicletter/2015/december/reducing-poverty-via-minimum-wages-tax-credit/
75
Douglas Holtz-Eakin and Ben Gitis, “Counterproductive: The Employment
and Income Effects of Raising America’s Minimum Wage to $12 and to $15
per hour,” Issue Brief No. 36, Manhattan Institute for Policy Research and
American Action Forum, July 2015,
http://americanactionforum.org/uploads/files/research/Counterproductive.pdf
76
“The Effects of a Minimum-Wage Increase on Employment and Family
Income,” Congressional Budget Office, February 18, 2014,
https://www.cbo.gov/publication/44995
77
Joint Economic Committee Republicans, “Washington is the Worst Place to
set a Minimum Wage,” Joint Economic Committee, July 25, 2014,
http://www.jec.senate.gov/public/_cache/files/4a69551a-f1d3-4196-92a5a4b123d6a7ea/washington-is-the-worst-place-to-set-a-minimum-wage.pdf
78
Adam Millsap, “Ignoring the adverse effects of the minimum wage may
cost taxpayers billions,” Neighborhood Effects, Mercatus Center, February 4,
2016, http://neighborhoodeffects.mercatus.org/2016/02/04/ignoring-theadverse-effects-of-the-minimum-wage-may-cost-taxpayers-billions/
79
Joint Economic Committee Republicans, “Increasing the Minimum Wage:
New Fallacies and Old Realities,” Joint Economic Committee, February 6,
2014, http://www.jec.senate.gov/public/_cache/files/19d1214a-17ea-4fb0b375-ef1f7ec5c7a9/increasing-the-minimum-wage---new-fallacies-and-oldrealities.pdf
80
Joint Economic Committee Republicans, “Is the ‘Full Employment’ Glass
Half Full?”, Joint Economic Committee, February 10, 2016,
http://www.jec.senate.gov/public/_cache/files/b0aba7c1-5a2d-4470-abb8b1fc0222f260/2-10-full-employment-brief.pdf
81
ERP, p. 47.
82
F.A. Hayek, “Full Employment, Planning and Inflation,” Institute of Public
Affairs Review, 1950,
https://www.ipa.org.au/library/publication/1213679484_document_review46_hayek-fullemployment.pdf
83
Casey B. Mulligan, “The Affordable Care Act and the New Economics of
Part-Time Work,” Mercatus Center, October 7, 2014,
http://mercatus.org/publication/affordable-care-act-and-new-economics-parttime-work
84
Joint Economic Committee Republicans, “Overtime Pay Mandates Are No
Boon for Employees,” JEC, July 2, 2015,
http://www.jec.senate.gov/public/_cache/files/500070e5-7a82-498a-b31c836ef541f57a/overtime-pay-7-2-15-a-.pdf
85
“The Effects of a Minimum-Wage Increase on Employment and Family
Income,” Congressional Budget Office, February 18, 2014,
https://www.cbo.gov/publication/44995
150
86
Edward Harris and Shannon Mok, “How CBO Estimates the Effects of the
Affordable Care Act on the Labor Market,” Working Paper 2015-09,
Congressional Budget Office, December 2015,
https://www.cbo.gov/publication/51065
87
Ben Gitis, “The Regulatory Burdens of Implementing DOL’s Overtime Pay
Rule,” American Action Forum, December 14, 2015,
http://americanactionforum.org/insights/the-regulatory-burdens-ofimplementing-dols-overtime-pay-rule
88
Marc Labonte, “Returning to Full Employment: What Do the Indicators Tell
Us?” CRS, June 2014, R43476, https://www.fas.org/sgp/crs/misc/R43476.pdf
89
Eric Morath, “Hiring Ends Year on Strong Note, but Wage Growth Remains
Sluggish,” The Wall Street Journal, January 8, 2016,
http://www.wsj.com/articles/u-s-added-292-000-jobs-in-december1452259938
90
Kristen Doerer, “Unemployment is down to 4.9 percent. So why are wages
rising so slowly?” PBS News Hour, February 5, 2016,
http://www.pbs.org/newshour/making-sense/unemployment-is-down-to-4-9percent-so-why-are-wages-rising-so-slowly/
91
Carmen DeNavas-Walt and Bernadette D. Proctor, “Income and Poverty in
the United States: 2014,” Current Population Reports, United States Census
Bureau, September 2015,
https://www.census.gov/content/dam/Census/library/publications/2015/demo/
p60-252.pdf
92
Joint Economic Committee Republicans, “Millennials’ Slow Start Down the
Road of Life,” Joint Economic Committee,
http://www.jec.senate.gov/public/_cache/files/788a366b-87bf-486b-ad00cdcf384f8aff/millennials-life-report.pdf
93
“The American Middle Class Is Losing Ground: No longer the majority and
falling behind financially,” Pew Research Center, December 2015,
http://www.pewsocialtrends.org/files/2015/12/2015-12-09_middleclass_FINAL-report.pdf
94
Tyler Cowen, “Don’t Be So Sure the Economy Will Return To Normal,”
The Upshot, The New York Times,
http://www.nytimes.com/2015/05/17/upshot/dont-be-so-sure-the-economywill-return-to-normal.html
95
John Fernald and Bing Wang, “The Recent Rise and Fall of Rapid
Productivity Growth,” Economic Letter, Federal Reserve Bank of San
Francisco, February 9, 2015, http://www.frbsf.org/economicresearch/publications/economic-letter/2015/february/economic-growthinformation-technology-factor-productivity/
96
Joint Economic Committee Republicans, “Millennials’ Slow Start Down the
Road of Life,” JEC, http://www.jec.senate.gov/public/_cache/files/788a366b87bf-486b-ad00-cdcf384f8aff/millennials-life-report.pdf
97
State of the Union 2016.
98
“2015 Joint Economic Report,” Joint Economic Committee, March 2015,
http://www.jec.senate.gov/public/_cache/files/da7e6a82-f02f-43ac-a037a22ad081d637/3-17-2015-joint-economic-report-response-w-minority-viewsfinal.pdf; see also: Tyler Cowen, “Obama’s free community college plan,”
Marginal Revolution,
151
http://marginalrevolution.com/marginalrevolution/2015/01/obamas-freecommunity-college-plan.html; Ben Miller, “The College Graduation Rate
Flaw That No One’s Talking About,” Ed Central, October 9, 2014,
http://www.edcentral.org/graduation-rate-flaw/
99
Jaison R. Abel and Richard Deitz, “Working as a Barista After College is
Not as Common as You Might Think,” Liberty Street Economics, Federal
Reserve Bank of New York,
http://libertystreeteconomics.newyorkfed.org/2016/01/working-as-a-baristaafter-college-is-not-as-common-as-you-might-think.html#.Vqad5PkrLVa
100
Andrew Kelly, “Reforming Higher Education Finance to Align the
Incentives of Colleges, Students, and Taxpayers,” Written Testimony before
the Joint Economic Committee Hearing on “Financing Higher Education:
Exploring Current Challenges and Potential Alternatives,” September 30,
2015, https://www.aei.org/wp-content/uploads/2015/09/Kelly-JECTestimony-Student-Loans_Final1.pdf
101
Mitchell E. Daniels, Written Testimony before the Joint Economic
Committee Hearing on “Financing Higher Education: Exploring Current
Challenges and Potential Alternatives,” September 30,
2015, https://www.purdue.edu/president/speeches/2015/151030-JECTestimony-Mitch-Daniels-F1.pdf
102
“1996 Joint Economic Report,” the Joint Economic Committee, January
1997,
http://www.jec.senate.gov/reports/105th%20Congress/The%201996%20Joint
%20Economic%20Report%20(1668).pdf, pp. 4-5.
103
“2010 Joint Economic Report,” the Joint Economic Committee, July 2010,
http://www.jec.senate.gov/reports/111th%20Congress/The%202010%20Joint
%20Economic%20Report%20(1875).pdf, p. 53.
104
The World Bank, data, GDP growth (annual percent),
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
105
Bureau of Labor Statistics, February Employment Situation, Table A-15,
http://www.bls.gov/news.release/empsit.t15.htm
106
Chang, Sue, “Bank of America sees 25% chance of a U.S. recession in
2016,” MarketWatch, February 9, 2016:
http://www.marketwatch.com/story/bank-of-america-sees-25-chance-of-a-usrecession-in-2016-2016-02-09.
107
“2010 Joint Economic Report,” the Joint Economic Committee, July 2010,
http://www.jec.senate.gov/reports/111th%20Congress/The%202010%20Joint
%20Economic%20Report%20(1875).pdf, p. 135.
108
Rob Valletta, “Higher Education, Wages, and Polarization,” Economic
Letter, Federal Reserve Bank of San Francisco, January 12, 2015,
http://www.frbsf.org/economic-research/publications/economicletter/2015/january/wages-education-college-labor-earnings-income/
109
Jared Meyer, “Embracing the Millennial American Dream,” Testimony
before the Joint Economic Committee, November 18, 2015,
http://www.economics21.org/files/pdf/JEC Meyer Written Testimony.pdf
110
“Productivity and Costs, Fourth Quarter and Annual Averages 2015,
Preliminary,” Bureau of Labor Statistics, February 4, 2016,
http://www.bls.gov/news.release/prod2.nr0.htm
152
111
“The President’s Budget for Fiscal Year 2017,” Office of Management and
Budget, The White House, https://www.whitehouse.gov/omb/budget
112
“The Budget and Economic Outlook: 2016 to 2026” Congressional Budget
Office, January 25, 2016, (CBO January 2016),
https://www.cbo.gov/publication/51129
113
JEC staff calculations of average growth over each time frame. Data from
CBO, https://www.cbo.gov/about/products/budget_economic_data#4
114
ERP, p. 3, 51.
115
Anthony P. Carnevale, Tamara Jayasundera, and Artem Gulish, “Six
Million Missing Jobs: The Lingering Pain of the Great Recession,” Center on
Education and the Workforce, McCourt School of Public Policy, Georgetown
University, https://cew.georgetown.edu/cew-reports/missingjobs/#full-report
116
CBO January 2016, see also: “An Update to the Budget and Economic
Outlook: 2015 to 2025,” Congressional Budget Office, August 25, 2015,
https://www.cbo.gov/publication/50724
117
Don Lee, “Paltry U.S. Productivity Gains Are Holding Back Wages and
Living Standards,” Tribune Washington Bureau via The Dallas Morning
News, October 9, 2015, http://www.dallasnews.com/business/personalfinance/headlines/20151009-paltry-u.s.-productivity-gains-are-holding-backwages-and-living-standards.ece
118
Carmen DeNavas-Walt and Bernadette D. Proctor, “Income and Poverty in
the United States: 2014,” Current Population Reports, United States Census
Bureau, September 2015,
https://www.census.gov/content/dam/Census/library/publications/2015/demo/
p60-252.pdf
119
CBO (January 2016).
120
Steve Williamson, “How Tight Is the Labor Market,” On the Economy,
Federal Reserve Bank of St. Louis, November 02, 2015,
https://www.stlouisfed.org/on-the-economy/2015/november/how-tight-labormarket
121
CBO (January 2016).
122
“The Slow Recovery of the Labor Market,” Congressional Budget Office,
February 2014,
https://www.cbo.gov/sites/default/files/cbofiles/attachments/45011LaborMarketReview.pdf
123
“The 2015 Join Economic Report,” Joint Economic Committee, March 17,
2015, http://www.jec.senate.gov/public/_cache/files/f01c7665-cb64-48229a15-1c703fb4eb35/2015-joint-economic-report.pdf
124
Scott Winship, “Challenges Facing Low-Income Individuals and Families,”
Excerpt from Testimony before the Subcommittee on Human Resources,
Committee on Ways and Means, U.S. House of Representatives, e21,
February 12, 2015, http://www.economics21.org/commentary/challengesfacing-low-income-individuals-families-2015-02-12
125
Aparna Mathur, “Income Inequality in the United States,” Written
Testimony before the Joint Economic Committee, January 16, 2014,
http://www.jec.senate.gov/public/_cache/files/71a9d85b-3b0e-4560-ae36e12061670c48/testimony-mathur.pdf
126
Scott Winship, “Choosing Our Battles: Why We Should Wage a War on
Immobility Instead of Inequality,” Written Testimony before the Joint
153
Economic Committee, January 16, 2014,
http://www.jec.senate.gov/public/_cache/files/4472dcdb-4bc9-40e0-974ddc050719891e/testimony-winship.pdf
127
Edward Harris and Shannon Mok, “How CBO Estimates the Effects of the
Affordable Care Act on the Labor Market,” Working Paper 2015-09,
Congressional Budget Office, December 2015,
https://www.cbo.gov/publication/51065, p. 1.
128
Ibid, p. 2.
129
Ibid, p. 6.
130
“Healthy Indian Plan (HIP) 2.0”, Centers for Medicare and Medicaid
Services (CMS), May, 14, 2015,
http://www.in.gov/fssa/hip/files/HIP_CMS_Approved_STC_Technical_Corre
ctions_5.14.15.pdf, p. 18.
131
Stephen J. Entin, “Simulating the Economic Effects of Obama’s Tax Plan,”
Tax Foundation, November 1, 2012,
http://taxfoundation.org/article/simulating-economic-effects-obamas-tax-plan
132
Casey Mulligan, “Effects of the Affordable Care Act on Economic
Productivity,” Imprimis 43, No. 11, Hillsdale College, November 2014,
https://imprimis.hillsdale.edu/affordable-care-act/
133
Casey B. Mulligan, “The Myth of ObamaCare’s Affordability,” The Wall
Street Journal, September 8, 2014, http://www.wsj.com/articles/casey-bmulligan-the-myth-of-obamacares-affordability-1410218437
134
Congressional Budget Office, “How CBO Estimates the Effects of the
Affordable Care Act on the Labor Market,” December 2015,
https://www.cbo.gov/publication/51065, p. 3.
135
ERP, p. 84.
136
ERP, p. 80.
137
Barney Jopson, “Fannie Mae at risk of needing a bailout,” The Financial
Times, February 19, 2016, http://www.ft.com/intl/cms/s/0/36a4efd8-d72f11e5-829b-8564e7528e54.html#axzz411jcen4F
138
Government mortgages, including loans sold to Government-Sponsored
Enterprises Fannie Mae and Freddie Mac comprised over 70 percent of loan
originations in 2014; see “Transitioning to Alternative Structures for Housing
Finance,” Congressional Budget Office, December 16, 2014,
https://www.cbo.gov/publication/49765, p. 5.
139
One result of the Dodd-Frank “Qualified Mortgage” (QM) rule is a focus
on income “ability to repay”; see “Technical Assistance Video Program,”
Directors’ Resource Center, Federal Deposit Insurance Corporation,
https://www.fdic.gov/regulations/resources/director/technical/atr.html; and
“Shopping for a mortgage? What you can expect under federal rules?”
Consumer Financial Protection Bureau, January 2014,
http://files.consumerfinance.gov/f/201401_cfpb_mortgages_consumersummary-new-mortgage.pdf; for recent graduates carrying student loan debt,
QM ratios will delay their first home purchase until they have substantially
paid down these loans. Despite regulator assurance that non-QM loans will
not be viewed negatively; see “Basic guide for lenders: What is a Qualified
Mortgage,” Consumer Financial Protection Bureau,
http://files.consumerfinance.gov/f/201310_cfpb_qm-guide-for-lenders.pdf; the
154
lack of private lender participation retards the innovation needed to serve
Millennial borrowing needs.
140
Fannie Mae’s Mortgage Lender Sentiment Survey documents the easing of
underwriting standards; see “Mortgage Lender Sentiment Survey,” Fannie
Mae, http://www.fanniemae.com/portal/research-and-analysis/mortgagelender-survey.html
141
Joint Economic Committee Republicans, “Millennials’ Slow Start Down
the Road of Life,” JEC,
http://www.jec.senate.gov/public/_cache/files/788a366b-87bf-486b-ad00cdcf384f8aff/millennials-life-report.pdf
142
Based on 2.2 percent GDP growth, expects employment declines in a
quarter of U.S. industries, and notes that post-employment training will be
needed for most high-growth job categories. See: “Employment Projections:
2014-24 News Release,” Bureau of Labor Statistics, December 8, 2015,
http://www.bls.gov/news.release/ecopro.htm
143
“Remarks of President Barack Obama – State of the Union Address As
Delivered” (State of the Union 2016), The President’s speech at the State of
the Union, U.S. Capitol, January 13, 2016, https://www.whitehouse.gov/thepress-office/2016/01/12/remarks-president-barack-obama-%E2%80%93prepared-delivery-state-union-address
144
“Historical Tables,” Office of Management and Budget, the White House,
https://www.whitehouse.gov/omb/budget/Historicals, Table 14.6.
145
CBO (January 2016), p. 11.
146
Ibid, p. 9.
147
“Historical Tables,” Office of Management and Budget, the White House,
https://www.whitehouse.gov/omb/budget/Historicals, Table 1.2.
148
Ibid, Table 1.2.
149
“Budget of the United States Government, Fiscal Year 2017,” Office of
Management and Budget, The White House,
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/tabl
es.pdf , Table S-1.
149
CBO (January 2016), p. 84.
150
Senate Budget Committee Republican Staff, “President’s Budget: Budget
Process Proposals,” Budget Bulletin, Senate Budget Committee, February 24,
2016,
http://www.budget.senate.gov/republican/public/index.cfm?a=files.serve&File
_id=AF677E47-8A86-4CB3-999E-3B66A37F21A7; see also: Ryan Murphy
and William Allison, “Price Responds to President Obama’s Unbalanced &
Irresponsible Budget,” House Budget Committee, February 9, 2016,
http://budget.house.gov/news/documentsingle.aspx?DocumentID=394138
151
“The Daily History of the Debt Results,” Debt to the Penny, Treasury
Direct, U.S. Treasury, January 20, 2009,
http://treasurydirect.gov/NP/debt/search?startMonth=01&startDay=20&startY
ear=2009&endMonth=&endDay=&endYear
152
Treasury Direct (2009).
153
“The Daily History of the Debt Results,” Debt to the Penny, Treasury
Direct, U.S. Treasury, January 20, 1993,
http://treasurydirect.gov/NP/debt/search?startMonth=01&startDay=20&startY
ear=2009&endMonth=&endDay=&endYear
155
154
“FOMC Statement” Federal Reserve Press Release, Federal Open Market
Committee, January 27, 2016,
https://www.federalreserve.gov/monetarypolicy/files/monetary20160127a1.pd
f
155
CBO (January 2016).
156
Ibid.
157
ERP, p. 122-123.
158
Ibid, p. 127.
159
CBO (January 2016), p. 67.
160
Ibid, p. 45-46.
161
Marc Labonte and Gail E. Makinen, “The National Debt: Who Bears Its
Burden?” Congressional Research Service, May 1, 2003.
162
CBO (January 2016), p. 2; and “2014 National Population Projections:
Summary Tables,” United States Census Bureau,
https://www.census.gov/population/projections/data/national/2014/summaryta
bles.html
163
CBO (January 2016), p. 178.
164
CBO (January 2016), p. 9.
165
“Mullen: Debt is top national security threat,” CNN, August 27, 2010,
http://www.cnn.com/2010/US/08/27/debt.security.mullen/
166
“The Daily History of the Debt Results,” Debt to the Penny, Treasury
Direct, U.S. Treasury, August 27, 2010,
http://www.treasurydirect.gov/NP/debt/search?startMonth=08&startDay=27&
startYear=2010&endMonth=08&endDay=27&endYear=2010
167
Chris Edwards, “Washington’s Largest Monument: Government Debt,”
Tax & Budget Bulletin No. 71, Cato Institute, September 2015,
http://object.cato.org/sites/cato.org/files/pubs/pdf/tbb_71.pdf, p. 1.
168
CBO (January 2016), p. 4.
169
Ibid, p. 178.
170
Ibid, p. 15.
171
Ibid, p. 20.
172
Ibid, p. 4.
173
“CBO’s 2015 Long-Term Projections for Social Security: Additional
Information, Dec. 2015; Old Age and Survivors Insurance Trust Fund,”
Congressional Budget Office, December 2015,
https://www.cbo.gov/sites/default/files/114th-congress-20152016/reports/51047-SSUpdate.pdf, p. 2.
174
CBO (January 2016), p. 136. See also: Medicare Hospital Insurance Trust
Fund, p. 136.
175
CBO (December 2015), p. 2.
176
Ibid, p. 2.
177
Ibid, p. 8.
178
Ibid, p. 3.
179
Ibid, p. 9.
180
Calculated as the sum of annual shortfalls between “outlays with scheduled
benefits” and “outlays with payable benefits,” as defined by the Congressional
Budget Office (CBO) and using CBO projections of GDP from 2016-2050 in
2015 dollars. Ibid; Also, “The 2015 Long-Term Budget Outlook,” Long-
156
Term Budget Projections, June 2015, Economic Variables and Population,
https://www.cbo.gov/about/products/budget_economic_data#1
181
Congressional Budget Office, “CBO’s Long-Term Projections for Social
Security: Additional Information,” Exhibit 4, December 2015,
https://www.cbo.gov/publication/51047; see also: Congressional Budget
Office, “The 2015 Long-Term Budget Outlook,” Long-Term Budget
Projections, June 2015, Economic Vars and Population:
https://www.cbo.gov/about/products/budget_economic_data#1.
182
CBO (January 2016), p. 71.
183
ERP, p. 21.
184
Kimberly Leonard, “Obamacare, Drug Prices Behind Health Spending
Growth,” US News & World Report, December 2, 2015,
http://www.usnews.com/news/articles/2015/12/02/rate-of-spending-on-healthcare-is-on-its-way-up-again
185
CBO (January 2016), p. 72.
186
CBO (January 2016), p. 133.
187
CBO (January 2016), p. 135.
188
Charles P. Blahous III and Robert D. Reischauer, “A Summary of the 2015
Annual Reports,” Social Security and Medicare Board of Trustees, Social
Security Administration, https://www.ssa.gov/oact/trsum/
189
Patricia A. Davis, “Medicare Financial Status: In Brief,” Congressional
Research Service, August 10, 2015,
http://www.crs.gov/Reports/R43122?source=search&guid=ced73b1413e948b
a842d99a2e54a0d97&index=0
190
Calculated using the HI Trust Fund balances, as a percentage of GDP,
projected in “The 2015 Annual Report of the Board of Trustees of the Federal
Old-Age and Survivors Insurance and Federal Disability Insurance Trust
Funds.” Staff calculations use projections for years 2025, 2030, 2035, 2040,
and 2045 and assume that the increase in funding shortage is linear over each
five-year period. The balances as a percentage of GDP have been translated
into 2015 dollars using CBO’s long-term budget projections. See: The Boards
of Trustees, Federal Hospital Insurance, and Federal Supplementary Medical
Insurance Trust Funds, “The 2015 Annual Report of the Boards of Trustees of
the Federal Hospital Insurance and Federal Supplementary Medical Insurance
Trust Funds,” https://www.cms.gov/research-statistics-data-andsystems/statistics-trends-and-reports/reportstrustfunds/downloads/tr2015.pdf,
p. 4.
191
Ibid.
192
CBO (January 2016), p. 5.
193
Ibid, p. 25.
194
Ibid, p. 13.
195
Ibid, p. 16.
196
Ibid, p. 75.
197
Ibid.
198
Paul Howard, “How Block Grants Can Make Medicaid Work,” Manhattan
Institute for Policy Research, September 2012, http://www.manhattaninstitute.org/pdf/ir_24.pdf, p. 2.
199
Ibid, p. 2.
200
CBO (January 2016), p. 73-74.
157
201
Brian Blase, “Downgrading the Affordable Care Act: Unattractive health
Insurance and Lower Enrollment,” Mercatus Center, November 2015,
http://mercatus.org/sites/default/files/Blase-ACA-Underperforming.pdf, p. 9.
202
CBO (January 2016), p. 74, footnote 67.
203
“FACT SHEET: About 12.7 million people nationwide are signed up for
coverage during Open Enrollment,” United States Department of Health and
Human Services, February 4, 2016,
http://www.hhs.gov/about/news/2016/02/04/fact-sheet-about-127-millionpeople-nationwide-are-signed-coverage-during-open-enrollment.html
204
Blase (November 2015), p. 12.
205
“10 million people expected to have Marketplace coverage at end of 2016,”
United States Department of Health and Human Services, October 15, 2015,
http://www.hhs.gov/about/news/2015/10/15/10-million-people-expectedhave-marketplace-coverage-end-2016.html
206
“Health insurance enrollment and revenue shifts 2013-2014: An emerging
story,” McKinsey Center for U.S. Health System Reform,
http://healthcare.mckinsey.com/sites/default/files/McKinsey%20Enrollment%
20Infographic%20v26.pdf
207
Brian Blase, “New Data Shows Large Insurer Losses on Obamacare
Plans,” Forbes, October 12, 2015,
http://www.forbes.com/sites/theapothecary/2015/10/12/new-data-shows-largeinsurer-losses-on-obamacare-plans/#3226cb764bb3
208
“Understanding the Uninsured Now,” Robert Wood Johnson Foundation,
GMMB, and Perry Undem, June 2015,
http://www.rwjf.org/content/dam/farm/reports/surveys_and_polls/2015/rwjf42
0854, p. 5.
208
Blase (November 2015), p. 20-21.
209
Ibid, p. 20-21.
210
Edward Harris and Shannon Mok, “How CBO Estimates the Effects of the
Affordable Care Act on the Labor Market,” Working Paper 2015-09,
Congressional Budget Office, December 2015,
https://www.cbo.gov/publication/51065, p. 16.
211
J.B. Wogan, “No cut in premiums for typical family,” Politifact, August
31, 2012, http://www.politifact.com/truth-ometer/promises/obameter/promise/521/cut-cost-typical-familys-healthinsurance-premium-/
212
Centers for Medicare and Medicaid Services, 2016 Marketplace
Affordability Snapshot, October 2015,
https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015Fact-sheets-items/2015-10-26-2.html
213
Kaiser Family Foundation; Analysis of 2016 Premium Changes in the
Affordable Care Act’s Health Insurance Marketplaces; October 2015,
http://kff.org/health-reform/fact-sheet/analysis-of-2016-premium-changes-inthe-affordable-care-acts-health-insurance-marketplaces/
214
“Patient Protection and Affordable Care Act; Establishment of Consumer
Operated and Oriented Plan (CO-OP_ Program,” Proposed Rule, Federal
Register Vol. 76, No. 139, July 20, 2011, https://www.gpo.gov/fdsys/pkg/FR2011-07-20/pdf/2011-18342.pdf, p. 43247.
158
215
Office of the Inspector General, “Actual Enrollment and Profitability was
Lower than Projections Made by the Consumer Operated and Oriented Plans
and Might Affect Their Ability to Repay Loans Provided Under the
Affordable Care Act,” United States Department of Health and Human
Services, July 2015, http://oig.hhs.gov/oas/reports/region5/51400055.pdf, p. 5.
216
Ibid, p. 8.
217
Ibid, p. ii.
218
“Hatch Statement at Finance Committee Hearing Examining Obamacare
CO-OP’s,” Senate Finance Committee, January 21, 2015,
http://www.finance.senate.gov/imo/media/doc/Hatch%20Statement%20at%20
Finance%20Committee%20Hearing%20Examining%20Obamacare%20COOPs%201.pdf
219
“Patient Protection and Affordable Care Act; Establishment of Consumer
Operated and Oriented Plan (CO-OP_ Program,” Proposed Rule, Federal
Register Vol. 76, No. 139, July 20, 2011, https://www.gpo.gov/fdsys/pkg/FR2011-07-20/pdf/2011-18342.pdf, p. 43247.
220
Ibid.
221
James C. Capretta and Joseph R. Antos, “Indexing in the Affordable Care
Act: The Impact on the Federal Budget,” Mercatus Center, October 2015,
http://mercatus.org/sites/default/files/Capretta-Indexing-ACA.pdf, p. 24.
222
“Private Health Insurance Premiums and Federal Policy,” Congressional
Budget Office, February 2016, https://www.cbo.gov/sites/default/files/114thcongress-2015-2016/reports/51130-Health_Insurance_Premiums.pdf, p. 1.
223
Capretta and Antos (October 2015).
224
Ibid, p. 11.
225
Ibid, p. 11.
226
“H.R. 4872, Reconciliation Act of 2010 (Final Health Care Legislation)”,
Cost Estimate, Congressional Budget Office, March 20, 2010,
http://www.cbo.gov/sites/default/files/amendreconprop.pdf, p. 14.
227
“Budgetary Implications of the Balanced Budget Act of 1997,”
Congressional Budget Office, December 1997,
https://www.cbo.gov/sites/default/files/105th-congress-19971998/reports/bba-97.pdf, p. 39.
228
Ibid, Table 7, Subtitle F.
229
Ibid, p. 3.
230
“Cost Estimate and Supplemental Analysis for H.R. 2, the Medicare
Access and CHIP Reauthorization Act of 2015,” Congressional Budget
Office, March 25, 2015, https://www.cbo.gov/sites/default/files/114thcongress-2015-2016/costestimate/hr22.pdf, p. 3.
231
“H.R. 4872, Reconciliation Act of 2010 (Final Health Care Legislation),”
Cost Estimate, Congressional Budget Office, March 20, 2010,
http://www.cbo.gov/sites/default/files/amendreconprop.pdf, p. 14.
232
ERP, p. 3.
233
Paul Ryan, Opening Statement before the House Ways and Means
Committee, Hearing on “Moving America Forward,” January 13, 2015,
http://waysandmeans.house.gov/ryan-opening-statement-moving-americaforward/
159
234
“Taking Europe’s pulse: European economic guide,” The Economist,
February 18, 2016,
http://www.economist.com/blogs/graphicdetail/2015/11/taking-europe-s-pulse
235
“Greece election: Syriza leader Tsipras vows to end austerity ‘pain’,” BBC
News, January 26, 2015, http://www.bbc.com/news/world-europe-30978052
236
Jack Ewing and James Kanter, “Missing I.M.F. Payment Puts Greece in
Uncharted Territory,” The New York Times, June 30,2015,
http://www.nytimes.com/2015/07/01/business/dealbook/greece-debt-imfpayment.html
237
“Greece profile – Timeline,” BBC News, August 11, 2015,
http://www.bbc.com/news/world-europe-17373216
238
“Asset purchase programmes: Expanded asset purchase programme,”
European Central Bank, February 18, 2016,
http://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html
239
“Asset purchase programmes: Expanded asset purchase programme,”
European Central Bank, Date Accessed: February 24, 2016,
http://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html
240
“Mario Draghi signals possible action as early as March,” The Economist,
January 21, 2016, http://www.economist.com/news/finance/21688980-mariodraghi-signals-possible-action-early-march
241
“Euro Area GDP Annual Growth Rate: Forecast 2016-2020,” Trading
Economics, February 14, 2016, http://www.tradingeconomics.com/euroarea/gdp-growth-annual/forecast
242
“Japan’s quantitative easing: A bigger bazooka,” The Economist, October
31, 2014, http://www.economist.com/blogs/banyan/2014/10/japansquantitative-easing
243
Tim Quinlan and Erik Nelson, “Land of the Setting Sun?,” Wells Fargo
Economics Group, January 29, 2016,
https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economi
cs/international-reports/japan-negative-rates-20160129.pdf
244
James McBride and Beina Xu, “Abenomics and the Japanese Economy,”
Council on Foreign Relations, April 4, 2013,
http://www.cfr.org/japan/abenomics-japanese-economy/p30383
245
Tim Quinlan, “Japan and the Third Arrow of Abenomics,” Wells Fargo
Economics Group, June 24, 2014
246
“Japan’s economy: Pump-priming,” The Economist, January 3, 2015,
http://www.economist.com/news/finance-and-economics/21637410-shinzoabe-unleashes-small-stimulus-package-pump-priming
247
“Japan’s economy: Pump-priming,” The Economist, January 3, 2015,
http://www.economist.com/news/finance-and-economics/21637410-shinzoabe-unleashes-small-stimulus-package-pump-priming
248
“Japan GDP Annual Growth Rate: 1981-2016,” Trading Economics,
February 14, 2016, http://www.tradingeconomics.com/japan/gdp-growthannual
249
Robin Harding, “Japan GDP drops 1.4% in fourth quarter,” The Financial
Times, February 15, 2016, http://www.ft.com/intl/cms/s/0/e9ba29a0-d37c11e5-829b-8564e7528e54.html#axzz40Y8JA8Ot
250
“GDP at market prices (current US$),” The World Bank, February 24,
2016, http://data.worldbank.org/indicator/NY.GDP.MKTP.CD
160
251
Jay H. Bryson and Erik Nelson, “China GDP: Slowdown or
Deterioration?,” Wells Fargo Economics Group, January 19, 2016,
https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economi
cs/international-reports/china-outlook-20160119.pdf
252
“China Rattles Market With Yuan Devaluation,” Bloomberg News, August
10, 2015, http://www.bloomberg.com/news/articles/2015-08-11/chinaweakens-yuan-reference-rate-by-record-1-9-amid-slowdown
253
“China Newly Built House Prices YoY Change,” Trading Economics,
January 18, 2016, http://www.tradingeconomics.com/china/housing-index
254
David Biller, “Brazil Heads for Worst Recession Since 1901, Economists
Forecast,” Bloomberg News, January 4, 2016,
http://www.bloomberg.com/news/articles/2016-01-04/brazil-analysts-ring-innew-year-with-deeper-recession-forecast
255
Rogerio Jelmayer, “Brazil Inflation Reaches Highest Level in 13 Years,”
The Wall Street Journal, January 8, 2016, http://www.wsj.com/articles/brazilinflation-reaches-highest-level-in-13-years-1452252895
256
“Russia’s GDP shrinks 3.9% in 2015 – economic development minister,”
Tass Russian News Agency, January 16, 2016,
http://tass.ru/en/economy/850125
257
Valdislav Inozemtsev, “Putin’s self-destructing economy,” The
Washington Post, January 17, 2016,
https://www.washingtonpost.com/opinions/russias-economy-ofdisillusionment/2016/01/17/0803598e-bb97-11e5-829c26ffb874a18d_story.html
258
“Russian Inflation Rate: 1991-2016,” Trading Economics, February 5,
2016, http://www.tradingeconomics.com/russia/inflation-cpi
259
Jay H. Bryson and Erik Nelson, “Indian Real GDP Growth Moderates in
Q4 2015,” Wells Fargo Economics Group, February 8, 2016,
https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economi
cs/international-reports/india-gdp-q4-20160208.pdf
260
“India Inflation Rate: 2012-2016,” Trading Economics, February 12, 2016,
http://www.tradingeconomics.com/india/inflation-cpi
261
David Pilling, “India’s headline GDP growth disguises problems below the
surface,” The Financial Times, December 2, 2015,
http://www.ft.com/intl/cms/s/0/aee822de-98dd-11e5-95c7d47aa298f769.html#axzz3xrHoQ0vp
262
Melissa Stark, “US tight oil and shale gas production showing some
resilience to drop in oil prices,” Accenture, February 10, 2015,
https://www.accenture.com/us-en/blogs/blogs-us-tight-oil-and-shale-gasproduction
263
Devin Henry, “Spending deal to lift oil export ban,” The Hill, December
15, 2015, http://thehill.com/policy/energy-environment/263371-spending-andtax-deal-ends-crude-oil-export-ban-extends-renewable
264
“Lifting Export Restrictions on U.S. Crude Oil Would Lower Gasoline
Prices and Reduce U.S. Petroleum Imports While Supporting up to 964,000
Additional Jobs, HIS Study Finds,” IHS Inc., May 29, 2014,
http://press.ihs.com/press-release/energy-power/lifting-export-restrictions-uscrude-oil-would-lower-gasoline-prices-an-0
161
265
“Effects of Removing Restrictions on U.S. Crude Oil Exports,” U.S.
Energy Information Administration, September 2015,
http://www.eia.gov/analysis/requests/crude-exports/pdf/fullreport.pdf
266
Stanley Reed, “Saudi Arabia Keeps Pumping Oil, Despite Financial and
Political Risks,” The New York Times, January 27, 2016,
http://www.nytimes.com/2016/01/28/business/energy-environment/saudiarabia-keeps-pumping-oil-despite-financial-and-political-risks.html
267
International Trade Administration, Trans-Pacific Partnership, TPP:
Supports “Made-in-America” Exports and Jobs,
http://www.trade.gov/fta/tpp/tpp-opportunities-for-us-comp.asp.
268
John R. Graham, “TPP trade agreement undercuts biologic patents,”
Washington Examiner, December 15, 2015,
http://www.washingtonexaminer.com/tpp-trade-agreement-undercutsbiologic-patents/article/2578333
269
Trade Facilitation and Trade Enforcement Act of 2015, PL 114-125,
February 24, 2016, https://www.congress.gov/bill/114th-congress/housebill/644
270
2015 Economic Report of the President, February 2015,
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df, p. 203-239
271
“General Explanations of the Administration’s Fiscal Year 2016 Revenue
Proposals,” Department of the Treasury, February 2015,
https://www.treasury.gov/resource-center/tax-policy/Documents/GeneralExplanations-FY2016.pdf
272
ERP, p. 111.
273
OECD Data, Table II.1 Corporate income tax rate,
https://stats.oecd.org/Index.aspx?DataSetCode=TABLE_II1
274
“Fiscal Year 2017: Budget of the U.S. Government,” Office of
Management and Budget, The White House,
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/bud
get.pdf, p. 51
275
Dr. Laura D’Andrea Tyson, Testimony before the U.S. Senate Committee
on Finance, Hearing on “Tax Reform, Growth and Efficiency,” February 24,
2015, http://www.finance.senate.gov/imo/media/doc/Testimony%20%20Tyson.pdf, p. 7
276
“General Explanations of the Administration’s Fiscal Year 2017 Revenue
Proposals,” Department of the Treasury, February 2016,
https://www.treasury.gov/resource-center/tax-policy/Documents/GeneralExplanations-FY2016.pdf
277
Tyson (February 2015), p. 8-9.
278
Jason Furman, “Thirty Years Without Fundamental Reform: Policy,
Politics, and the Federal Tax Code,” January 26, 2016,
https://www.whitehouse.gov/sites/default/files/page/files/20160126_thirty_ye
ars_without_fundamental_reform_policy_politics_federal_tax_code.pdf
279
Section 7874 of the Internal Revenue Code of 1986.
280
Liz Hoffman and John D. McKinnon, “Curbs Don’t Stop Tax-Driven
Mergers,” The Wall Street Journal, September 21, 2015,
http://www.wsj.com/articles/curbs-dont-stop-tax-driven-mergers-1442881940
162
281
“The U.S. Tax Code: Love It, Leave It or Reform It!” Hearing before the
Senate Finance Committee, July 22, 2014,
http://www.finance.senate.gov/hearings/hearing/?id=5a23092e-5056-a0325264-b5147118d6be
282
William McBride, “Tax Reform in the UK Reversed the Tide of Corporate
Tax Inversions,” Tax Foundation, October 14, 2014,
http://taxfoundation.org/article/tax-reform-uk-reversed-tide-corporate-taxinversions
283
Joint Committee on Taxation, “Selected Issues Relating to Choice of
Business Entity,” Testimony before the Senate Finance Committee, August 1,
2012, https://www.jct.gov/publications.html?func=startdown&id=4478, p. 5
284
“Tax Revenues to More Than Double by 2023, While Top Tax Rates Hit
Highest Level Since 1986,” House Ways and Means Committee, February 13,
2013, http://waysandmeans.house.gov/tax-revenues-to-more-than-double-by2023-while-top-tax-rates-hit-highest-level-since1986/http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentI
D=319377
285
Congressional Budget Office, “Taxing Capital Income Effective marginal
Tax Rates Under 2014 Law and Selected Policy Options,” December 2014,
https://www.cbo.gov/sites/default/files/113th-congress-20132014/reports/49817-Taxing_Capital_Income_0.pdf, p. 10.
286
ERP, p. 213.
287
Arthur C. Brooks, “What Really Buys Happiness? Not income equality, but
mobility and opportunity,” City Journal, Summer 2007, http://www.cityjournal.org/html/17_3_economic_inequality.html
288
Joint Economic Committee Republicans, “Addressing the Opportunity
Gap: Increasing Economic Mobility: An Update,” Joint Economic Committee,
February 25, 2014 (Joint Economic Committee, February 2014),
http://www.jec.senate.gov/public/_cache/files/16289365-ad00-4e99-ba02bd23b87f3b09/addressing-the-opportunity-gap-increasing-economic-mobilityupdate-2-25-14.pdf
289
Scott Winship, “Stop Feeling Sorry for the Middle Class! They’re Doing
Just Fine.” New Republic, February 7, 2012:
https://newrepublic.com/article/100363/middle-class-mobility-crisis-lowincome-poor
290
Michael Tanner and Charles Hughes, “The Work Versus Welfare TradeOff: 2013,” Cato Institute white paper, August 19, 2013 (Cato, August 2013):
http://www.cato.org/publications/white-paper/work-versus-welfare-trade.
291
Joint Economic Committee (February 2014).
292
Charles Hughes, “New Study Finds More Evidence of Poverty Traps in the
Welfare System,” Cato at Liberty, The Cato Institute, December 30, 2014,
http://www.cato.org/blog/new-study-finds-more-evidence-poverty-trapswelfare-system
293
Lyndon B. Johnson, Remarks Upon Signing the Economic Opportunity
Act, August 20, 1964, http://www.presidency.ucsb.edu/ws/?pid=26452
294
Carmen DeNavas-Walt and Bernadette D. Proctor, “Income and Poverty in
the United States: 2014,” Current Population Reports, United States Census
Bureau, September 2015,
163
https://www.census.gov/content/dam/Census/library/publications/2015/demo/
p60-252.pdf, p. 44.
295
Bureau of Labor Statistics, Historical Tables, Civilian Labor Force
Participation Rate for those 16 years and over; seasonally adjusted
participation rates, http://www.bls.gov/data/
296
Bureau of Labor Statistics, historical tables, Civilian Labor Force
Participation Rate by sex for those 16 years and over; seasonally adjusted
participation rates, http://www.bls.gov/data/
297
Cato (August 2013), p. 2.
298
Ibid, p. 3.
299
ERP, p. 157.
300
Cato (August 2013), p. 3.
301
Erik Randolph, “Modeling Potential Income and Welfare-Assistance
Benefits in Illinois: Single Parent with Two Children Household and Two
Parents with Two Children Household Scenarios in Cook County, City of
Chicago, Lake County and St. Clair County,” Illinois Policy Institute,
December 2014, https://d2dv7hze646xr.cloudfront.net/wpcontent/uploads/2014/12/Welfare_Report_finalfinal.pdf, p. 43, Table 4; see
Ibid, p. 26, Chart 9; see also Ibid, p.11.
302
House Budget Committee Majority Staff, “The War on Poverty: 50 Years
Later,” House Budget Committee Report, March 3, 2015,
http://budget.house.gov/uploadedfiles/war_on_poverty.pdf, p. 81.
303
Kay E. Brown, “Multiple Programs Benefit Millions of Americans, but
Additional Action is Needed to Address Potential Overlap and Inefficiencies,”
Testimony before the Subcommittee on Nutrition, Committee on Agriculture,
House of Representatives, May 20, 2015,
http://www.gao.gov/assets/680/670313.pdf, p. 2.
304
2014 Total Outlays, National Level Annual Summary: Participation and
Costs, 1969 – 2015, Food and Nutrition Service, United States Department of
Agriculture, http://www.fns.usda.gov/pd/supplemental-nutrition-assistanceprogram-snap
305
Hillary Hoynes, Diane Whitmore Schanzenbach, and Douglas Almond,
“Long Run Impacts of Childhood Access to the Safety Net,” NBER Working
Paper 18535, National Bureau of Economic Research, November 2012,
http://www.nber.org/papers/w18535.pdf, p. 15-16.
306
House Budget Committee Majority Staff, “The War on Poverty: 50 Years
Later,” House Budget Committee Report, March 3, 2015,
http://budget.house.gov/uploadedfiles/war_on_poverty.pdf, p. 82.
307
Seasonally Adjusted Unemployment Rate, Bureau of Labor Statistics,
Accessed February 25, 2016, http://data.bls.gov/timeseries/LNS14000000
308
National Level Annual Summary: Participation and Costs, 1969 – 2015,
Food and Nutrition Service, United States Department of Agriculture,
http://www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap
309
Treasury Inspector General for Tax Administration, “Existing Compliance
Processes Will Not Reduce the Billions of Dollars in Improper Earned Income
Tax Credit and Additional Child Tax Credit Payments,” September 29, 2014,
https://www.treasury.gov/tigta/auditreports/2014reports/201440093fr.pdf
164
310
“History of Head Start,” Office of Head Start, United States Department of
Health and Human Services, June 22, 2015,
http://www.acf.hhs.gov/programs/ohs/about/history-of-head-start
311
ERP, p. 190.
312
“Head Start Impact Study Final Report,” Office of Planning, Research, and
Evaluation, Administration for Children and Families, United States
Department of Health and Human Services, January 2010,
http://www.acf.hhs.gov/sites/default/files/opre/hs_impact_study_final.pdf
313
Isabella Moller, “Governor Pence Announces Additional Seats for ‘On My
Way’ Pre-K Program,” Fort Wayne Homepage, April 17, 2015,
http://www.fortwaynehomepage.net/news/local-news/governor-penceannounces-additional-seats-for-on-my-way-pre-k-program
314
The Times Editorial Board, “EDITORIAL: Pre-K pilot is wise investment
in Region’s future,” The NWI Times, February 3, 2016,
http://www.nwitimes.com/news/opinion/editorial/editorial-pre-k-pilot-is-wiseinvestment-in-region-s/article_c4feb988-3910-5da1-8bdc-e114d7559f78.html
315
Mike Pence, “Mike Pence: Why I rejected federal preschool funds” The
Indianapolis Star, October 20, 2014,
http://www.indystar.com/story/opinion/2014/10/17/mike-pence-rejectedfederal-preschool-funds/17438325/
316
Paul Ryan, The Way Forward, Twelve, August 19, 2014.
317
Ibid, p. 241.
318
Public Elementary-Secondary Education Finance Data, State-level-tables,
Table 8 “Per Pupil Amounts for Current Spending of Public ElementarySecondary School Systems by State: Fiscal Year 2013,”
https://www.census.gov/govs/school/
319
Richie Bernardo, “2015’s States with the Best and Worst School Systems,”
WalletHub, https://wallethub.com/edu/states-with-the-best-schools/5335/
320
“H.R. 10: Scholarships for Opportunity and Results (SOAR)
Reauthorization Act,” Legislative Digest, House Republicans,
http://www.gop.gov/bill/h-r-10-scholarships-for-opportunity-and-results-soarreauthorization-act/
321
Dr. Patrick J. Wolf, “Written Testimony for the Field Hearing on ‘The D.C.
Opportunity Scholarship Program: Making the American Dream Possible,’”
House Committee on Oversight and Government Reform, May 14, 2015,
https://oversight.house.gov/wp-content/uploads/2015/05/Wolf-writtentestimony-on-the-DC-OSP-2015-final-final-version.pdf, p. 3.
322
Isabel V. Sawhill and Joanna Venator, “Six Quotes from Isabel Sawhill on
‘Why Marriage is the Best Environment for Kids’,” Brookings Institution,
October 14, 2014, http://www.brookings.edu/blogs/social-mobilitymemos/posts/2014/10/17-marriage-best-environment-podcast-sawhill
323
Isabel V. Sawhill, Generation Unbound: Drifting into Sex and Parenthood
without Marriage, Brookings Institution Press, September 25, 2014.
324
Richard Reeves, “Saving Horatio Alger: Equality, Opportunity, and the
American Dream,” The Brookings Essay, August 20, 2014,
http://www.brookings.edu/research/essays/2014/saving-horatio-alger#
325
W. Bradford Wilcox, Joseph Price, and Robert I. Lerman, “Strong
Families, Prosperous States: Do Healthy Families Affect the Wealth of
States?” Institute for Family Studies, American Enterprise Institute, October
165
2015, https://www.aei.org/wp-content/uploads/2015/10/IFSHomeEconReport-2015-FinalWeb.pdf, p. 23.
326
Ibid, p. 38-40.
327
Patrice J. Lee, “Knot Yet: Millennials and Marriage,” Independent
Women’s Forum, July 21, 2014, http://iwf.org/blog/2794507/Knot-Yet:Millennials-and-Marriage-328
W. Bradford Wilcox, Joseph Price, and Robert I. Lerman, “Strong
Families, Prosperous States: Do Healthy Families Affect the Wealth of
States?” Institute for Family Studies, American Enterprise Institute, October
2015, https://www.aei.org/wp-content/uploads/2015/10/IFSHomeEconReport-2015-FinalWeb.pdf, p. 35.
329
Erik Randolph, “Modeling Potential Income and Welfare-Assistance
Benefits in Illinois: Single Parent with Two Children Household and Two
Parents with Two Children Household Scenarios in Cook County, City of
Chicago, Lake County and St. Clair County,” Illinois Policy Institute,
December 2014, https://d2dv7hze646xr.cloudfront.net/wpcontent/uploads/2014/12/Welfare_Report_finalfinal.pdf, p. 44, Table 5.
330
Ibid, p. 43, Table 4.
331
Kyle Pomerleau, “Understanding the Marriage Penalty and Marriage
Bonus,” The Tax Foundation, April 23, 2015,
http://taxfoundation.org/article/understanding-marriage-penalty-and-marriagebonus
332
Ibid.
333
Greg Ip, Foolproof: Why Safety Can Be Dangerous and How Danger
Makes Us Safe, Little, Brown and Company, 2015.
334
Jason Furman, “Productivity Growth in the Advanced Economies: The
Past, the Present, and Lessons for the Future,” Presentation at the Peterson
Institute for International Economics, July 8, 2015,
https://www.whitehouse.gov/sites/default/files/docs/20150709_productivity_a
dvanced_economies_piie_slides.pdf
335
John Fernald and Bing Wang, “The Recent Rise and Fall of Rapid
Productivity Growth,” Federal Reserve Bank of San Francisco, February 9,
2015http://www.frbsf.org/economic-research/publications/economicletter/2015/february/economic-growth-information-technology-factorproductivity/
336
Charles R. Hulten, “Total Factor Productivity: A Short Biography,”
Working Paper 7471, NBER Working Paper Series, National Bureau of
Economic Research, January 2000, http://www.nber.org/papers/w7471
337
ERP, p. 123-124.
338
ERP, p. 124.
339
ERP, p. 213-214.
340
J.D. Harrison, “The decline of American entrepreneurship – in five charts,”
The Washington Post, February 12, 2015,
https://www.washingtonpost.com/news/on-small-business/wp/2015/02/12/thedecline-of-american-entrepreneurship-in-five-charts/
341
Ibid.
342
Robert Samuelson, “Fewer Start-Ups Is An Ugly Economic Signal,” Real
Clear Markets, April 13, 2015,
166
http://www.realclearmarkets.com/articles/2015/04/13/fewer_startups_is_an_ugly_economic_signal_101620.html
343
Jason Furman, “Business Investment in the United States: Facts,
Explanations, Puzzles, and Policies,” Remarks as prepared before the
Progressive Policy Institute, September 30, 2015,
https://www.whitehouse.gov/sites/default/files/page/files/20150930_business_
investment_in_the_united_states.pdf
344
“Washington’s Hidden Tax: $1.9 Trillion,” Review & Outlook, The Wall
Street Journal, May 11, 2015, http://www.wsj.com/articles/washingtonshidden-tax-1-9-trillion-1431385233
345
James Gwartney, Robert Lawson, and Joshua Hall, “Economic Freedom of
the World: 2015 Annual Report,” The Fraser Institute, 2015,
http://www.fraserinstitute.org/sites/default/files/economic-freedom-of-theworld-2015.pdf
346
Patrick McLaughlin and Robert Greene, “The Unintended Consequences of
Federal Regulatory Accumulation,” Mercatus Center, May 8, 2014:
http://mercatus.org/publication/unintended-consequences-federal-regulatoryaccumulation
347
W. Michael Cox and Richard Alm (Cox and Alm), “Creative Destruction,”
The Concise Encyclopedia of Economics, Library of Economics and Liberty,
2008, http://www.econlib.org/library/Enc/CreativeDestruction.html
348
Tyler Cowen, “The Great Stagnation: How America Ate All the LowHanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel
Better,” Penguin Group, January 25, 2011.
349
Joseph Schumpeter, “Capitalism, Socialism, and Democracy,” George
Allen & Unwin Limited, 1976 (originally published 1943),
http://digamo.free.fr/capisoc.pdf
350
Cox and Alm (2008).
351
Cox and Alm (2008).
352
Julie Siebens, “Extended Measures of Well-Being: Living Conditions in
the United States: 2011,” Household Economic Studies, United States Census
Bureau, September 2013, http://www.census.gov/prod/2013pubs/p70-136.pdf
353
Don Lee, “Low U.S. productivity holding back wages, standard of living,”
The Seattle Times, October 11, 2015,
http://www.seattletimes.com/business/low-us-productivity-holding-backwages-standard-of-living/
354
Barry P. Bosworth, “Limited gains in living standards caused by a supplyside recession,” Brookings Institution, December 2015,
http://www.brookings.edu/research/opinions/2015/12/18-supply-siderecession-limited-living-standard-gains-bosworth
355
Greg Ip, “How Demographics Rule the Global Economy,” The Wall Street
Journal, November 22, 2015, http://www.wsj.com/articles/howdemographics-rule-the-global-economy-1448203724
356
ERP, p. 221.
357
ERP, p. 225-226.
358
Assembly Revenue and Taxation Committee and Senate Revenue and
Taxation Committee, "The Federal Economic Recovery Tax Act of 1981,”
California Joint Committees, Paper 118:
http://digitalcommons.law.ggu.edu/caldocs_joint_committees/118
167
359
Akabas, Shai and Brian Collins, “What is the Research and
Experimentation Tax Credit?” Bipartisan Policy Center, April 24, 2014:
http://bipartisanpolicy.org/blog/what-research-and-experimentation-tax-credit/
360
Consolidated Appropriations Act, 2016, PL 114-113, December 18, 2015,
https://www.congress.gov/bill/114th-congress/house-bill/2029
361
Ike Brannon and Michelle Hanlon, “How a Patent Box Would Affect the
U.S. Biopharmaceutical
Sector,” Tax Notes, 146, no. 5, February 2, 2015; Ike Brannon, “The Case for
an ‘Innovation Box’,”
American Enterprise Institute blog, April 28, 2015,
https://www.aei.org/publication/the-case-for-aninnovation-box/
362
David P. Lepak, Ken G. Smith, and M. Susan Taylor, “Value Creation and
Value Capture: A Multilevel Perspective,” Academy of Management Review,
vol. 32, no. 1, 180-194, January 1, 2007:
http://amr.aom.org/content/32/1/180.short
363
“Freelancing in America: A National Survey of the New Workforce,”
Freelancers Union & Elance-oDesk, September 4, 2014, https://fu-webstorage-prod.s3.amazonaws.com/content/filer_public/7c/45/7c457488-07404bc4-ae45-0aa60daac531/freelancinginamerica_report.pdf; the Government
Accountability Office estimated the size of the “contingent worker” market to
be 42 million in 2005 (see: “Improved Outreach Could Help Ensure Proper
Worker Classification,” GAO, August 2, 2006,
http://www.gao.gov/products/GAO-06-656).
364
Jennifer Rossa and Anne Riley, “These Charts Show How the Sharing
Economy Is Different,” Bloomberg News, June 15, 2015,
http://www.bloomberg.com/news/articles/2015-06-15/these-charts-show-howthe-sharing-economy-is-different
365
Will Rinehart and Ben Gitis, “Independent Contractors and the Emerging
Gig Economy,” American Action Forum, July 29, 2015,
http://americanactionforum.org/research/independent-contractors-and-theemerging-gig-economy
366
“Sharing Economy 2.0: Can Innovation and Regulation Work Together?”
Knowledge@Wharton. The Wharton School, University of Pennsylvania,
November 5, 2014, http://knowledge.wharton.upenn.edu/article/the-nextphase-for-the-sharing-economy/
367
Sarah A. Donovan, David H. Bradley, and Jon O. Shimabukuro, “What
Does the Gig Economy Mean for Workers?,” Congressional Research Service,
February 5, 2016, https://www.fas.org/sgp/crs/misc/R44365.pdf
368
ERP, p. 242-244.
369
“The Sharing Economy,” Consumer Intelligence Series,
PricewaterhouseCoopers, 2015,
http://www.pwc.com/us/en/industry/entertainmentmedia/publications/consumer-intelligence-series/assets/pwc-cis-sharingeconomy.pdf
370
Nick Loper, “15 Apps That Let You Join the Sharing Economy,” Lifehack,
http://www.lifehack.org/articles/technology/15-apps-that-let-you-join-thesharing-economy.html
168
371
Dwight R. Lee, “The Sharing Economy Is As Old As Markets,” Library of
Economics and Liberty, August 3, 2015,
http://www.econlib.org/library/Columns/y2015/Leesharing.html
372
Sarah Cannon and Larry Summers, “How Uber and the Sharing Economy
Can Win Over Regulators,” Harvard Business Review, October 13, 2014,
https://hbr.org/2014/10/how-uber-and-the-sharing-economy-can-win-overregulators/
373
Alex Tabarrok (Tabarrok), “Tuning In to Dropping Out,” The Chronicle
Review, The Chronicle of higher Education, March 4, 2012,
http://chronicle.com/article/Tuning-In-to-Dropping-Out/130967
374
Organization for Economic Cooperation and Development, “Education at a
Glance 2014,” OECD Indicators, October 2014:
http://www.oecd.org/edu/Education-at-a-Glance-2014.pdf
375
Tabarrok (2012).
376
Katherine Tully-McManus, “Labor: Training Funds Designed to Expand
Job Growth,” Congressional Quarterly, February 9, 2016,
http://www.cq.com/doc/news-4828349?0&srcpage=news&srcsec=cqn
377
Reed, Debbie, Albert Yung-Hse Liu, Rebecca Kleinman, Annalisa Mastri,
Davin Reed, Samina Sattar, and Jessica Ziegler, “An Effectiveness
Assessment and Cost-Benefit Analysis of Registered Apprenticeship in 10
States,” MATHEMATICA Policy Research, July 25, 2012:
https://wdr.doleta.gov/research/FullText_Documents/ETAOP_2012_10.pdf
378
Gerard Robinson, “A Remarkable Feat in Education,” U.S. News & World
Report, January 4, 2016, http://www.usnews.com/opinion/knowledgebank/articles/2016-01-04/the-every-student-succeeds-act-loosens-the-federalgrip-on-education
379
Public Law No. 114-21.
380
CBO Projections of the Status of the Highway Trust Fund Accounts,
August 2015 Baseline,
https://www.cbo.gov/sites/default/files/cbofiles/attachments/43884-2015-08HighwayTrustFund.pdf
381
Heritage Foundation, Changes to Repatriation Policy Best Left to Tax
Reform, February 17, 2015,
http://www.heritage.org/research/reports/2015/02/changes-to-repatriationpolicy-best-left-to-tax-reform
382
“Meeting Our Greatest Challenges: Innovation to Forge a Better Future,”
The President’s Fiscal Year 2017 Budget, OMB,
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/inno
vation.pdf, p. 19.
383
H.R. 1, 113th Congress.
384
Tax Foundation, Likely “Solutions” to Highway Trust Fund Shortfall
Violate Sound Tax Policy and User-Pays Principle, June 11, 2014,
http://taxfoundation.org/blog/likely-solutions-highway-trust-fund-shortfallviolate-sound-tax-policy-and-user-pays-principle
385
U.S. GAO, Recovery Act, IRS Quickly Implemented Tax Provisions, but
Reporting and Enforcement Improvements are Needed, February 2010,
http://www.gao.gov/assets/310/300837.pdf
386
Indiana Department of Transportation, 2005 Indiana County Highway
Departments Bridge Replacement Cost Estimation Procedures,
169
http://rebar.ecn.purdue.edu/ltap1/multipleupload/Bridge/Indiana%20County%
20Highway%20Departments%20Bridge%20Replacement%20Cost%20Estima
tion%20Procedures-2005.pdf
387
See, e.g., U.S. Department of Transportation, Federal Highway
Administration, Case Studies of Transportation Public-Private Partnerships in
the United States, Final Report 05-002,
http://www.fhwa.dot.gov/ipd/pdfs/us_ppp_case_studies_final_report_7-707.pdf
388
U.S. Department of Transportation, Press Release, Transportation PublicPrivate Partnerships Soar to Record Levels, July 22, 2008,
https://www.fhwa.dot.gov/pressroom/fhwa0815.cfm; see also, U.S.
Department of Transportation, Innovation Wave: An Update on the
Burgeoning Private Sector Role in the U.S. Highway and Transit
Infrastructure, July 18, 2008,
https://www.fhwa.dot.gov/reports/pppwave/ppp_innovation_wave.pdf
389
International Monetary Fund, Public-Private Partnerships, March 12, 2004,
https://www.imf.org/external/np/fad/2004/pifp/eng/031204.pdf
390
Deloitte Center for Energy Solutions, The crude downturn for exploration
& production companies,
https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energyresources/us-er-crude-downturn.pdf
391
For example, Box 2-1: “The Impact of Oil Price Declines on Spending and
Production (pp. 55-58)” would have been a good place to report this
development.
392
Whereby independence does not necessarily imply oil imports will be zero,
only that North American sources are readily available if the price surges.
393
See, for example, “Historical Oil Shocks,” James D. Hamilton, Working
Paper 16790, National Bureau of Economic Research;
http://www.nber.org/papers/w16790.
394
White House Office of Management and Budget, Budget of the U.S.
Government, Fiscal Year 2017, Table S-2: Effect of Budget Proposals on
Projected Deficits, p.116,
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/bud
get.pdf
395
White House, Fact Sheet: President Obama’s 21st Century Clean
Transportation System, https://www.whitehouse.gov/the-pressoffice/2016/02/04/fact-sheet-president-obamas-21st-century-cleantransportation-system
396
CRS Memorandum to Senate Energy and Natural Resources Committee,
$10 Fee/Tax on Oil, February 8, 2015,
http://www.energy.senate.gov/public/index.cfm/files/serve?File_id=043a204c
-38f7-48be-862a-3a339594097d
397
Ibid.
398
Ibid.
399
Tax Foundation, What Would the Administration’s $10 Oil Tax Do to the
Economy and Federal Revenue? http://taxfoundation.org/blog/what-wouldadministrations-10-oil-tax-do-economy-and-federal-revenue
400
Ibid.
170
401
White House, Fact Sheet: President Obama’s 21st Century Clean
Transportation System, https://www.whitehouse.gov/the-pressoffice/2016/02/04/fact-sheet-president-obamas-21st-century-cleantransportation-system
402
“2016 Second Biennial Report of the United States of America under the
United Nations Framework Convention on Climate Change,” U.S. Department
of State.
403
See, for example, “Facts on the Clean Power Plan,” American Coalition for
Clean Coal Electricity, November 20, 2015,
http://www.americaspower.org/issue/facts-on-the-clean-power-plan/
404
“Energy and Consumer Impacts of EPA’s Clean Power Plan,” NERA
Economic Consulting, November 7, 2015.
405
“We need an energy strategy for the future – an all-of-the-above strategy
for the 21st century that develops every source of American-made
energy,” President Barack Obama, March 15, 2012;
https://www.whitehouse.gov/blog/2014/05/29/new-Report-all-above-energystrategy-path-sustainable-economic-growth
406
“Obama spurns natural gas in climate rule,” The Hill, August 5, 2015,
http://thehill.com/policy/energy-environment/250268-obama-spurns-naturalgas-in-climate-rule
407
“Shale gas is loser in Obama climate plan,” Barney Jopson, Financial
Times, August 3, 2015.
408
“Capital Investments in Emission Control Retrofits in the U.S. Coal-fired
Generating Fleet through the Years—2016 Update,” Energy Ventures
Analysis, Inc., January 26, 2016 (nominal dollars),
http://www.americaspower.org/wp-content/uploads/2015/05/EmissionControl-Investments-2016.pdf
409
Data based mostly on publicly announcements, not modelling. The total
number of retirements and conversions regardless of cause is larger. See,
“Coal Unit Retirements,” American Coalition for Clean Coal Electricity
(ACCCE), December 30, 2015, http://www.americaspower.org/wpcontent/uploads/2015/10/Coal-Unit-Retirements.pdf
410
See, for example, “Facts on the Clean Power Plan,” American Coalition for
Clean Coal Electricity, November 20, 2015,
http://www.americaspower.org/issue/facts-on-the-clean-power-plan/
411
“Economic Report of the President together with the Annual Report of the
Council of Economic Advisers,” Council of Economic Advisers, March 2013,
p. 195.
412
Ibid, p. 196.
413
At the end of the Paris Climate Conference, the President revealed that: “I
have long believed that the most elegant way to drive innovation and to reduce
carbon emissions is to put a price on it.” Press Conference by President
Obama, Organization for Economic Cooperation and Development Centre,
Issy-les-Moulineaux, France; https://www.whitehouse.gov/the-pressoffice/2015/12/01/press-conference-president-obama
414
S. 380 (79th Congress), as introduced on January 22, 1945.
415
Ibid, Section 2(b) of S. 380 (79th Congress), as introduced.
416
Ibid, Section 2(f).
417
Ibid, Section 3.
171
418
Aaron Steelman, “Employment Act of 1946,” Federal Reserve Bank of
Richmond, February 20, 1946,
http://www.federalreservehistory.org/Events/DetailView/15
419
Federal Reserve Bank of St. Louis, “Employment Act of 1946,” February
20, 1946,
https://fraser.stlouisfed.org/scribd/?title_id=1099&filepath=/docs/historical/co
ngressional/employment-act-1946.pdf#scribd-open
420
Aaron Steelman, “Full Employment and Balanced Growth Act of 1978,”
Federal Reserve Bank of Richmond, October 1978,
http://www.federalreservehistory.org/Events/DetailView/39
421
Ibid.
422
Public Law 95-523.
423
CBO (January 2016).
424
Jessica Tollestrup, “History and Authority of the Joint Economic
Committee,” Congressional Research Service, September 2, 2015,
https://www.fas.org/sgp/crs/misc/R41519.pdf. P. 1-2.
425
President Dwight D. Eisenhower, “Twentieth Anniversary of the
Employment Act of 1946 an Economic Symposium,” Joint Economic
Committee, February 23, 1966. P. 113.
426
Grover W. Ensley interview by Richard A. Baker, October 29, 1985.
427
“Congress’ Own Brain Trust,” Business Week, July 20, 1957.
428
Bruce Bartlett, “The Joint Economic Committee in the Early 1980s:
Keynesians versus Supply-Siders,” Cambridge University Press, 2015,
http://www.academia.edu/9691068/The_Joint_Economic_Committee_in_the_
Early_1980s_Keynesians_versus_Supply-Siders, p. 184.
429
Jane Seaberry, “Critics Say Joint Economic Committee Has Lost Its
Influence,” Washington Post, September 28, 1986.
430
“1961 Joint Economic Report,” Joint Economic Committee, 1961,
http://www.jec.senate.gov/reports/87th%20Congress/Joint%20Economic%20
Report%20on%20the%201961%20Economic%20Report%20of%20the%20Pr
esident%20(177).pdf
431
“1980 Joint Economic Report,” Joint Economic Committee, 1980,
http://www.jec.senate.gov/reports/96th%20Congress/The%201980%20Joint%
20Economic%20Report%20(960).pdf
432
President Harry Truman, “Twentieth Anniversary of the Employment Act
of 1946 an Economic Symposium,” Joint Economic Committee, February 23,
1966, p. 112.
433
Joint Economic Committee Republicans, press release, February 19, 2016.
434
National Bureau of Economic Research (NBER) Business Cycle Dating
Committee, “US Business Cycle Expansions and Contractions,” September
20, 2010, http://www.nber.org/cycles.html
172
173
VIEWS OF RANKING MEMBER
CAROLYN B. MALONEY
INTRODUCTION
The Joint Economic Committee (JEC) is required by statute to
submit findings and recommendations in response to the
Economic Report of the President (or Report), which was released
by the Council of Economic Advisers (CEA) on February 22,
2016.
The Report is a comprehensive assessment of the economy that
analyzes data collected by nonpartisan government statistical
agencies and reviews work from respected academic economists.
It provides important information on the status of the current
economic recovery, reviews the outlooks for future growth and
provides policy recommendations for further strengthening the
economy.
The Report also offers new thinking on some of the defining
economic issues of our times, notably income inequality and how
abuses of market power can exacerbate it. When corporations
become so large and influential that they use their sway to impose
barriers to entry for startup firms, this can limit innovation and
productivity growth. And without labor protections, such as
collective bargaining and strong labor unions, economic gains can
become increasingly concentrated at the top.
The Report and this Democratic response put the recovery in
context, reviewing how the seven-year recovery has taken place in
the wake of the worst economic catastrophe since the Great
Depression in the 1930s. To evaluate the recovery, it is first
necessary to understand the severity of the recession and the global
financial crisis that precipitated it. It has been well documented
that financial crises have deeper, more-damaging and longer-
174
lasting effects. Thus, this recovery cannot be compared to a
recovery from an “average” recession.
Several obstacles have limited growth during the recovery. The
devastation in the housing sector prevented homebuilding from
playing its customary leading role in the recovery; after the
Federal Reserve lowered interest rates to zero, monetary policy
was limited in its ability to further stimulate the economy and;
fiscal policy at the federal, state and local levels slowed rather than
accelerated growth for much of the recovery, a significant
departure from previous recoveries.
Other challenges facing the economy long predate the recession.
The size of the labor force is growing much more slowly than it
did for most of the second half of the 20th century, a result of baby
boomers entering retirement and women’s labor force
participation rates plateauing after several decades of rapid
growth. Demographic forces will continue to constrain economic
growth in the years ahead.
Despite these obstacles, the Report demonstrates that the
American economy has made tremendous progress as it recovers
from the Great Recession. A broad range of economic indicators
continue to show strong improvement, including private-sector job
creation, the unemployment rate and GDP growth.
This progress is the result of bold actions taken by the Obama
administration, Democrats in Congress and the Federal Reserve to
halt the freefall and put the economy back on a path to growth.
Research by economists Alan Blinder and Mark Zandi shows that
without these joint efforts the recession would have lasted twice
as long and job losses would have been about twice as great.
This successful response to the financial crisis reinforces the
concept—long understood by mainstream economists—that
government has a key role to play in stimulating demand during a
recession, particularly a severe recession. The government steps in
175
to invest when the private sector will not or cannot, and to sustain
demand for goods and services when families are hurting.
Unfortunately, some have forgotten these basic principles.
Republicans opposed the Recovery Act in 2009. And, after
gaining control of Congress in 2010, Republicans cut government
spending at precisely the moment government investment was
needed to boost demand. These cuts slowed the recovery.
The Report and this response also explore the effects of increased
globalization and automation. While these changes have driven
higher productivity and increased growth in the economy as a
whole, the benefits and costs are not evenly shared. As many jobs
have been replaced by robots and production has shifted overseas,
U.S. workers have seen wages stagnate, putting sustained pressure
on middle-class families who are coping with rising costs of living
but have limited wage leverage.
Some segments of the population have been hit especially hard.
Millions of U.S. manufacturing jobs, for example, have
disappeared since manufacturing employment peaked in 1979.
Identifying effective ways to reintegrate these and others workers
and helping them to build new skills that are in demand by
employers must be a top priority for policymakers. This response
includes a significant discussion of the importance of education
and training programs to giving everyone a shot—or sometimes a
badly needed second chance—at the American Dream.
Looking around the globe, the United States has recovered from
the recession faster than other advanced economies as a result of
the strong fiscal and monetary response. However, weak global
demand combined with the strong U.S. dollar have presented
headwinds in recent years, which are expected to continue. As an
example, net exports have been a drag on GDP for the past two
years as weak foreign demand for U.S. goods has constrained
growth here at home.
176
There is little debate that the private sector is the engine of growth
in the U.S. economy. But the government has a key role to play in
supporting continued economic recovery and laying the
groundwork for future growth. This Democratic response the
Report discusses three key challenges policymakers should work
to address moving forward: slowing growth in the size of the labor
force, lower rates of productivity growth and the increasingly
inequitable distribution of gains from economic growth.
Both the Report and this response discuss policies to boost labor
force participation, increase productivity and reduce inequality.
These policies take many forms:
Implementing family-friendly policies such as paid leave and
workplace flexibility will deepen women’s attachment to the labor
force.
•
Achieving equal pay for equal work will reduce inequality.
•
Reforming the immigration system will raise both the labor
force participation rate and productivity.
•
Rebuilding the nation’s infrastructure will
productivity and strengthen U.S. competitiveness.
•
Investing in early childhood education, including universal
pre-K, will help to reduce inequality and ensure a more
productive labor force down the road.
•
Policies such as these will strengthen the economy and
promote inclusive growth that reaches households across
income levels.
boost
The economy is in stronger shape than it has been in years—now,
policymakers must build on that progress and ensure that all
Americans benefit from the economic recovery.
177
PUTTING THE RECOVERY
ECONOMIC PROGRESS
IN
CONTEXT: OVERVIEW
OF
Any assessment of the current state of the economy must keep in
mind the severity of the financial crisis and the Great Recession,
the significant obstacles this recovery has faced and how
underlying structural trends can impact economic growth.
Collectively, these factors make comparisons with recoveries from
much less severe postwar recessions deeply misleading.
This section reviews the state of the economy when President
Obama took office and the significant progress that has been made
since then. It describes why comparing the current recovery to
“average” recoveries is inappropriate, and shows that, in fact, the
U.S. recovery has fared well when measured against the recoveries
in other advanced economies that suffered from the same
devastating global financial crisis.
A Severe Recession
When President Obama took over from President Bush, the world
had just experienced “[…] the worst financial crisis in global
history, including the Great Depression,” according to former
Federal Reserve (Fed) Chairman Ben Bernanke. 1 Former Fed
Chairman, Alan Greenspan, called it “the most debilitating
financial crisis ever.” 2 According to the Financial Crisis Inquiry
Commission, the crisis was the “avoidable” result of a number of
factors, including lax financial regulation and excessive risk
taking on Wall Street. 3 As the crisis spread from Wall Street to
Main Street, millions of people lost their jobs, their homes or both.
During the last five quarters of the Bush presidency, real GDP fell
4.1 percent. This included a drop of 8.2 percent at an annual rate
in the fourth quarter of 2008, the single worst quarterly economic
performance in more than 50 years. The economy shed more than
4.5 million private-sector jobs during President Bush’s last year in
office, including more than 800,000 in January 2009 alone. The
unemployment rate jumped nearly 3 percentage points from
178
January 2008 to January 2009, and it was on its way to peaking at
10.0 percent just eight months later.
The country’s manufacturing base was rapidly eroding. The
automotive industry was on the brink of collapse. From December
2007 to June 2009, auto industry employment plunged by more
than 600,000 jobs—more than one-fifth of total employment in the
industry. 4 Auto sales in 2009 ended at a 27-year low. The crisis
threatened parts suppliers and retail outlets across the country. 5
The housing sector was in shambles. Home values nationally were
in the process of plummeting about 20 percent between 2007 and
2011, according to the Federal Housing Finance Agency’s
purchase-only index. In the states hit hardest by the housing crash,
prices fell by more than twice as much. At the worst of the
downturn, nearly one-third of all homeowners were underwater on
their mortgages, meaning that they owed more on their home loans
than their home was worth. All told, more than 9 million families
would ultimately lose their homes due to foreclosure or distressed
sale during the period from 2006 through 2014. 6
Driven by steep losses in home values and the stock market, nearly
$13 trillion in household wealth evaporated during the last seven
quarters of the Bush presidency, severely impacting consumer
spending and GDP growth. According to the CEA, this constituted
an initial shock to household wealth that exceeded the one that
precipitated the Great Depression of the 1930s. 7 The economy was
teetering on the brink of total meltdown, and fears of another
depression were very much real.
A Steady Recovery
President Obama faced a dire economic situation when he took
office, and his administration took quick, decisive action. Policies
enacted by President Obama with support from Democrats in
Congress, along with aggressive Fed monetary policies, stabilized
the financial system, provided support to the economy when it
needed it most and laid the foundation for a return to growth.
179
The American Recovery and Reinvestment Act (“the Recovery
Act” or “the Stimulus”), enacted in February 2009, was the largest
and most significant fiscal policy response to the Great Recession.
Additional support would come to include extensions of
unemployment insurance, tax credits for individuals and small
businesses, incentives for hiring veterans and the rescue and
restructuring of the U.S. auto industry. 8 Many of these policies that
helped to get the economy out of a tailspin were strongly opposed
by most Republicans in Congress. But they were both necessary
and successful in preventing the country from experiencing
another Great Depression.
Instead of a sustained period of economic contraction, the
economy returned to growth less than a year into President
Obama’s first term. Real GDP has now grown by 14.5 percent
since the start of the Obama administration. The economy has
expanded in 24 of the past 26 quarters (see Figure 1).
180
Today, the economy is in the midst of the longest streak of privatesector job creation in history. Businesses have added 14 million
jobs over a record 71 consecutive months of private-sector job
growth (see Figure 2). The economy added an average of about
233,000 private-sector jobs per month over 2014 and 2015, the
strongest two years of private-sector job creation since the 1990s.
On net, all jobs added since early 2010 have been full-time jobs,
despite Republican claims that the Affordable Care Act (ACA)
would drive up part-time employment (see Figure 3).
181
The Obama administration’s actions averted a near collapse of the
U.S. auto industry. Auto sales hit a record high of 17.4 million
units in 2015. Annual car and truck production has more than
doubled since 2009. The auto industry has added nearly 640,000
jobs since mid-2009, including both manufacturing and retail (see
Figure 4). Motor vehicle and parts manufacturers have added
nearly 300,000 jobs since June 2009, contributing to job growth of
more than 900,000 in the manufacturing sector overall during the
recovery.
182
The unemployment rate has been more than cut in half since it
peaked at 10.0 percent in October 2009. The 4.9 percent
unemployment rate in January was the first reading below 5.0
percent in nearly eight years. The decline in unemployment has
been broad-based. Hispanic unemployment is now 5.9 percent,
down from a peak of 13.0 percent in August 2009. AfricanAmerican unemployment is now 8.8 percent, down from 16.8
percent in March 2010. Post-9/11 veteran unemployment averaged
5.8 percent in 2015, down from an annual average peak of 12.1
percent in 2011.
Other labor-market indicators have also seen substantial
improvements. The long-term unemployment rate has been
slashed by more than two-thirds from its peak, and the duration of
a typical spell of unemployment is less than half as long as it was
at the worst of the downturn. The broadest measure of labor
underutilization (the U-6), which includes workers employed part
time but who would prefer full-time jobs as well as discouraged
workers who have dropped out of the labor force but who want
and would accept a job if offered, is down sharply from a peak of
17.1 percent and was 9.9 percent in January (see Figure 5).
183
The housing sector has recovered from severe losses. The FHFA
purchase-only index is higher now than it was before prices began
to fall precipitously in early 2007. The share of single-family
homes with underwater mortgages has been more than cut in half.
The percentage of residential mortgage loans that are seriously
delinquent (at least 90 days past due) is at its lowest level in more
than eight years. The rate of new foreclosures hit its lowest level
since 2003 in the fourth quarter of 2015.
Buoyed by the recovery in home values and stock market gains,
nominal household wealth has increased by more than $30 trillion
since President Obama took office. It is now about $17.5 trillion
higher than it was before the recession.
The policy response: By virtually every measure of economic
health, the economy is undoubtedly in a stronger position now
than when President Obama took office. The policies of the
Obama administration and Federal Reserve made a major
contribution to this recovery. A recent study by economists Alan
Blinder and Mark Zandi found that, jointly, fiscal and monetary
policy actions dramatically reduced the severity and length of the
184
Great Recession. Specifically, the study found that, without those
responses, the economy would have contracted for more than
twice as long, the unemployment rate would have reached nearly
16 percent and about twice as many jobs would have been lost. 9
Putting the Recovery in Proper Context
Despite the significant progress made during the Obama years, the
president’s critics continue to assail his management of the
economy. Some argue that the pace of the Obama recovery pales
in comparison to “average” recoveries in the modern era, in
particular to the Reagan recovery in the 1980s. 10
While it is true in a narrow sense that GDP growth has been slower
than during other recoveries since World War II, this is a deeply
misleading comparison. The Great Recession was an economic
cataclysm that rocked the global economy to its core. And it came
at a time when structural and demographic trends were already
working to hold down growth. In fact, compared to other advanced
economies, the strength and resilience of the U.S. economy stands
out—the recovery has been faster in the United States than
virtually anywhere else.
Obstacles to recovery: Numerous factors that make this recovery
different from other recent recoveries are discussed below.
Financial crisis origins. Comparing this recovery to an “average”
recovery does not make sense because the Great Recession was
not an “average” recession. It resulted from a severe global
financial crisis and was the deepest and most protracted economic
decline since the Great Depression. Economic research shows
financial crises have deeper, more-damaging and longer-lasting
effects. A recent study looked at recoveries from 100 systemic
banking crises spanning three centuries and concluded that:
“postwar business cycles are not the relevant comparator for the
recent crises in advanced economies” 11 In fact, as a witness called
by Republicans at a recent House Ways and Means Committee
hearing noted, “The U.S. growth path has been in line with what
185
the history of recoveries from financial crisis would suggest it
would be.” 12
Overleveraged housing sector. The bursting of the housing bubble
and the loss of more than $7 trillion in home equity devastated the
economy and prevented housing from fueling a recovery as it has
after other recessions. Typically, an “outsized proportion” of
growth in the first two years of a recovery comes from residential
investment. 13 However, the crash, debt overhang and tight lending
standards severely restricted residential construction’s
contribution to economic growth during this recovery. 14 In
addition, the need for Americans to deleverage restrained growth
in consumer spending for an extended period of time.
Monetary policy constraints. Unlike the situation after many other
postwar recessions, Federal Reserve’s ability to use its strongest
monetary policy tools to assist the recovery was limited.
Typically, Federal Reserve works to stimulate a weak economy by
lowering the federal funds rate, which filters through into other
interest rates, spurring borrowing and investment and bolstering
economic growth. For example, during the 1981 recession, the
Volcker Fed cut rates by 10 percentage points to support the
recovery. 15 The Fed’s actions were a major reason for the
relatively strong recovery during the Reagan presidency. 16
However, this time, the federal funds rate quickly hit what is
known as the “zero lower bound,” forcing Federal Reserve to turn
to comparatively weak monetary policy instruments to support the
economy further.
Federal fiscal headwinds. With Federal Reserve having exhausted
its most powerful tools, the economy desperately needed
additional support from fiscal policymakers. Federal fiscal policy
had made a positive contribution to the recoveries following the
1981 and 2001 recessions, for example, in both cases due in part
to increases in defense spending. However, the House Republican
leadership that came to power following the 2010 elections,
instead of providing support, undermined the recovery by
186
repeatedly threatening government shutdowns, arguing over
whether the nation should pay its bills and demanding deep,
counterproductive spending cuts. According to one estimate, fiscal
uncertainty and fiscal drag in tandem reduced GDP growth by
about 1 percentage point and cost the economy more than 2 million
jobs. 17
State and local headwinds. The unusual circumstances of this
recovery can also be seen in the state and local government sector.
During the recovery period following every other postwar
recession, state and local government spending increased, helping
to raise GDP. However, this time, it continued to drop, in part due
to declining property tax and other revenues as home values,
incomes and consumer spending all fell precipitously. 18 Only over
2014 and 2015 have state and local governments begun to make a
modest positive contribution to GDP growth again.
Global headwinds. This recovery is also different because it
follows a truly global crisis. Many other countries that fell into
recession have not fared as well as the United States over the
recovery period. Slow global growth has in turn had ramifications
for the U.S. recovery, for example by limiting demand for U.S.
exports. The uncertainty of the economic situation overseas
remains a challenge to the U.S. economy, and it is explored further
in a section later in this report.
Demographic trends. In contrast to much of the second half of the
20th century, underlying demographic trends that long predate the
Great Recession are no longer fueling an increase in the labor force
participation rate and an acceleration in economic growth. Two
factors in particular deserve mention: the aging of members of the
baby boom generation out of their prime working years, and a
plateauing of the number of women in the workforce after several
decades of rapid growth.
From 1965 to 2005, the number of Americans ages 25 to 54 grew
at a 1.6 percent annual rate, but growth of this population has
187
slowed to a virtual stop since then as baby boomers have aged,
increasing just 0.1 percent per year this past decade. In addition,
the number of women in the labor force increased at a 2.5 percent
annual rate over the 1965 to 2005 period. Growth in the number
of women the workforce has since slowed to an average rate of 0.6
percent per year since 2005. The figure below shows these data
broken out by decade over the past 50 years (see Figure 6).
According to CBO, a major reason why growth this recovery has
been slower than other postwar recoveries is slowing growth in
potential output—largely reflecting slower growth in the size of
the potential labor force due to these demographic trends. 19
Demographic factors threaten to restrain economic growth in the
future, regardless of the party or policies of future presidents. This
report discusses demographics in greater depth in a later section.
International comparison: Although it is difficult to provide a
meaningful benchmark for a recovery from an economic crisis of
the magnitude of the Great Recession, one plausibly reasonable
method is to compare the U.S. recovery to the recoveries in other
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advanced economies from the same crisis. By this measure, the
United States stands out as having among the strongest recoveries.
The current unemployment rate in the United States is less than
half the unemployment rate in the Eurozone (10.4 percent). And
while real GDP in the Eurozone remains below its prerecession
peak, in the United States it is 9.8 percent higher than it was before
the recession (see Figure 7). The U.S. recovery also exceeds the
recoveries in the United Kingdom and Japan.
The aggressive policy response by the Obama administration and
Federal Reserve is a major reason why the U.S. recovery has been
faster than the recoveries in countries that pursued fiscal austerity
and had central banks that moved too quickly to slam on the
brakes.
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OVERVIEW OF MACROECONOMIC CONDITIONS
The Report includes extensive economic data demonstrating that
the recovery continued throughout 2015. The Council of
Economic Advisers predicts that economic growth will accelerate
slightly in 2016 to a rate of 2.7 percent. 20 This projection is in line
with forecasts from the Congressional Budget Office and leading
private-sector forecasters.
By many measures, the economy has recovered to its prerecession
level. For example, real GDP is higher now than its pre-recession
peak. In addition, more Americans are working today than when
the recession began in December 2007 and the unemployment rate
is below its prerecession average.
Challenges for Interpreting Economic Indicators
Understanding macroeconomic indicators demands broad
knowledge of both medium-term cyclical trends and long-term
structural trends. Pundits often cite the most recent economic
indicator as an example that the economy is heating up or heading
downhill. However, some indicators—notably GDP, housing
starts and weekly jobless claims—are notoriously “noisy” so
short-term variations have little meaning.
Evaluating economic data in the wake of a recession poses special
challenges because it is difficult to choose an appropriate
reference point. In the case of the Great Recession and the recent
recovery, this is compounded by the fact that the recession was
precipitated by a severe global financial crisis—as explained in
Chapter 2, it is more difficult to recover from a financial crisis than
a more typical economic downturn. Moreover, it is difficult to say
whether the benchmark for any indicator should be the
prerecession peak, the recession trough, the historical average, or
conditions in other countries recovering from a similar recession.
The recent economic crisis, preceded by an enormous housing
bubble, serves as a good example. It would be misleading to focus
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primarily on conditions the moment before the bubble burst as the
standard for measuring economic recovery. It is more useful to
look at performance over the previous business cycle or to
compare data to broader historical averages.
It is also important to remember that aggregate indicators do not
fully describe the contours of the economy. Although in some
respects the economy has almost fully recovered from the
recession, the recovery has proceeded at a different pace in
different parts of the country, for different ages, for people with
different levels of education, and for people at different income
levels. Some Americans still suffer acutely from the effects of the
financial crisis and the Great Recession.
With these principles as a guide, this chapter on current
macroeconomic conditions attempts to build on the excellent
analysis of The Economic Report of the President. Because the
Report analyzes many of the most important economic indicators
in detail, some will be mentioned here only in brief. Where
possible, this chapter attempts to provide a different perspective
on the data or shed light on indicators that are sometimes
overlooked.
Recent Trends in Output Growth
Gross Domestic Product: GDP data fluctuate significantly
quarter to quarter due to a variety of factors. For this reason, it is
important to evaluate GDP over the long term. It is also essential
to consider business cycles—in this case within the context of the
global financial crisis.
The financial crisis had a catastrophic impact on the U.S.
economy. GDP growth fell by 2.8 percent during the last year of
the Bush administration, including a drop of more than 8 percent
at an annualized rate during President Bush’s last quarter in office.
Growth remained negative during the first two quarters of the
Obama administration, though the pace of decline slowed
significantly in the second quarter.
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Since that time there has been a steady turnaround, with real gross
domestic product growing in 24 of the past 26 quarters (see
Figure 1). Overall, during the Obama administration, the
economy has grown by 14.5 percent.
However, the growth of output slowed in 2015, as real GDP rose
a modest 1.9 percent between the fourth quarter of 2014 and the
fourth quarter of 2015. This was down from growth of 2.5 percent
in each of the previous two years.
In addition to long-term trends in GDP growth, it is useful to
compare the current level of GDP to its potential. CBO estimates
potential GDP based on a variety of factors, including the size of
the potential labor force, the capital stock and total factor
productivity.
At its peak in 2009, the gap between actual GDP and its potential
reached 7.1 percent, meaning that the economy fell far behind
what CBO estimated to be its potential. 21 However, there has been
steady upward improvement since that time (see Figure 8). At the
end of 2015, the difference between actual and potential GDP was
only 2.1 percent – almost the same level it was during President
Bush’s first term in 2003. 22
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GDP’s four principal components—consumer spending, private
investment, government expenditures and net exports—are each
discussed in detail below. As seen in Figure 9, consumer spending
sustained economic growth until the crisis, when both consumer
expenditures and private investment collapsed and dragged GDP
down. As the economy has recovered, consumer spending has
played a key role, contributing an increasing share to output
growth. In fact, GDP growth in 2015 was largely driven by
continued gains in consumer spending.
During the past two years, government purchases also have
contributed positively to the growth of output, after subtracting
from GDP during most of the recovery. By contrast, net exports
were a drag on growth during the past two years, as the strong
dollar and weak global demand weighed on exports and imports
continued to rise.
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Consumer spending: Consumer spending, which comprises
about two-thirds of GDP, expanded by 2.6 percent in 2015, a pace
slightly below that of the previous year. This was due in large part
to a 3.1 percent increase in real disposable income over the past
year, which was in turn attributable to employment growth,
modest gains in hourly wages and falling prices of oil and
gasoline.
In recent years, consumer spending has been somewhat restrained
by consumers’ efforts to pay down debt–a hangover from the
collapse of the housing market. In prior years, when home prices
were soaring, many households extracted wealth from their homes
through cash-out refinancing or home equity loans which allowed
them to spend beyond their means. But the dynamic reversed when
the bubble burst and families restricted spending and reduced their
debt. This deleveraging enabled families to regain their financial
footing, but by reducing spending it also slowed GDP growth.
The same pattern can be seen in savings rates, which in 2007 stood
at only about 3 percent of disposable income. The housing
collapse forced families to cut spending and increase savings, and
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by 2012 the saving rate jumped to 7 percent. 23 It has now drifted
down to about 5 percent, allowing an uptick in consumer spending.
A similar trend is reflected in the ratio of household debt to
disposable income, which jumped from an average of 99 percent
in 2002 to a peak of 128 percent in early 2008. But by the third
quarter of 2015 the ratio dropped to 101 percent. 24 Together these
patterns in both the savings rate and debt to disposable income
ratio suggest that the deleveraging process has largely run its
course and that it is no longer restraining spending.
Residential investment: Another source of strength was
residential investment, which rose by about 9 percent in 2015, a
significantly higher rate than in the previous year. Residential
investment currently accounts for only about 3.5 percent of GDP,
a share that is below the historical average of about 4.5 percent
prior to the emergence of the housing bubble. 25 Residential
investment reached 6.5 percent of GDP in 2005, though it is not a
fair benchmark because that occurred at the peak of the housing
bubble, shortly before it popped. Today, conditions for continued
strength from this sector are favorable since household formation
is beginning to pick up, interest rates and vacancy rates are low,
and deleveraging has run its course.
Business investment: In contrast, business investment slowed in
the second half of 2015, largely due to declining investment in oil
drilling equipment. More broadly, over the past several years
business investment has flattened as a share of GDP at a level
slightly below its average during the two decades before the
recession. 26
As noted in the Report, one key determinant of the level of
business investment historically has been the rate of growth of
overall aggregate demand. For example, a faster rate of consumer
spending attracts higher levels of business investment.
Consequently, the forces that restrained consumer spending during
and immediately following the recession indirectly slowed
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business investment. In simple terms, consumers were spending
less so businesses decided not to expand or hire new workers.
Along these lines, it is noteworthy that business investment has
also fallen below prerecession trends in other advanced
economies.
Government: In 2015, government spending at the federal, state
and local levels added about 0.2 percentage points to the growth
of GDP. 27 This represents a sharp contrast with the period from
2010 to 2013, when reductions in government spending slowed
GDP growth by an average of 0.5 percentage points per year.
Slower GDP growth in the latter period was due in part to the
waning effects of the 2009 American Recovery and Reinvestment
Act (ARRA), which is estimated by CBO to have boosted GDP
growth by between 0.6 and 3.5 percent in 2009, the year it was
passed. 28 The effect of ARRA began to wane in 2011, restraining
growth in that and the next several years even though the level of
GDP was still higher than it would have been without ARRA.29
The problem was compounded by deep cuts by state and local
governments, nearly all of which are required to balance budgets
and therefore in the wake of the Great Recession were forced to
slash spending. The situation was further exacerbated when after
the 2010 elections House Republicans forced further spending cuts
at the federal level, slowing the economy at a time it needed
stimulus.
Federal government spending is now on a slight upward trajectory
and it likely will make a positive contribution to GDP growth in
2016.
Net exports: During the past two years, net exports have been a
significant drag on GDP growth. 30 The decline in exports has
largely been the result of slow economic growth worldwide and
an appreciating U.S. dollar, which made American exports more
expensive compared with those of foreign competitors. In 2015,
real exports declined by 0.8 percent, while real imports rose by 2.9
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percent. Overall, real net exports subtracted about 0.7 percentage
points from GDP growth in 2014, and 0.6 percentage points in
2015. 31
The Labor Market
Labor market conditions continued to improve in 2015. The
economy added an average of 220,000 private sector jobs per
month in 2015, a total of 2.6 million during the year. This extends
the record string of 71 consecutive months of private sector job
growth through January 2016. Most major industry categories
participated in that growth, with especially large contributions
from professional and business services and from health care.
However, as noted in the Report, 133,000 jobs were lost in mining
and logging in 2015 in large part due to the collapse of oil prices.
Most of these losses were in oil and gas extraction and in support
activities for oil and gas operations.
With the strong job growth, the unemployment rate has continued
to fall, dropping below 5 percent in January for the first time since
early 2008. January’s 4.9 percent unemployment rate matches
several current estimates of the sustainable rate, including CBO’s
estimate of the natural rate of unemployment and the median
longer-run projection in the Federal Open Market Committee’s
December Summary of Economic Projections. 32
Unemployment rates within all demographic categories have
come down substantially from their post-recession highs and are
now close to their prerecession averages. Nonetheless,
unemployment rates for some groups, including African
Americans, Hispanics, the young and the least-educated are higher
than the overall average.
African Americans: The unemployment rate for African
Americans was 8.8 percent in January, cut almost in half from its
peak of 16.8 percent reached in March 2010. This rate is also
somewhat lower than its prerecession average of 9.8 percent. 33
The 8.8 percent unemployment rate for African Americans
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remains double the 4.3 percent rate for whites and almost 4
percentage points above the overall unemployment rate.
Hispanics: The unemployment rate for Hispanics was 5.9 percent
in January, cut by more than half from a peak of 13.0 percent in
August 2009. This is below its prerecession average of 6.5
percent. 34
Young workers: Young workers, those ages 16-24, experienced
unemployment rate of 10.3 percent in January. This is a decline
from its peak of 19.5 percent and below its prerecession average
of 11.4 percent. 35
Less than high school education: Those workers ages 25 and
older without a high school diploma had an unemployment rate of
7.4 percent in January, below the prerecession average of 7.9
percent for this group. 36 This 7.4 percent rate is almost triple the
2.5 percent unemployment rate for workers with at least a
bachelor’s degree, reinforcing the key role education plays in
employment prospects.
Long-term unemployment: There was continued progress in
reducing long-term unemployment in 2015. The long-term
unemployment rate fell 0.5 percentage points over the year,
reaching 1.3 percent in December, slightly above its 1.0 percent
prerecession average. 37 As noted in the Report, the decline in the
long-term unemployment rate accounted for more than 85 percent
of the decline in the overall unemployment rate during the year. 38
Still, more than one-in-four unemployed workers have been
jobless for six months or more.
One factor contributing to the reduction in long-term
unemployment has been gains in the ability of unemployed people
to find a job. At the end of 2015, the probability that a person who
was unemployed in a given month had by the next month found a
job averaged 25 percent, up from 19 percent just two years
earlier. 39 This figure was as low as 16 percent in late 2009, though
it is still below its average of 28 percent in 2007. This
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improvement reflects gains in the number of people hired, as
measured in the Job Openings and Labor Turnover Survey.
Other labor market indicators: The labor force participation rate
in January stood at 62.7 percent, down from about 66 percent
before the recession. More than half of that decline can be
attributed to the aging of the population, as members of the large
baby boomer generation reach ages where people tend to retire and
leave the labor force. 40
Some have claimed that the drop in the unemployment rate largely
is due to workers leaving the labor force. However, evidence does
not support this claim. The participation rate dropped by only 0.2
percentage point between January 2015 and January 2016 while
the unemployment rate fell 0.8 percentage point, from 5.7 percent
to 4.9 percent. Moreover, the participation rate for people in their
prime working years (ages 25 to 54) rose by half a percentage
point between September and January, and the overall
employment-to-population ratio has risen over the past year even
with the downward pull arising from population aging. These data
indicate that the drop in the unemployment rate is largely due to
the fact that more people found jobs in 2015.
Another useful measure of labor market health is BLS’ U-6
measure of underutilization, which in addition to unemployment
captures marginally-attached and part-time workers who would
prefer but are unable to find a full-time job or whose hours were
reduced due to slack demand. The U-6 stood at 9.9 percent in
January, down from just over 11 percent in early 2015. As a point
of reference, it should be noted that the U-6 reached a peak of 17.1
percent in late 2009 (see Figure 5).
The growth of hourly wages recently has shown signs of picking
up. Over the past year, average hourly earnings of production and
nonsupervisory workers have risen by 2.5 percent, up from 2
percent a year earlier. Over the past six months, average hourly
earnings of all private industry workers have risen at a 2.9 percent
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annual rate, the fastest 6-month rate of increase since the Great
Recession. With a very low rate of inflation over the past year, this
has translated to a sizable gain in real earnings.
Inflation
The rate of inflation, which has been quite low during most of the
period since the Great Recession, was even lower in 2015. Both
the chain price index for personal consumption expenditures
(PCE) and the Consumer Price Index (CPI) rose by just 0.7 percent
in 2015. To a significant degree slowing inflation in 2015 reflected
falling prices for oil and gasoline. However, “core” measures of
inflation—that is, measures excluding the often volatile food and
energy components—were also subdued. Most notably, the core
PCE index rose by 1.5 percent, a rate significantly below the
Federal Reserve’s target of 2 percent inflation. 41
On one hand, the low rate of inflation resulting from lower oil and
gasoline prices represents a boon for households, translating their
nominal gains in income into greater real gains. On the other hand,
households that borrow are hurt by extremely low inflation rates
because a modest amount of inflation decreases the real value of
outstanding debt.
In addition, if inflation continues to run below the target it would
complicate the Federal Reserve’s efforts to normalize monetary
policy. If low inflation leads the Federal Reserve to keep interest
rates close to their effective zero lower bound, there would be little
room for monetary policy to respond to the next recession using
conventional tools. In that situation, if Congress were to remain
reluctant to stimulate the economy through fiscal policy, any
downturn would be deeper and more prolonged than necessary.
The Outlook
The forecast presented in the Report, based on information
available as of early November 2015, calls for real GDP to grow
by 2.7 percent in 2016 and 2.5 percent in 2017. 42 This forecast is
200
identical to that of CBO, which was completed in late December,
and similar to other forecasts completed late last year and in early
January. 43 In addition, the Report’s forecast and others anticipate
some further decline in the unemployment rate this year and less
slack in the economy. These forecasts also anticipate that inflation
will remain below the Federal Reserve’s target in 2016, but will
move toward that target during the next several years.
Because the projected rate of GDP growth is significantly faster
than CBO’s estimate of the growth of potential GDP (the latter
being 1.6 percent in 2016, 1.7 percent in 2017), under this forecast
the output gap would be down to about 1 percent by the end of
2016. 44 It would go away entirely during 2018.
However, recent developments suggest a downside risk to these
projections, particularly due to the decline in the stock market,
continued appreciation of the dollar, and a further weakening of
the global outlook. February’s Blue Chip consensus forecast
downgraded its projection for growth in 2016 from 2.6 to 2.4
percent. 45
While some analysts suggest there could be an elevated risk of
recession, most do not believe that recession is likely this year.
Still, in the face of soft global demand, residual slack in the labor
market, and an inflation rate that remains below the Federal
Reserve’s target, fiscal and monetary policies should remain at
least slightly expansionary in the near term.
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THE EFFECT OF THE GLOBAL ECONOMY
The economic recovery in the United States has been faster than
in other countries hit by the global financial crisis, in large part
due to aggressive actions by the Obama administration and the
Federal Reserve. However, sluggish global growth has slowed the
U.S. recovery and remains a downside risk to the U.S. economy.
Global real GDP growth decelerated in 2015, from 3.4 percent in
2014 to an estimated 3.1 percent. While the growth in advanced
economies edged up slightly from 1.8 percent to an estimated 1.9
percent, growth in emerging markets dropped from 4.6 percent to
an estimated 4.0 percent. 46
The slow real GDP growth weakened global consumer demand,
one of the factors weighing down U.S. exports. Net exports
subtracted 0.6 percent from real GDP growth over the past four
quarters.
The decline in exports also was driven by appreciation in the value
of the U.S. dollar, which increased by about 10 percent in 2015. 47
The strong dollar has generally made U.S. exports more expensive
overseas, reducing the demand for American goods. At the same
time, the strong dollar has increased demand by U.S. consumers
for relatively inexpensive foreign goods, driving up imports.
Overall, while the global economy continues to grow at a modest
pace, several global factors—such as the collapse of commodity
prices and weak growth in major U.S. trading partners—pose both
upside and downside risks to the U.S. economy. This section
provides analysis to assess whether these factors will translate to
net gains or net losses to the U.S. economy in the near term.
The Effects of a Sharp Decline in Oil Prices
The U.S. economy has been greatly affected by falling worldwide
commodity prices—a positive development for commodity-using
manufacturers and consumers, but a strongly negative one for
commodity producers. The United States, a net importer of
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commodities, should theoretically gain more than it loses from
dropping commodity prices. United States net import of
commodities as share of GDP has fallen from 1.7 percent in 2011
to 0.4 percent in the first three quarters of 2015. 48
The most precipitous drop was in crude oil prices, which have
fallen by more than 70 percent since mid-2014—from over $100
a barrel in 2014 to around $30 at the beginning of 2016. 49 The
price collapse can be attributed primarily to the global supply of
crude oil persistently exceeding demand, resulting in an excess
supply of about 2 million barrels per day in 2015 (see Figure
10). 50 This excess supply has pushed the global stockpile of crude
oil to a record-level.
Drops in crude oil prices cause gain and pain: As with other
commodities, dropping oil prices creates winners and losers in the
domestic economy. Drivers in the United States saw regular retail
gasoline prices drop from $3.63 in June 2014 to $1.68 per gallon
in February 2016. 51 The U.S. Energy Information Administration
(EIA) estimates that as a result, U.S. households spent an average
of about $700 less on gasoline in 2015. 52 Families spent a portion
203
of that windfall, boosting consumer spending and GDP growth.
However, falling oil prices also hurt U.S. oil producers, who had
experienced dramatic growth over the past decade when oil prices
were relatively high.
The United States is the largest petroleum products producer in the
world, surpassing Saudi Arabia and Russia in 2013 (see Figure
11). United States petroleum production increased by 68 percent
from 2005 to 2014. 53 As a result, U.S. petroleum production as a
share of world production has risen from 9.1 percent in Q4-2005
to 15.8 percent in Q2-2015. 54
The United States is also the largest petroleum consumer in the
world, consuming a total of almost 7 billion barrels in 2014.55
Thus, despite the surge in production in recent years, domestic
production has yet to catch up with the consumption level, and the
United States is still a net importer of oil, with net imports
averaging about 5 million barrels per day in 2014 when global
price averaged around $99 per barrel. 56
The total cost of petroleum imports is somewhat mitigated by the
fact that the United States has decreased its consumption of oil,
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from a peak of 20.8 million barrels per day in 2005 to around 19
million barrels per day in 2014, an 8.5 percent decline despite a
growing population. The CEA attributes this “consumption
surprise” to a variety of factors such as improvement in fuel
efficiency and changes in driving habits. 57
The decline in consumption and increase in production, combined
with lower prices, have led to a substantial decrease in U.S. crude
oil imports as a share of GDP, from about 6 percent in 2010 to
about 3 percent in 2015. 58
Because the United States is a net importer of petroleum, dropping
oil prices should have an overall positive effect on the economy.
However, the benefits are hard to calculate because there are
countervailing forces—e.g., lower prices could potentially
translate into higher consumer spending and faster economic
growth, but they also impose losses on U.S. oil producers, who in
turn invest less on drilling and hire fewer workers, which can slow
GDP growth.
The impacts on consumer spending: From Q4-2014 to Q4-2015,
energy expenditures as a share of disposable personal income
declined by 0.85 percent. However, instead of spending the
windfall, households appear to have put most of it in the bank last
year, as personal saving as a share of disposable personal income
increased by 0.75 percent while non-energy expenditures as a
share of disposable personal income increased by only 0.17
percent during the period. 59
One plausible explanation is that consumers have yet to believe oil
prices will remain low. One recent survey finds that 70 percent of
U.S. consumers expect gasoline prices to go back up in the next
three months, and this expectation of rising prices contributes in
part to consumers refraining from spending the extra cash. 60 Along
with the recent volatile market conditions, it may take longer for
households to alter their consumption habits. However, U.S. GDP
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growth could also exceed expectations this year if consumers
begin to spend down their savings from last year.
The impacts on investments: Since 2009, the combination of
high oil prices and advancements in drilling technologies attracted
a massive influx of capital to the oil and gas sector, making it one
of the fastest-growing sectors in the economy. However, falling
oil prices in 2015 have caused the industry to tumble.
Cutbacks in oil and gas industry investment have a sizable impact
on the overall economy—declines in mining fixed investment took
0.43 percent off real U.S. GDP growth in 2015. However, for
energy using firms, especially heavy oil-users, the lower cost of
production should boost their investment. In fact, non-mining
fixed investment grew by 6 percent in 2015 (see Figure 12).
The impacts on employment: The oil and gas sector remains a
relatively small part of the overall U.S. labor market. Even at its
peak, oil and gas comprised only about 0.4 percent of total private
nonfarm payroll employment. 61 Nonetheless, it contributed
substantially to employment growth during the recovery. A recent
analysis concludes that oil and gas extraction led to an increase in
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U.S. employment of 725,000 and a 0.5 percent decrease in the
unemployment rate during the Great Recession. 62
Steeply falling petroleum prices have forced producers to slash
payrolls and cut capital expenditures. Mining and
exploration investment declined 35 percent in 2015, the largest
year-over-year decline since 1986. 63 The impact is concentrated in
only a few oil-producing states. A study finds that lower oil prices
would adversely affect total employment in eight states—Alaska,
Louisiana, North Dakota, New Mexico, Oklahoma, Texas, West
Virginia and Wyoming—where concentration of energy-related
employment is the highest. 64
However, lower costs of production for energy-using firms could
also lead to more hiring in non-energy sectors, as observed in the
robust job growth in recent years.
The possibility of large indirect costs: Low oil prices may not
only place substantial costs on American petroleum producers, but
there may also be much larger indirect costs that extend far beyond
the oil industry and cannot be captured adequately in standard
economic analysis. Low prices may encourage higher levels of
worldwide consumption of fossil fuels, which play a large role in
global climate change. The long-term cost of climate change, to
the extent that it is attributable to lower oil prices, is beyond
calculation.
Slow Growth in China
Slowing economic growth in China, the second largest economy
in the world after the United States, has raised concerns about the
impact this could have on the U.S. economy. China’s real GDP
growth averaged 10.7 percent from 2001 to 2008, but has dipped
down to about 7 percent since 2012 and is projected to further
decelerate to about 6 percent in the near term. 65 This so-called
“soft landing” is primarily due to the Chinese government’s
rebalancing reform agenda, as it attempts to shift the economy
from investment-led to consumption-led growth. 66
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The impact of China’s growth on global demand: The growth
of the Chinese economy during the past two decades has been an
important source of demand for global products. Chinese imports
as a share of total world imports of goods and services climbed
from 1.4 percent in 1990 to 8.8 percent in 2014. In comparison,
U.S. imports as a share of the world imports of goods and services
fell from 18.6 percent to 11.4 percent during the same period. 67
The main mechanism through which the slowdown in China will
affect the U.S. economy is through lower commodity prices. China
is an important consumer in global commodity markets and lower
Chinese demand has drastically reduced demand for commodities.
Overall commodity prices fell by a staggering 35 percent between
2014 and 2015, mostly driven by the collapse of energy prices, and
the International Monetary Fund projects that they will fall another
25 percent in 2016 (see Figure 13). Prices of U.S. corn and
soybeans have fallen below their cost of production, and Chinese
steel prices fell by 37 percent at one point last year. 68
Declines in Chinese equity indices: The major Chinese stock
market index, Shanghai Composite, has fallen by nearly 48
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percent from its recent peak in June 2015. The stock market crash
raised concerns for a full-blown recession, or a “hard landing.”
However, the lost equity value should not pose a significant threat
to China’s real economy. The linkage between the equity market
and the real economy is weaker in China than in the U.S. and most
other developed economies because corporate fundraising is
mostly conducted through bank loans and bonds, not by issuing
stock. Consequently, lower stock prices have little impact on
business investment in China. Stock holdings also comprise an
insignificant share of household wealth. 69
Still, the significant decline in the Shanghai Composite has rattled
U.S. markets, contributing to the decline in U.S. equities during
the first months of 2016. Further equity market declines in China
could also create panic that spill over to its foreign exchange
market and erode business and consumer confidence.
Preventing a currency crisis: Capital flight has become one of
the biggest threats to the stability of the Chinese economy.
Monetary policy normalization in the United States, coupled with
China’s domestic macroeconomic concerns, have led to massive
capital outflows and put downward pressure on the value of the
yuan—its exchange rate vis-à-vis the U.S. dollar has fallen by
about 8 percent from January 2014 to January 2016. 70
The prospect of further yuan depreciation will add deflationary
pressure to the U.S. dollar in the near term, as Chinese imports
comprise 23.2 percent of U.S. non-oil goods imports. 71 A weaker
yuan will also boost U.S. imports from China, creating further
drags on the net exports component of U.S. real GDP growth and
could have a significant negative impact on the U.S.
manufacturing sector.
In order to prevent a currency crisis, most analysts expect the
Chinese central bank to intervene by drawing down foreign
exchange reserves and further tightening capital controls such as
limiting cash withdrawal outside China. China’s massive foreign
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exchange reserve and relatively low foreign exchange debt should
provide sufficient buffer, but further devaluation of the yuan
seems likely.
The outlook for growth: One of the most significant factors
putting downward pressure on growth in China is its rising debt.
Debt levels in both public and private sectors have reached 282
percent of GDP in 2014, a level that is not sustainable, according
to the McKinsey Global Institute. 72 China has relied on credit to
stimulate growth since the global financial crisis in 2008, but it is
no longer feasible to continue down that path. 73
Meanwhile, excess capacity in housing and industry will continue
to put downward pressure on housing prices and investment.
These factors point to a further deceleration of growth in the near
term, although China is still expected to incrementally add to
global demand but at a markedly slower pace.
Nonetheless, the overall impact of China’s decelerating growth on
the U.S. economy is likely to be fairly limited. Even though the
impressive growth of the Chinese economy in the past few decades
has elevated China’s importance as a driver of global demand,
U.S. exports to China still represent less than 1 percent of GDP
(see Figure 14).
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Financial linkages between the two countries are also limited,
although the Report suggests the possibility of a spreading
contagion in the financial markets, with China as its origin. 74
Major U.S. Trading Partners
The most important U.S. trading partners—Canada, Mexico and
the Euro area—together comprised almost half of total U.S.
exports in 2015. Weak growth in these countries puts downward
pressure on U.S. exports and GDP growth.
Canada: Canada is the number one destination for U.S. exports,
accounting for 19 percent of U.S. exports in 2015. Canada is a net
exporter of petroleum, with crude oil production representing
about 3 percent of the Canadian economy. 75 The decline in oil
prices has also affected Canada—its real GDP contracted in the
first half of 2015, before resuming modest positive growth in the
second part of the year. 76 However, with substantial depreciation
of the Canadian dollar, along with continued monetary and fiscal
easing, Canada’s growth is expected to remain positive, albeit at a
modest pace. 77
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Mexico: Mexico, the second largest export destination of the
United States, also experienced disappointing growth in 2015 as a
result of low oil prices. Industrial production was very weak this
past year, in part because the mining sector experienced its worst
year since 1993 amid low oil prices, and the manufacturing sector
suffered from a slowdown in automobile production and sales to
the United States. In the past decade, the Mexican government has
increased spending with the extra tax revenue collected from the
petroleum sector. 78 With lower oil prices, government
expenditures could become contractionary and slow growth in
2016. In addition, the Mexican peso exchange rate vis-à-vis the
U.S. dollar fell significantly in 2015, further lowering demand for
U.S. imports.
The Euro area: The Eurozone sovereign debt crisis stabilized in
the second half of 2015, with the currency bloc remaining intact
after Greece entered negotiation to avoid an exit from the
Eurozone. However, many downside risks remain in the area, such
as the increasingly high government debt burdens that reached 93
percent of GDP in 2015. 79 And as discussed in the Report, even
though the job market improved slightly in 2015, the
unemployment rate in the region remains alarmingly high at 10.4
percent as of December 2015. The pace of recovery is also highly
uneven across the member countries.
Other prominent near term challenges faced by the Euro area
include the refugee crisis, which will further increase the burden
on governments and reduce fiscal space for reacting to future
downturns. Political uncertainties created by antiestablishment
political parties across Europe also undermine business and
consumer confidence. Most private analysts predict the growth in
the Euro area will improve slightly relative to the past few years,
but still be well below 2 percent in 2016. 80
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Emerging Market Economies
Emerging markets, a significant source of growth for global
demand in the past several years, took a blow in 2015 as a result
of the significant decline in commodity prices. Commodity
exporters and countries that rely on extensive trade ties with China
have experienced significant slowdowns over the past year due to
depressed commodity prices and slowing Chinese import demand.
Many emerging markets, such as Russia and Brazil, were built on
high commodity prices, and the recent price collapse has created
major headwinds for their continued growth. While still
accounting for over 70 percent of global growth, growth in
emerging markets has been decelerating for the past five
consecutive years, to 4 percent in 2015, its slowest pace since the
2008-09 financial crisis. 81
In the latest update, the International Monetary Fund revised down
its 2016 emerging market growth projection by 0.2 percentage
points, to 4.3 percent. Even though the updated projection
represents a slight pickup in growth compared to 2015, the
downward revision is symptomatic of the fact that emerging
markets continue to perform weaker than previously expected.
Many analysts initially viewed the deflationary forces in emerging
markets as transitory. But an oversupply of labor and capital,
together with an overcapacity in industries that borrowed heavily
to build new production facilities over the past few years, will
continue to exert downward pressure on the growth of emerging
markets in the near term.
Effects of a Global Slowdown on the U.S. Economy
The strong dollar and net exports: Weaker growth abroad
relative to the United States will continue to put upward pressure
on the U.S. dollar and downward pressure on exports. With the
dollar expected to stay strong, savings realized from lower
commodity prices will likely be offset by an increase in imports of
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non-commodity goods and a decline in exports. Therefore, net
exports will continue to act as a drag to real GDP growth in the
near term. The combination of stronger dollar and drags on net
exports may slow the pace of Federal Reserve’s normalization
policy path. 82
Uncertain effects: While the sluggish global growth will have
some negative impacts on the U.S. economy, it is important to note
that the effects are expected to be limited, as only 10 percent of
value added in the U.S. economy is directly attributable to final
spending in the rest of the world. 83 The slowdown abroad would
have to be catastrophic for U.S. trade to have any major effect on
U.S. GDP growth. Nonetheless, there are substantial risks for
spillovers through other channels such as financial contagion as
global financial integration continues to deepen, so the overall
prospect remains highly uncertain. 84
Policy implications: With weak global demand and uncertainties
surrounding the effects of lower commodity prices on the U.S.
economy, U.S. growth prospects will continue to rely heavily on
domestic factors in the near term. Policymakers should set fiscal
and monetary policies to adequately counter these global
headwinds and sustain U.S. growth. Specifically, if domestic
consumption growth is not sufficient to offset the drag from these
global headwinds, policymakers should implement effective fiscal
stimulus to help the economy achieve its growth objective.
Furthermore, the slow global growth outlook suggests that
commodity prices will likely stay low for some time, so
policymakers should take advantage of the lower construction
costs to implement the much needed infrastructure projects when
it is relatively cheap to do so. 85
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215
KEY LONG-TERM ECONOMIC CHALLENGES
Earlier sections of this report discuss headwinds that have slowed
the recovery from the Great Recession, as well as the outlook for
the economy in the short term. This section takes a broader look
at three key challenges that long predate the recession and that the
economy will continue to face in the years ahead.
The first challenge is mitigating the consequences of demographic
trends, especially the aging U.S. population, which will continue
to exert downward pressure on labor force participation and
economic growth, while also straining the federal budget. The
second challenge is to accelerate labor productivity growth, which
has slowed in recent years. The third challenge is ensuring that that
economic gains are shared more broadly in the future than they
have been in recent decades.
Steps policymakers can take to address these three challenges are
outlined in the final section of this report.
Demographics and Population Aging
The size of the working-age population, and the share of this
population participating in the labor force, are core drivers of
economic growth. All else equal, if the number of people in the
labor force is growing, GDP will increase. This was the case for
much of the second half of the 20th century when baby boomers
were entering adulthood and women began to participate in the
labor force in much greater numbers than in the past. By contrast,
if the size of the labor force is constant or shrinking, economic
growth must come from other sources.
CBO estimates that the potential labor force (the number of people
working or seeking work in an economy with full utilization of
labor and capital resources) will grow just 0.5 percent per year
over the next 10 years. While this matches the average from 2008
to 2015, it is down markedly from growth rates during earlier
decades. Average annual growth in the potential labor force has
216
been trending down for years, from 2.5 percent from 1974 to 1981,
to 1.6 percent from 1982 to 1990, to 1.3 percent from 1991 to
2001, to 1.0 percent from 2002 to 2007. 86
Aging of the population: The U.S. population is older than ever
before. This is due to a variety of reasons—the aging of the baby
boom generation, declining birth rates and longer lifespans. In
1964, 9.5 percent of the population was at least 65 years of age.
By 2004, this share had increased to 12.4 percent. By 2014, it was
14.5 percent. According to CBO, there are nearly two and a half
times as many people age 65 and older today than there were 50
years ago, and this number is expected to increase by more than
another 35 percent over the next 10 years. 87
As the population has become older, the share of adults in their
prime working years (ages of 25 to 54) has declined. This share
peaked at around 57 percent in the mid-1990s but has since fallen
to less than 50 percent (see Figure 15). In raw numerical terms,
growth in the number of people in this age bracket has slowed to
a virtual stop, from an average annual growth rate of 1.6 percent
from 1965 to 2005, to an increase of just 0.1 percent per year since
then.
217
The rise and fall of the labor force participation rate has closely
tracked the aging of the baby boomer generation (individuals born
between 1946 and 1964). The oldest of the baby boomers entered
their prime working years beginning in 1971, and their entrance
into the labor force was a significant driver of labor force
participation rate increases during the latter part of the 20th
century. During this period, the growth in the size of the labor
force was an important contributor to growth in GDP. However,
as baby boomers have reached retirement age, with the first
turning 65 in 2011, labor force participation has fallen.
One element that weighs against the trend of declining labor force
participation is that many older Americans remain in the labor
force longer than they did in the past. Although in 1995 only 38
percent of people ages 62 to 64 were in the labor force, in 2015
more than 50 percent were. Participation is also higher among
individuals 65 and older, which has traditionally been considered
retirement age. Among 65 to 69 year olds, the share in the labor
force increased from 22 percent to 32 percent from 1995 to 2015.
218
Nonetheless, the trend toward later retirement for many workers
in recent years offsets only a small portion of the aging effect on
the overall labor force participation rate. There remains a sharp
drop off in participation as people age: for example, 72 percent of
55 to 59 year olds were in the labor force in 2015, as were 62
percent of 60 to 61 year olds and just 50 percent of 62 to 64 year
olds.
This long-anticipated shift in the population’s age distribution has
served as a drag on labor force growth in recent years, and it is not
expected to reverse. Federal Reserve Chair Janet Yellen has noted
that this trend will continue in the coming years and that,
consequently, the labor force participation rate should not be
expected to return to its prerecession level anytime soon. 88
Economists have attempted to quantify the effect of an aging
population on the labor force participation rate. Researchers at
CBO, the CEA and the Federal Reserve have found that about half
of the recent decline in the labor force participation rate is due to
aging of the population. 89 An analysis by the JEC Democratic staff
confirms this. If the age distribution today were the same as at the
start of 2008, the decline in the labor force participation rate over
the past eight years would have been nearly cut in half. In other
words, the labor force participation rate would be nearly 2
percentage points higher than it is today (see Figure 16).
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Although policymakers can and should take steps to boost
workforce participation across various demographic groups (as
discussed in the policy section below), the aging population will
continue to exert downward pressure on the labor force
participation rate in the years ahead regardless of the policies
pursued.
Slowdown of women entering the labor force: Another factor
that boosted labor force participation during the latter half of the
last century was the steady increase in participation among
women. In 1950, roughly one in three women ages 16 and older
were in the labor force. By 2000, after five decades of steady
growth, the share had risen to three in five. That increase in
participation roughly translated into an additional 30 million
women in the paid labor force.
Several factors were behind the steady growth in women’s labor
force participation. The women’s equality movement sparked vast
changes in women’s roles. Widespread access to household
technologies such as electric washing machines, dryers and
dishwashers helped to free up time for women to take jobs in the
220
paid workforce. More reliable contraception enabled women to
delay starting families while they pursued their careers. And the
increase in women’s earnings relative to men’s helped to draw
more women into the paid labor force. 90
In addition, many families have depended on women’s earnings to
meet increased financial pressures stemming from the rising costs
of raising a family. Between 1960 and 2013, the amount a typical
middle-income, two-parent family spent on providing for a child
through age 17 increased 24 percent in (inflation-adjusted)
terms. 91 The composition of these expenses also changed, with the
share of spending going to child care and education growing
ninefold from just 2 percent in 1960 to 18 percent in 2013. 92 The
share of family income spent on health care doubled to 8 percent
during that time. 93 The rising cost of college has put additional
strain on family budgets, with the average cost of attending a fouryear public university more than doubling in real terms between
1963 and 2013. 94
However, after peaking in 2000, the female labor force
participation rate has plateaued (see Figure 17). Between 2000
and the start of the recession in 2007, women’s participation rate
hovered between about 59 and 60 percent. In the wake of the
recession, the share of women in the labor force has fallen to
around 57 percent. While part this trend is attributable to
population aging, the labor force participation rate for prime-age
women has declined as well, from about 77 percent in 2000 to the
current level of about 74 percent. The decline in women’s labor
force participation since its peak in 2000 is due in part to a lack of
policies that would allow them to remain in the workforce while
caring for children or other family members, such as paid leave
and workplace flexibility. 95
221
Decline in male labor force participation: The share of men in
the labor force has been steadily falling for over half a century
during both Democratic and Republican administrations. This has
stemmed in part from a decline in middle-skilled job opportunities
due to the effects of globalization and technology. 96 As a result,
men in their prime working years (ages 25 to 54) without a college
degree have experienced larger declines in workforce participation
over the past several decades than men with college degrees. 97
The decline accelerated during the recent recession and has
generally continued throughout the recovery, in part due to the
aging of the baby boomers. Looking only at men ages 25 to 54, the
participation rate has fallen from a high of nearly 98 percent in the
1950s to around 91 percent on the eve of the Great Recession in
2007 to about 89 percent today.
Impact of increased schooling on labor force participation:
Labor force participation among 18 to 24 year olds has been
declining for several decades as more young adults have delayed
entering the workforce in favor of pursuing education beyond high
school, a response to the growing wage premium for workers with
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more education. 98 In 1980, only about 25 percent of 18 to 24 year
olds were enrolled in college. By 2014, that share had increased to
40 percent. 99 Higher school enrollment reduces participation in the
labor force among young adults in the short term. However, in the
future, it is likely that they will have stronger attachment to the
labor force and higher earnings.
Putting declines in labor force participation in context:
Declining labor force participation poses a significant challenge
for future economic growth. Labor force participation among
prime-age workers (ages 25 to 54) in particular remains lower than
economists and policymakers would like and below what would
be expected in a robust economy. A portion of this decline reflects
the lingering impact of the Great Recession on the labor market.
However, most of the decline in labor force participation is due to
reasons that long predate the Great Recession.
Some drivers of the long-term decline are worrisome, such as the
long-term trend toward lower workforce participation among less
educated men and the more recent decline in the share of women
in the workforce.
Others drivers represent healthy developments for the economy,
namely the increase in young people furthering their education.
Spending time out of the labor force to acquire more training
typically translates into an investment in human capital
development, which has individual benefits, as well as benefits for
the broader economy. This is also the case for temporary exits
from the labor force by parents to care for young children, which
benefits their children’s development. The largest contributor to
the decline, the aging of the baby boomers, may also be considered
a positive to the extent that it reflects older Americans leaving the
labor force because they are financially prepared to retire.
Rebutting misleading claims about labor force participation:
Some critics of the Obama administration decry the decline in the
labor force participation rate, using its drop to levels last seen
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during the Carter administration to imply that the economy
remains very weak, while downplaying the long-term
demographic drivers of the trend. Others have significantly
overstated the severity of the situation by pointing to the fact that
more than 90 million Americans—about 40 percent of the adult
population—are not working. 100 This misleading claim is rooted
in the fact that there are more than 90 million people over the age
of 15 not in the labor force. However, half of these people are
either elderly or disabled. An additional 18 percent are younger
than 65 and enrolled in school, and 6 percent are under 65, not in
school, not disabled and have a child under the age of six. 101
Not only has this specific claim been fact checked by several
organizations and found to be misleading, the conservative
American Enterprise Institute has noted, “it’s non-factual to
suggest that nearly 100 million American [sic] are
unemployed.” 102
The impact of an aging population on the federal budget: In
addition to constituting a drag on economic growth, the aging of
the baby boomers into their retirement years is perhaps the single
largest contributor to projected budget deficits in the years to
come. 103 This is due to the fact that a ballooning number of people
will begin to draw on the Social Security and Medicare benefits
they have earned. In fact, according to an analysis by former CBO
Director Douglas Elmendorf, if all components of the budget other
than Social Security and Medicare were held at their current levels
as a share of GDP, the aging population alone would push the
primary budget deficit (the deficit excluding interest) well above
the actual long-term CBO projections. 104 Other factors—including
declining discretionary spending as a share of GDP—are projected
to partially offset the budgetary impact of population aging.
According to the most recent CBO 10-year budget and economic
outlook, published in January, Social Security outlays are
expected to increase as a share of GDP from 5.0 percent in 2015
to 5.9 percent in 2026, while Medicare outlays are expected to
224
increase from 3.6 percent to 4.7 percent (see Figure 18). 105 For
Medicare, the projections account for not only the impact of the
aging population but also rising health care costs, which are
generally considered to be the another major driver of long-term
growth in the deficit.
By contrast, spending on virtually all other functions of
government is projected to decline as a share of GDP over the
coming decade. Nondefense discretionary spending is projected to
fall from 3.3 percent of GDP in 2015 to 2.6 percent in 2026, which
would be 1.2 percentage points below its 50-year average and the
lowest level since at least 1962, when recordkeeping began.
Defense discretionary spending is also projected to fall to its
lowest level on record as a share of GDP, from 3.3 percent in 2015
to 2.6 percent in 2026.
While Medicaid spending is projected to increase from 2.0 to 2.3
percent of GDP, in part due to rising health care costs, spending
on other mandatory programs such as the Supplemental Nutrition
Assistance Program (SNAP), unemployment insurance,
Temporary Assistance for Needy Families (TANF) and Pell
225
Grants is projected to decline as a share of GDP, from 3.9 percent
in 2015 to 3.4 percent in 2026.
In dollar terms, Social Security and Medicare alone are projected
to account for 45 percent of total outlays in 2026, while net interest
will account for another 13 percent. Defense and nondefense
discretionary spending are each projected to account for about 11
percent of total outlays in 2026, down from 16 percent in 2015.
Increases in spending on Social Security and Medicare account for
nearly half (48 percent) of the projected increase in total nominal
outlays between 2016 and 2026. Net interest accounts for another
23 percent of the projected increase in outlays. By contrast,
nominal increases in nondefense discretionary spending are
projected to account for just 4 percent of the increase in outlays
over the next decade. 106
Some imply that rising deficits and debt stem from runaway
government spending, or excessive waste, fraud and abuse.
However, it is clear that deficits are projected to rise largely
because of a long-anticipated increase in older Americans as a
share of the population, which significantly increases spending on
Social Security and Medicare, along with rising health care costs.
For decades, there has been a broad bipartisan commitment to
protecting older Americans from being impoverished or unable to
obtain medical care.
There has been significant progress in recent years in reducing
excess growth in health care costs, in part due to cost-control
measures included in the ACA as well as the permanent Medicare
Sustainable Growth Rate (SGR) fix passed last year. 107 The impact
is reflected in lower long-term projections for Medicare spending
as a share of GDP. In 2007, CBO projected that Medicare spending
would be 14.8 percent of GDP in 2082. 108 However, CBO now
estimates that Medicare spending will be 8.9 percent of GDP in
2082. 109 Repeated Republican efforts to repeal the Affordable
226
Care Act, if successful, would undercut this progress and lead to
increases in deficits. 110
In the early 2000s, President George W. Bush and Republican-led
Congresses knew the coming demographic wave would strain the
federal budget. However, they squandered the surpluses that had
been accumulated during the final years of the Clinton
administration on tax cuts tilted toward the wealthy and borrowed
heavily to pay for wars in Iraq and Afghanistan. 111
Long-term demographic trends will continue to strain the federal
budget in coming years, in particular by increasing the portion of
the deficit that is attributable to Social Security and Medicare
obligations. Policymakers will be forced to grapple with this, even
though it is driven in large part by factors beyond their control.
Slowdown in Labor Productivity Growth
Labor productivity growth is a key engine of economic growth.
Large increases in productivity during the decades following
World War II coupled with substantial increases in the size of the
workforce helped make the U.S. economy the most powerful in
the world. While the slowdown in the growth of the working-age
population is virtually certain to continue to exert downward
pressure on economic growth in the years ahead, the contribution
of labor productivity to growth remains an open question.
In recent years, labor productivity growth has slowed in the United
States and in other advanced economies around the world. 112
Though recent trends are reason for concern, it is too soon to know
whether persistently low labor productivity growth is likely, or
whether productivity growth will accelerate as the economy
continues to heal from the Great Recession. The answer may
depend to a large extent on policy choices.
Framing the issue: There are two principal ways to raise the
economy’s output: either increase the number of workers or
increase output per worker. The amount of real output per hour of
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labor is known as labor productivity. Productivity is largely driven
by market forces—competition encourages companies to try to
produce goods and services as efficiently as possible. However,
government can play a large role in driving productivity growth as
well by making long-term investments in education,
infrastructure, and research and development.
Higher labor productivity is particularly important because, in
general, if workers produce more, this leads to increases in real
wages and living standards. However, this process does not
happen automatically. A decrease in the power of labor or an
increase in the market power of firms can keep workers from
sharing in the benefits of productivity growth. In recent decades,
labor productivity growth has outstripped growth in wages for
most workers. 113
Moreover, productivity improvements, in particular those
stemming from technological advancements, have affected
different categories of workers in different ways. Automation has
contributed to job losses concentrated among those with lower
levels of education, while it has led to higher wages for those
toward the top of the income spectrum. 114 There is clearly work to
do to ensure that workers reap the fruits of their labor and that
workers up and down the income spectrum benefit from
productivity growth. This topic is discussed later in this report.
Nonetheless, labor productivity growth is effectively a
prerequisite for growth in real wages and living standards, and
increasing it should be a priority for policymakers.
Drivers of increases in labor productivity: Labor productivity
growth can come from three categories of sources. First, it can
come via capital deepening, meaning that each worker has more
machines, tools and other capital to work with, which allows them
to produce more. Second, workers can be more productive if they
have more human capital, for example higher levels of education
and training. Finally, labor productivity can increase through
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improvements in total factor productivity (TFP), a nebulous but
critical concept that essentially means that more can be produced
with the same levels of labor and capital inputs. Innovation—new
technologies and processes that make workers more efficient—is
generally considered to be the foremost driver of TFP growth. 115
Better matching of workers with positions that align with their
skills and experience can also raise TFP.
Historically, other drivers of labor productivity growth in the
United States include the arrival of immigrants who complement
native-born workers’ skills and often develop new innovations,
entrepreneurs who launch businesses and patent new products,
building out of transportation and other infrastructure networks,
and expanding international trade.
The Federal government has played an invaluable role in raising
labor productivity. Investments in the interstate highway system
have helped to connect workers with jobs and allow businesses to
move their products to market. From land-grant colleges and
universities to the GI Bill to Pell Grants, public investments have
helped more Americans get an education. And federal investments
in research and development have laid the groundwork for
numerous breakthrough innovations from Whirlwind (among the
first digital computers) to ARPANET (the basis for the Internet)
to the mapping of the human genome. 116
In each of these cases, the government has a role to play because
of shortcomings in private markets, which economists call
“market failures.” The private sector alone does not invest at
socially desirable levels in infrastructure, education or research
and development because those are to a large extent public goods
with spillover effects that cannot be captured by individual
businesses. 117 They are all areas where government investment is
necessary for the betterment of the country.
Trends in labor productivity growth: It is important to measure
productivity over extended time periods because it is a volatile
229
data series. Fluctuations on a quarter-to-quarter or even year-toyear basis are not necessarily indicative of underlying trends. The
postwar period can be divided into several periods with distinct
levels of productivity growth (see Figure 19). From 1948 to 1973,
labor productivity in the nonfarm business sector grew at a rate of
2.8 percent per year, in part due to World War II-era innovations
filtering their way into civilian applications. 118 The postwar boom
faded in the 1970s and 80s, with labor productivity growing at an
average annual rate of 1.4 percent over the 1973 to 1995 period,
half the rate of the earlier decades.
In the 1990s, innovations in information technology accelerated
and new products from computer software to telecommunications
equipment made their way through the economy. This led labor
productivity growth to accelerate to an average annual rate of 2.7
percent from 1995 to 2007. However, since the onset of the Great
Recession in 2007, growth has slowed to just 1.2 percent per year.
Analyzing the recent slowdown: Some argue that the recent
slowdown in observed labor productivity is an artifact of data
mismeasurement—in particular an inability to fully capture the
230
value of quality improvements and real output in the digital
sector. 119 However, recent research shows that this is unlikely to
be more than a modest contributor to the trend. 120 Several key
factors that may be driving the slowdown are described below.
Low business capital investment. Typically over the postwar
period, capital intensity (the amount of capital per hour of labor)
and labor quality have made consistently positive—and generally
stable—contributions to productivity growth, with movements in
headline labor productivity driven largely by fluctuations in TFP
growth. 121 However, capital intensity actually declined from 2010
to 2014, constituting a drag on productivity growth. 122 Lower rates
of capital investment stem to a great extent from lower aggregate
demand in the aftermath of the Great Recession. 123 Had demand
been higher, there would have been a greater incentive for
businesses to invest in ways to increase output.
Possible drop off in innovation. Annual TFP growth has only been
about half its historical average since 2007, further dragging down
labor productivity growth. 124 Some suggest that the slowdown in
productivity growth over about the past decade has occurred
because the benefits from the information technology revolution
have started to fade, and new innovations have not been sufficient
to provide a further boost to productivity growth. 125 This may be
due in part to decreased government investment in research and
development, which has historically played an important role in
the innovation process. While federal research and development
spending as a share of GDP exceeded 1 percent every year from
1956 to 1992, it has been below 1 percent every year since then.
Federal research and development spending increased in 2009 and
2010 in part due to the Recovery Act, a critical piece of legislation
that served the dual purpose of supporting the recovery and laying
the groundwork for long-term improvements in productivity.
However, federal research and development spending has since
fallen to its lowest level as a share of the GDP since the 1950s (0.7
percent in 2015), less than half its peak of 1.8 percent in the 1960s.
231
While, encouragingly, private business investment in research and
development has picked up over the past couple of years, the
decline in public investment is disconcerting. The government has
a critical role to play in driving innovation in the U.S. economy,
in particular by funding basic research, a public good that has
substantial spillovers to the broader economy that individual
businesses are unable to capture. Business expenditures, by
contrast, tend to be concentrated in development because it has
more direct commercial applicability. 126
One example of how the public and private sectors complement
each other is in the field of biomedical research. Research funding
from the Department of Health and Human Services (HHS),
including the National Institutes of Health, goes to support basic
and applied research rather than later-stage development. 127
Biotech firms then build upon the knowledge base that this
research establishes to develop products that save lives and
improve Americans’ health and quality of life. For example, HHSfunded research led to the development of the first antiretroviral
drug that increased life expectancy for HIV patients, AZT. 128
Decline in startups. One possible contributor to the productivity
slowdown is the decline in new business startups. New firms have
been steadily declining as a share of all firms for decades. 129 This
is worrisome because research shows that competition and
dynamism in the business sector—with new, innovative firms
replacing older firms—has a major impact on productivity
growth. 130 By contrast, established firms may have less incentive
to innovate in the absence of new market entrants. 131
Encouragingly, an index measuring trends in startup activity
compiled by the Kauffman Foundation halted its downward slide
last year, increasing in 2015 by the most it had in two decades.132
Nonetheless, it remains well below the level it was at during much
of the 1990s and 2000s.
232
Increase in market power of existing firms. In general, it is a good
thing when small firms grow into large firms that employ
increasing numbers of workers. Large corporations can be more
productive via economies of scale, and in certain instances having
one firm or firms with substantial monopoly power in an industry
can make economic sense because of network externalities (for
example, in the case of telecommunications). But when large
corporations increase their profits not by increasing their
productivity but by stifling competition, this can be harmful.
As the Report discusses, some argue that an increase in market
power of existing firms leads to barriers to entry for startup
firms. 133 A recent paper by CEA Chairman Jason Furman and
former OMB Director Peter Orszag found that the revenue share
for the top 50 firms in three-quarters of all sectors of the economy
increased over the 1997 to 2007 period. 134 To the extent that
powerful incumbent firms influence the regulatory environment to
the detriment of new challengers, this harms productivity.
The Report devotes a significant amount of space to this topic,
which has received little public attention to date. While it is often
assumed by economic theory that markets are perfectly
competitive and that the free market will generate the most
productivity and the best outcomes, in practice this does not
always occur. Larger firms that enjoy a degree of monopoly power
may be able to extract “economic rents”—profits beyond what are
necessary to keep labor at work or capital invested—that not only
harm productivity growth but also drive up prices for consumers
and increase wage inequality. As the Report notes, this topic has
been understudied by economists and merits further research. 135
Plateauing of educational attainment. While rapid increases in
educational attainment fueled human capital accumulation and
productivity growth through much of the postwar period, the rate
of increases has slowed over time. This is despite the increase in
the demand for workers with higher levels of education and the
wage premium these workers receive. As noted in the Report, the
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growth rate of the college-educated population slowed from 3.9
percent per year from 1960 to 1980 to 2.3 percent per year between
1980 and 2005. 136 The share of people ages 25 to 29 with a
bachelor’s degree or higher increased from 11 percent in 1960 to
nearly 23 percent in 1980 to about 29 percent in 2005. 137 By 2014,
that share had increased to 34 percent.
Skills mismatch. A related challenge could be a growing mismatch
between workers and the education and skills needed for available
jobs. Some surveys of businesses suggest that they are having
difficulty finding workers with the skills they need for the
positions they have open. 138 One indicator of a possible skills
mismatch is the still depressed level of “churn” in the labor
market, the rate at which people switch jobs (often to go to
positions that are better matches for them). 139 The Report
discusses several possible reasons for this, including the decline in
new entrepreneurial firms and obstacles to worker mobility such
as housing regulations and occupational licensing. 140
The Affordable Care Act seeks to enhance worker mobility and
improve job matches by reducing “job lock.” 141 In the past,
workers may have chosen to remain in jobs that were not the best
match for their skills and abilities in order to keep health insurance
coverage. Decoupling quality, affordable health insurance from
the employer model allows people to take more risks, move across
the country in search of a new job that better suits their skills and
interests, or even strike out on their own and start a new
businesses, which could help to increase entrepreneurship.
A lack of family-friendly policies such as paid family leave can
also exacerbate the skills matching challenge, for example if
women or men leave jobs that were otherwise a good fit for
them. 142
Global perspective: Most of the trends discussed in this section
are not unique to the United States—far from it. As a recent OECD
report found, the slowdown in productivity growth in recent years
234
is common across advanced economies. 143 So too are the trends
toward lower capital investment growth, the plateauing of typical
levels of educational attainment and the decline in business
startups as a share of all firms. In fact, start up rates and growth in
labor productivity overall has held up comparatively well in the
United States relative to the vast majority of other advanced
economies discussed in the OECD report.
One implication of this finding is that—despite the claims of
some—tax and regulatory policies in the United States are not a
major factor behind the productivity slowdown, since a similar
trend is occurring in countries around the world with all manner
of tax and regulatory systems.
Outlook for the future: Productivity is a critical engine of
growth, and it will be even more important in the future given
existing demographic trends. The big question moving forward is
whether productivity growth can accelerate to rates approaching
what the economy experienced in past decades, or whether there
are structural factors fueling the slowdown that will be difficult to
counteract. Economists are not in agreement on the answer. Robert
Gordon, for example, has made the case that the innovations that
drove solid productivity growth in the immediate postwar decades,
from air conditioning to airplanes, were largely one-time factors
stemming from the second industrial revolution, unlikely to be
repeated moving forward. In the title of a recent paper, he raises
the question “Is U.S. Economic Growth Over?” 144
Conversely, both the OECD paper and CEA Chairman Jason
Furman are more optimistic about the outlook for labor
productivity growth—if policymakers can take appropriate steps
to foster it. 145 Both have argued that the slowdown in business
investment since the Great Recession can be traced largely to
cyclical factors. With less demand for their products, businesses
were less motivated to invest in methods that would increase
productivity. The high fixed costs involved with many capital
235
investments likely made them hesitant to invest even as the
recovery has taken hold, due to lingering uncertainty. 146
A positive sign for the future is that business investment in R&D
has picked up recently. Should demand further strengthen, it is
likely that capital investment will rise to boost labor productivity
to meet heightened demand. The Report describes two
developments in particular that show promise: robotics and digital
communications technology. 147 In both cases, policymakers will
need to work to address the potential impact on inequality that
could arise from increasing innovation in these areas. Other
sectors where innovation could further productivity growth and
improvements in quality of life include clean energy and medicine.
For its part, the Congressional Budget Office, in its most recent
10-year Budget and Economic Outlook, noted that the deep
recession and its enduring consequences have led it to lower its
estimate of potential TFP growth, a major contributor to decreases
in its estimates of potential GDP growth overall over the coming
decade. 148 However, CBO does expect potential labor productivity
growth to accelerate toward the back-end of the 10-year window,
increasing from a 0.9 percent average annual growth rate from
2008 to 2015 to a 1.5 percent rate from 2021 to 2026. 149
The OECD report discusses several policy approaches to foster
faster labor productivity growth around the world. These include:
increasing public funding for basic research, improving the
transmission of innovations from the most innovative firms to
other firms throughout the economy, promoting competitive
markets so that incumbent firms do not have an insurmountable
advantage over often more innovative newcomers and enhancing
lifelong education and training to reduce skill mismatches. 150 U.S.
policymakers should consider these and other options discussed
later in this report in order to boost labor productivity.
236
Rising Inequality
The size of the labor force and the productivity of workers are the
two core components of economic growth. However, raising
overall economic growth is not sufficient for all Americans to get
ahead: policymakers must also work to ensure that economic gains
are shared more broadly in the future than they have been in recent
decades. The Report devotes its first chapter to describing the
causes and consequences of inequality in the United States, and
many of the policy proposals outlined in the Report and by the
Obama administration in its FY 2017 budget would advance the
critical goal of promoting shared prosperity.
This section summarizes key trends related to increased economic
inequality in the United States. While many of these trends were
exacerbated by the Great Recession, they have developed over
decades. It then turns to a discussion of how economic well-being
varies across the states. The section describes several factors that
are driving inequality, including globalization, the reduced
bargaining power of labor and technological innovations that leave
behind workers who do not have the skills to adapt to change. It
concludes by underscoring that inequality—in particular
inequality of opportunity—undermines overall economic growth.
Trends in economic inequality: President Obama has called
growing inequality “the defining challenge of our time.”151
Former Fed Chairman Ben Bernanke has warned that rising
inequality is “a very bad development…creating two societies.”152
His predecessor Chairman Alan Greenspan has said he considers
income inequality “the most dangerous part of what’s going on in
the United States.” 153 Most recently, current Fed Chair Janet
Yellen cautioned that widening inequality leads to “stagnant living
standards for the majority.” 154
Economic inequality takes three principal forms: inequality of
income, inequality of wealth and inequality of opportunity. These
237
three channels are discussed in the Report. They are also
considered in more detail below.
The trend of widening inequality predates the Great Recession. In
fact, in the period immediately following the 2007 to 2009
downturn, there was by some measures a pause in the trend.
Households at the upper end of the distribution were hit hard by
large losses in wealth, while households outside the top of the
distribution benefited from increased safety-net spending. 155
However, the trend toward widening inequality resumed during
the recovery as the stock market soared and high-skilled workers
made significant gains. Now, by many common measures of
economic inequality, the gap between the haves and have-nots has
reached near-record levels.
Economic inequality is a global challenge faced by nearly every
country. But that challenge is particularly pronounced in the
United States. The so-called Gatsby Curve—a plot showing the
correlation between income inequality and economic mobility—
shows the United States has far greater income inequality and far
less economic mobility than many other advanced economies. 156
Incomes. The years following the end of World War II marked a
period of shared growth. Rapid labor productivity growth, in
combination with the influx of women into the paid labor force,
led to a decline in income inequality. Average income for
households in the bottom 90 percent of the income distribution
grew by 2.8 percent per year between 1948 and 1973, a pace that
led incomes to double about once every generation. 157 During that
time, the share of total income going to the bottom 90 percent
increased slightly, and the share of income going to the top 1
percent decreased by almost one-third. 158
Since the 1970s, the disparity in incomes between those at the top
and bottom of the distribution has grown. 159 Incomes have risen
more rapidly for the highest-income families, while they have
stagnated or risen only slightly for the rest of families. 160 In 2014,
238
income for families at the 95th percentile was about 60 percent
higher than it was in 1973, while income for families in the middle
(50th percentile) was about 20 percent higher. For the poorest fifth
of families (20th percentile), income was virtually unchanged. 161
As a result, income inequality has increased and the concentration
of income at the top of the distribution has neared an all-time high.
In 2014, 18 percent of all income went to the top 1 percent of
earners. 162 And as it has been every year since 1987, that share is
markedly higher than in other G-7 countries. 163
The trend of a greater concentration of income at the very top of
the distribution results from growing inequality in both labor
income—wages, salaries and benefits—and capital income—
capital gains, dividends and interest. An analysis by economists
Thomas Piketty and Emmanuel Saez found that about two-thirds
of the increase in the top 1 percent’s share of income between 1970
and 2010 was due to increased inequality within labor income,
while the remaining roughly one-third was due to increased
inequality within capital income such as capital gains and
dividends. 164 As the Report notes, policymakers in the recent past
have focused almost exclusively on income from labor. But to
address inequality at a deeper level, policymakers must also
consider inequality in capital income. 165
CBO projects that earnings for higher-income individuals will
continue to grow faster over the next 10 years, an indication that
current trends in income inequality in the United States are not
expected to reverse anytime soon. 166
Wealth. If trends in income inequality are cause for concern,
trends in wealth inequality are even more alarming. Limited data
make measuring wealth inequality more difficult than income
inequality. 167 However, the available sources of wealth data
suggest that wealth, which is heavily influenced by income, is
significantly more concentrated than income. The most recent
Survey of Consumer Finances conducted by the Federal Reserve
239
shows that the top 3 percent of households received 31 percent of
before-tax income, but held 54 percent of wealth in the United
States. The bottom 90 percent of households received 53 percent
of before-tax income, but held only 25 percent of wealth. 168
The share of wealth held by the very top of the distribution has
been increasing consistently over about the past 25 years, while
the share held by the bottom 90 percent has steadily fallen. As the
Report notes, “the loss in wealth share experienced by the bottom
90 percent of households…is accounted for by the rise in share
captured by the top 3 percent.” 169
Data which examine wealth at the very top of the distribution show
that the growth in wealth inequality over the past several decades
has been driven by the dramatic increase in the share of wealth
held by the top 0.1 percent of households. 170 In other words, the
very rich are pulling away from the rich, and the rich are pulling
away from everyone else. Those 160,000 households in the top 0.1
percent combined to hold 22 percent of wealth in the United States
in 2012, a more than threefold increase since 1979 and nearly
matching what it was just before the Great Depression. 171
Several factors contribute to the dramatic rise in wealth inequality,
including uneven growth in incomes across the distribution and
disparities in savings rates. As the Report explains, economists
Emmanuel Saez and Gabriel Zucman theorize that “income
inequality has a ‘snowballing effect’ on the wealth distribution: a
larger share of income is earned by top wealth holders, who then
save at higher rates, which pushes wealth concentration up; this
dynamic leads to rising capital-income concentration and
contributes to even greater top income and wealth shares.”
This becomes a self-perpetuating cycle, with the wealthy having
an increasingly large advantage over everyone else, and passing
along even greater opportunities to their children. In the meantime,
the rest of the country falls further behind.
240
Opportunity. The American Dream was built on the premise of
equal opportunity. However, as a result of many changes in the
economy which are discussed in more detail below, large
segments of the U.S. population face barriers to achieving their
full economic potential, putting the American Dream increasingly
out of reach.
Quantifying inequality of opportunity is difficult, if not
impossible. However, measures of economic mobility—the
likelihood that a child raised in one income group will move to a
different income group as an adult—provide a useful way to gauge
differences in opportunity. The odds of moving from the bottom
to the top in the United States are not good. Forty-three percent of
Americans raised in the bottom income quintile remain there as
adults, while 40 percent of those raised in the top quintile maintain
that status. 172 As President Obama has stated, “A child born into
the bottom 20 percent has a less than 1-in-20 shot at making it to
the top 20 [20 percent].” 173
Economic mobility in the United States has continued to lag
behind mobility in other advanced economies. A common metric
used to measure economic mobility is the correlation between the
earnings of fathers and sons (women’s earnings across generations
are more difficult to analyze because they may spend more time
out of the labor force). Among OECD countries, the only ones that
have higher correlations between the earnings of fathers and sons
are the United Kingdom, Italy, Chile and Slovenia. 174 In Denmark,
Norway, Finland and Canada, the correlation between a father’s
and son’s earnings is less than half of what it is in the United
States. 175 A child born in the bottom income quintile in Canada is
nearly twice as likely to reach the top quintile as child born in the
bottom quintile in the United States. 176
While economic mobility in the United States has remained about
the same over the past 25 years, the cost of immobility has
increased, since the lifetime gaps in earnings between those at the
top and bottom have grown dramatically. 177
241
Disparities in economic well-being: There are wide variations in
economic well-being across the U.S. population. Those facing the
largest gaps in opportunity generally have lower incomes and hold
less wealth. Race, ethnicity, gender and education are all factors
in economic well-being. Recent labor market developments for
these groups are discussed in the “Overview of Macroeconomic
Conditions” section earlier in this report.
In addition, during the 114th Congress, the Joint Economic
Committee Democratic staff has published reports which provide
a detailed examination of some of the groups that have borne the
brunt of the rise in economic inequality in the United States. These
include reports entitled Economic Challenges in the Black
Community, The Economic State of the Latino Community in
America and How Working Mothers Contribute to the Economic
Security of American Families. The staff will continue to examine
the economic barriers facing segments of the population.
Prospects for workers and their children depend in part on where
they live. Rural economies in particular have often struggled in
recent years. The following section highlights economic inequality
across the states, focusing on jobs and unemployment, income,
poverty, income inequality and economic mobility, which all vary
significantly across the United States. In some cases these
disparities have arisen in recent years, while in other instances they
long predate the recent recession and recovery.
Jobs and unemployment. Differences in the employment situation
across the states are in part due to differences in the mix of
industries in each state, as well as differences in the typical level
of education of the state’s workers. Some states experienced
severe job losses during the Great Recession, while employment
in others declined more modestly. Approximately three-quarters
of states have now recovered all of the private-sector jobs lost
during the economic downturn. 178 Unemployment rates in
December 2015 ranged from a low of 2.7 percent in North Dakota
to a high of 6.8 percent in Mississippi.
242
Income. Compensation for middle-class workers, as measured by
median household income in 2014 (the most recent year for which
data are available), also varies widely by state, from a high of
$76,200 in Maryland to less than half as much in Mississippi
($35,500). Median income is below $43,000 in four other states:
West Virginia, Alabama, Louisiana and Kentucky. In addition to
Maryland, median household income is more than $70,000 in
three states: Connecticut, New Hampshire and Hawaii.
Poverty. Poverty rates range from a low of 7.2 percent in New
Hampshire (2014 data) to a high of 23.1 percent in Louisiana. The
poverty rate is highly correlated with the high school dropout rate.
In Louisiana, about 19 percent of 18 to 24 year olds and roughly
16 percent of individuals 25 and older have less than a high school
diploma. On the other hand, in New Hampshire, just over 11
percent of 18 to 24 year olds and roughly 8 percent of individuals
25 and older have less than a high school diploma. 179
Income inequality. The wide variation in the poverty rate and
median household income across states has contributed to a
similar variation in income inequality. Income inequality, as
measured by the 2014 Gini Index, is highest in the District of
Columbia, New York and Connecticut. It is lowest in Nevada,
Iowa and Indiana. 180
Economic mobility. Economic mobility is more than four times as
high in North Dakota as it is in Georgia, according to an economic
analysis of data over a period of decades by the Equality of
Opportunity Project at Harvard University. 181 In seven states, less
than 6 percent of children whose parents were in the bottom
quintile of income reach the top quintile. In North Dakota and
Wyoming, both of which have relatively high secondary education
completion rates that number tops 15 percent. 182
Drivers of inequality: As the Report describes, there is no single
reason for rising inequality in the United States—multiple factors
are at play. 183 Some inequality is the inevitable result of economic
243
gains flowing to those who are most productive and that have skills
that are most valued in the global economy. And to some extent, a
degree of inequality is in fact a desirable reflection of a market
economy that rewards skills, hard work and innovation.
But far too often, inequality of outcomes stems from inequality of
opportunity. This reflects a lack of effective policies to help people
build the skills they need to compete in an expanding, constantlychanging economy, as well as institutional structures that make it
difficult for labor to share in the gains that accrue to businesses
that become more productive. Several contributors to rising
inequality are described below.
Technological change. Innovation fuels productivity growth, but
workers often do not benefit evenly from new technologies. Some
workers who have been put out of work by technological
advancements have struggled to find new, stable jobs and may
never fully recover. Increased automation has been particularly
detrimental to workers in the low to middle end of the income
distribution. At the same time, technologies tend to complement
the skills of workers at the upper end of the distribution, leading
to real wage gains for them. This is referred to by economists as
“skill-biased technological change,” and for much of the 1990s,
there was a broad consensus among economists that it was the
leading cause of increases in inequality in the United States. 184
This consensus has since eroded, in part because other advanced
economies have seen similar technological changes without
experiencing the same degree of heightened inequality. 185
Nonetheless, economists Erik Brynjolfsson and Andrew McAfee
warn in their 2011 book entitled Race against the Machine that
millions of workers could be left behind as technology continues
to change the nature of work. 186 And the Report cites research
showing that workers in lower income brackets may be most
vulnerable to further job losses due to automation in the future.187
Thus, in the absence of policy action to mitigate the consequences
244
for certain categories of workers, technological change threatens
to continue to exacerbate inequality in the years ahead.
Globalization. Much like innovation, globalization has substantial
benefits for the U.S. economy in the aggregate—it allows the
country to focus on its comparative advantages, opens up vast new
markets for U.S. products and leads to decreases in consumer
prices as well as increases in product variety.
However, it can also impose costs on some American workers.
When businesses are able to offshore production to the countries
with the lowest labor costs, it can lead to lost jobs and lower wages
for workers in the United States. Economists have found that the
increase in trade with China was particularly harmful to U.S.
workers. Studies show that workers in regions with industries that
were in more direct competition with China saw greater job losses
and suffered long-term damage to their labor force participation
and income prospects. 188 Thus, for millions of Americans,
globalization presents a dilemma. It means, for instance, that
workers can buy inexpensive clothes and flat screen televisions at
big box stores, but at the same time it may put them at a greater
risk of losing their jobs.
Slowing growth in educational attainment. Both technological
change and globalization have opened up opportunities for
workers with more education and skills. Unfortunately, increases
in educational attainment for U.S. workers on the whole have
stagnated in recent decades after achieving strong growth in the
immediate postwar decades. According to economists Claudia
Goldin and Lawrence Katz, who authored the book The Race
between Education and Technology, the increase in the wage
premium for college-educated workers from 1980 to 2005
stemmed from demand for workers with higher levels of education
outstripping the supply of those workers. 189
There are significant disparities in educational attainment across
demographic and income groups. Among 25 to 29 year olds, about
245
41 percent of non-Hispanic white Americans have a bachelor’s
degree or higher compared to 22 percent of African Americans and
15 percent of Hispanics. 190 As the Report discusses, these
disparities can stem from inequality of opportunity at a very early
age, with wealthier families in a much stronger position to set their
children up for success than families below or near the poverty
level. By around the time they enter kindergarten, children in
families below the poverty line are already about four times more
likely to score “very low” on reading and math assessments than
children in better-off families (those above 185 percent of the
poverty level). 191
Upgrading the education and skills of all Americans regardless of
race, ethnicity or income level is essential to counteracting the
effects of globalization and technological change on the prospects
for many U.S. workers. Moreover, since today’s workers are less
likely to stay at the same employer for an extended period of time,
employers may be less likely to invest in training their
workforce. 192 This means that the responsibility for educating and
training a skilled workforce falls even more to government.
Investing in everything from early education to teaching STEM
(Science, Technology, Engineering and Math) and computer
science in high schools to workforce training programs could all
help to prepare U.S. workers to compete for higher-paying jobs.
At the same time, these investments would help to raise the
productivity level of the U.S. workforce as a whole, increasing real
output and having long-term benefits for the nation overall.
Economic rents and market power. The contributors to inequality
described above largely flow from productivity enhancements that
have raised overall growth but hurt certain categories of workers.
However, other drivers of inequality may in fact lower
productivity and detract from overall economic growth. The
Report outlines this line of argument in its discussion of economic
rents and market power. 193
246
When firms achieve more market power, they have a greater
ability to act as wage setters rather than wage takers. In the absence
of mechanisms to help workers get their fair share of economic
rents, firms may be able to hoard profits to the detriment of
labor. 194 In other cases, when a small share of firms obtain
substantially higher returns than the vast majority of firms, it can
allow those firms to raise wages for their workers, while workers
at other firms suffer. 195 This exacerbates inequality.
Declining unionization rates. For much of the 20th century, the
labor movement was an important countervailing force that
checked the power of firm owners and ensured that workers got
their fair share of the benefits of economic growth. Collective
bargaining allowed workers to negotiate for higher wages and
benefits, and union workers typically earned more than non-union
workers, up to 25 percent more according to estimates. 196
Research shows that workers in the lower and middle portions of
the income distribution often benefited the most from unions. 197
However, the share of U.S. workers who are members of labor
unions has declined substantially over a period of decades. This
has occurred for a number of reasons including global pressures
that decreased unions’ negotiating leverage to laws and judicial
decisions that made it harder to organize. From the 1950s through
the 1970s, one quarter or more of all workers were in labor unions,
but that share has since fallen to just below 10 percent in 2014. 198
The decline has been especially pronounced for workers in the
private sector, where unionization rates have plummeted from a
high near 30 percent in the 1950s to less than 7 percent of workers
in 2014. 199 Today, unionization rates vary considerably by
industry and state, as many states have enacted so-called “rightto-work” laws that reduce the power of unions. 200
As the Report notes, economic research shows that the decline in
unionization is a major contributor to increasing inequality—
accounting for between one-fifth and one-third of the increase in
inequality since the 1970s. 201
247
Falling real value of the minimum wage. The minimum wage
guards against income inequality by preventing wages at the
lowest end of the income distribution from lagging too far behind
wages for people in the middle and top of the distribution. It also
keeps firms from exploiting workers that are the most vulnerable
and have the least power to bargain over compensation.202
However, the real (inflation-adjusted) value of the minimum wage
has fallen considerably over time (see Figure 20). In 1968, a fulltime minimum wage worker earned $22,670 in today’s dollars. By
2015, that amount had fallen to $15,080. The nominal value of the
minimum wage has not increased from $7.25 per hour since 2009.
Insufficiently progressive tax code. Public policy seeks to mitigate
extreme levels of inequality through the tax and transfer system.
And in fact, the distribution of net income (after taxes and
transfers) in the United States is substantially less inequitable than
the pre-tax income distribution. 203 Nonetheless, research shows
that there has also been a sizable increase in net income inequality
over the past several decades, suggesting that the tax and transfer
system is not doing enough to counteract increasing inequality. 204
248
One major contributor to this trend is that wealthy individuals and
corporations tend to benefit disproportionately from exemptions
and deductions in the tax code known as tax expenditures.
According to a 2013 CBO report, more than 50 percent of the
dollar value of the top 10 tax expenditures in the individual tax
code goes to households in the top 20 percent of the income
distribution, and 17 percent goes just to the top 1 percent. 205
This spending through the tax code that largely benefits the
wealthy also drives up the Federal budget deficit. In FY 2015, tax
expenditures cost more than $1.2 trillion, more than twice as much
as all discretionary spending and more than either Social Security
or Medicare and Medicaid combined. 206
Impact of inequality on growth: Some degree of inequality of
outcomes is a necessary and desirable feature of a market
economy. The ability to achieve higher income and wealth and
pass it along to children and grandchildren drives people to work
harder, take risks and innovate in ways that change the economy
and the world for the better. It is at the core of the American
Dream, and it has helped the U.S. economy to become the
strongest in the world. Public policy should not undermine these
basic incentives.
However, when inequality is very high and deeply entrenched
across generations, large numbers of people are effectively denied
the chance to achieve the American Dream. As President Obama
said in his State of the Union earlier this year, these trends “offend
our uniquely American belief that everyone who works hard
should get a fair shot.” 207
Economic inequality at the individual level undermines economic
growth at the national level. Inequality of opportunity is especially
corrosive, and as the Report notes, it can keep people from
achieving their full potential, depriving the economy of skilled
workers and innovators. 208
249
Recent economic research has found evidence of a link between
higher inequality and lower growth. An International Monetary
Fund study, for example, looked at cross-country evidence and
determined that lower net inequality is associated with “faster and
more durable” growth, and that policies that make the distribution
of economic gains more equitable generally do not have a negative
impact on growth. 209 An OECD analysis highlighted in the Report
also found a connection between higher inequality and lower
growth. 210
Economist Joseph Stiglitz has written extensively about
inequality, authoring a book entitled The Price of Inequality: How
Today’s Divided Society Endangers Our Future. In his work, he
outlines a number of mechanisms through which inequality
endangers growth. One is that many of those that have benefited
the most are not in fact innovators and entrepreneurs but, rather,
those in the financial sector. 211
Another critical mechanism through which inequality impacts
growth highlighted by Stiglitz and other economists is that lowerand middle-income Americans spend a higher share of their
income than wealthier Americans do. 212 This is what economists
refer to as having a higher “marginal propensity to consume.”
Simply put, the ultra-rich can only buy so many yachts, while
many Americans are barely keeping up with basic living expenses
and would spend more money if they had it.
Because nearly 70 percent of the U.S. economy is driven by
consumer spending, increasing the incomes of those who are most
likely to spend it promotes overall economic growth. Fiscal
policies that target those with a higher marginal propensity to
consume can also be more effective in reducing any remaining
slack in the labor market as the economy continues to heal from
the effects of the Great Recession.
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POLICY APPROACHES
PROSPERITY
FOR
ECONOMIC GROWTH
AND
SHARED
All three key long-term challenges discussed above—bolstering
labor force participation, improving labor productivity growth and
reducing inequality—are complex and multifaceted. There are no
easy solutions, and factors beyond the control of policymakers will
often intervene. Nonetheless, Congress can take steps to address
these major challenges facing the economy.
This chapter describes several approaches policymakers should
consider, many of which are outlined in the Report. It is an
illustrative but not exhaustive list. In some cases, certain policies
can help the country meet two or even all three of the key
challenges at the same time. Increasing access to education and
training programs, for example, can build a more productive
workforce, raise labor force participation rates and reduce
inequality by making sure everyone has an opportunity to succeed.
This chapter also includes sections that focus on two key issues of
concern. The first highlights immigration reform as a way to
increase the size of the labor force and spur innovation and
productivity growth. The second underscores the importance of
expanding economic opportunity for women by removing barriers
that prevent them from maximizing their economic potential.
Bolstering Labor Force Participation
As the discussions in both the Report and this Democratic
response make clear, boosting labor force participation is central
to economic growth. Current trends pose significant challenges to
achieving robust labor force growth—namely, the aging of the
population, the leveling off of women entering the paid workforce
and the ongoing decline in labor force participation among
working-age men.
However, there are steps Congress can take to mitigate the
consequences of these long-term trends. Several policy options are
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outlined in this section, including increasing access to pro-family
workplace policies, reforming the criminal justice system and
investing in education and training for individuals who have been
displaced because of globalization and technological change.
These policies would reduce barriers to employment faced by
segments of the population.
Immigration reform: Major reform of our country’s immigration
system would help expand the working-age population, countering
the drop in labor force participation as a result members of the
baby boomer generation entering retirement. An increase in legal
immigration has already produced significant benefits for the U.S.
economy by creating a larger working-age population. The
productivity of these workers has also increased, in part because
of technology innovation. Those benefits could be amplified with
immigration reform that enables more foreign-born workers to
enter the country legally. The effects of immigration on labor force
participation, productivity and wages are discussed in detail at the
end of this section.
Training displaced workers for new jobs: As noted in the
Report, both technological change and globalization can confer
substantial benefits to the nation as a whole, but they can also
cause acute pain to displaced workers. This is especially true for
workers in the manufacturing sector, many of whom have had no
formal education beyond high school. High-quality training
programs are a way to help some displaced workers find new jobs
in the ever-evolving economy.
Education is essential for maintaining high rates of labor force
participation. More educated workers have higher labor
participation rates. Last year, only 67 percent of male high school
graduates who have not gone to college were in the labor force.
By comparison, nearly 80 percent of men with a college degree
were in the labor force.
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Training programs can help keep unemployed workers attached to
the labor force, especially during economic downturns. Effective
programs help displaced workers develop new skills that are
needed in growing sectors of the economy. Research has shown
that aligning training programs so that they teach the specific skills
in demand by employers increases the likelihood of that training
leading to jobs. This approach is embodied in the bipartisan
Workforce Innovation and Opportunity Act that President Obama
signed into law in 2014, which is serving as a roadmap for
improving workforce training.
The benefits of an educated workforce extend beyond increased
labor force participation and high earnings. American businesses
also benefit from a greater supply of highly skilled workers, which
helps them compete in a growing and global economy. One
example is the administration’s TechHire initiative, which
empowers a diverse array of Americans with the skills needed for
information technology jobs, including younger workers and those
with disabilities.
Making it easier for Americans to balance work and family:
A lack of family-friendly workplace policies—including paid
leave, workplace flexibility and affordable quality child care—
makes it difficult for both men and women to work while caring
for their families. This central modern dilemma not only places
stress on families, but it has larger economic effects because it
lowers labor force participation.
The United States lags behind other countries in adopting familyfriendly workplace policies. This has contributed to the decline of
labor force participation among prime-age workers, and
particularly women. More than one-half of workers are caregivers,
including for children, elderly parents and relatives with
disabilities. 213 The 2015 Economic Report of the President, which
devoted a chapter to economic benefits of such policies, notes that
employers have been slow to adapt to the changes in family
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dynamics making it more difficult for men and women to meet the
often conflicting demands of work and family. 214
Paid family leave. Paid family leave would ensure that workers are
able to take extended leave, with pay, to care for a new child,
recover from a serious illness or care for an ill family member, and
that they are able to return to their job afterward. Not only do all
other developed countries guarantee leave with pay to new
mothers, nearly all developing countries also guarantee paid
maternity leave, with the exception of Papua New Guinea,
according to the International Labour Organization.
Paid family leave has been shown to strengthen labor force
attachment, reduce turnover and encourage workers to remain in
jobs that are well-suited to their education and training. Analysis
of the impact of California’s first-in-the-nation paid family leave
program on women’s employment found that mothers of young
children worked more hours and had higher earnings as a result of
the program. The program was found to be especially beneficial to
low-wage mothers because many could not afford to take leave
without pay. 215
Workplace flexibility. Only slightly more than half of workers
have access to flexible work arrangements at their job. This
flexibility most commonly is in the form of flexible schedules, but
may also be arranged as telecommuting or job sharing. 216
Workplace flexibility gives individuals more control over how,
when and where they work. This helps workers better meet family
obligations—such as attending a meeting with a child’s teacher or
taking an elderly parent to the doctor—and remain in the
workforce.
The Flexibility for Working Families Act is an example of
legislation that could increase flexibility for workers by
guaranteeing that workers have the right to request a work
schedule that meets their needs. 217 Putting in place procedures for
requesting alternative work arrangements could reduce the stigma
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or repercussions some workers fear about making such requests,
including the risk of losing their job. 218
Pro-family policies would also benefit American businesses.
Some of the most successful companies in the United States have
instituted both paid leave and workplace flexibility in order to
attract and retain highly-qualified workers. Yet many other firms
are still not aware that family-friendly policies can lower turnover,
improve recruitment and increase productivity. Incentivizing
companies to adopt pro-family policies would benefit companies
and their workers.
Affordable quality child care. Child care expenses are
prohibitively expensive for many families, causing some parents
to leave the labor force to care for their children. The yearly cost
of center-based care for an infant ranges from a low of about
$5,600 in Mississippi to a high of $22,400 in the District of
Columbia. 219 In fact, in 33 states and DC, the annual cost exceeds
the average cost of a year of in-state tuition at a four-year public
university. 220
As a result of those high costs, many families decide to put one
parent’s career on hold in order to care for young children.
Women, who are often the secondary breadwinner in their
household because they earn less, are more likely to make this
sacrifice. According to a Pew Research Center survey, mothers are
almost three times as likely as fathers to quit a job to care for a
child or family member. Mothers are also more likely to reduce
their hours, take a significant amount of time off and turn down a
promotion. 221 However, although there is still a substantial gap,
men’s and women’s roles are converging, with men and women
more evenly participating in paid work and unpaid caregiving. 222
One-in-10 working fathers has left a job to care for a child or
family member.
As the Report outlines, the President’s FY 2017 budget would help
make child care affordable for more families by tripling the
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maximum child care tax credit to $3,000 for children under the age
of five. Prior research has shown that reducing child care costs
increases mothers’ employment, with a particularly pronounced
effect on single mothers’ employment. 223
The Report devotes an entire chapter to the need to address the
inequalities faced by many children in their early years. It argues
that increasing enrollment in quality child care programs has clear
benefits to the economy through boosting labor force participation
among parents of young children. By allowing more parents to
maintain jobs, it would increase the financial resources parents in
lower and middle income families have available to devote to their
children. Disparities in family resources have been shown to
contribute to gaps in achievement among children from opposite
ends of the income distribution. 224
Increasing enrollment in quality child care would also capitalize
on the critical time in young children’s cognitive development
when their brains are developing most rapidly, increasing the
returns to investments in children’s education when they are older.
Moreover, the benefits to investments in children at a young age
accrue over a lifetime, including through higher earnings and
lower crime rates, and have significant positive benefits for the
national economy. 225
Reforming the U.S. sentencing system: There is now a
consensus, ranging from the American Civil Liberties Union on
the left to the Koch brothers on the right, that incarceration rates
are too high and the costs to the United States of incarcerating 2.2
million Americans too great. 226 As economist Joseph Stiglitz has
pointed out, a year in prison can cost more than a year at
Harvard. 227
Reforming the criminal justice system could lead to higher rates
of labor force participation and employment, especially among
low-income workers, men and minorities who have been
incarcerated at disproportionate rates. As the Report notes, in 2014
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more than 65 percent of sentenced prisoners were minorities.
Polling suggests that roughly one-third of prime working-age men
who do not have a job have a criminal record. 228
Incarceration rates are excessively high. From the mid-1980s
through the 1990s, the federal government and many states passed
legislation that increased the severity of punishments for a wide
range of crimes, some of which were nonviolent offenses. These
included mandatory minimum sentencing, “three strikes” and life
without the possibility of parole laws. These changes led to
skyrocketing incarceration rates and longer prison terms.
Since the 1980s, the incarceration rate (now 690 per 100,000) has
more than tripled. 229 The United States currently has the highest
incarceration rate in the world. 230 With less than 5 percent of the
world’s population, the United States accounts for 25 percent of
the world’s prison population. 231 As a result, the United States’
spending on its prison system has also exploded. The United States
spends over $80 billion annually on its federal and state prisons
and local jails—more than four times the amount it spent in
1980. 232
Long-term effects of incarceration. Too many offenders now
remain in prison long after they pose a threat to society. Many are
living behind bars well into their 60s. Still others are locked up for
non-violent offenses that in previous eras would not have resulted
in a prison sentence.
Being incarcerated has lasting economic impacts on offenders and
their family members. While time in prison results in time out of
the workforce, it also negatively affects employment and earnings
prospects for individuals after they have been released from
prison. Recent “ban the box” initiatives, which have been adopted
by many states and cities to prevent employers from asking job
applicants about their criminal histories, may help to reduce the
negative impact on employment of having a criminal record.
President Obama recently directed federal employers to not ask
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about the criminal histories of potential government employees at
early stages of the application and hiring process.
Bipartisan legislation in the Senate attempts to reform the system.
The Sentencing Reform and Corrections Act of 2015 would
reduce mandatory sentences for certain drug crimes including
reducing the “three-strike” mandatory life sentence to 25 years,
make retroactive the Fair Sentencing Act of 2010, which reduced
the disparity in sentencing between crack and powder cocaine, and
expand the existing federal “safety valve” that allows judges to
impose shorter sentences for non-violent drug offenders.
Reforming the Immigration System
Immigration reform can strengthen the economy by increasing the
size of the labor force, by spurring innovation and productivity
growth and by reducing the federal budget deficit. A CBO analysis
of the bipartisan Border Security, Economic Opportunity, and
Immigration Modernization Act passed by the U.S. Senate in 2013
found that immigration reform would boost real GDP by 3.3
percent after 10 years, and by 5.4 percent after 20 years, relative
to current law. 233
One of the most important economic goals of immigration reform
would be to counteract the structural challenges of an aging nativeborn population. In past decades, the growth of the working-age
population has been a main driver of GDP growth. However, with
the baby boomer generation moving into ages in which people
typically retire, and with the U.S. birth rate at record lows, the
working-age population (ages 25 to 54) has stagnated and is
projected to only grow slowly in the coming decade. 234 Expanding
the size of the U.S. population and workforce via increased
immigration would strengthen economic growth.
The United States is already benefiting from an influx of legal
immigrants, but these benefits could be magnified if immigration
were permitted at a higher level. In 2014, 13.3 percent (42.4
million) of the U.S. population was foreign-born; including the
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U.S.-born children of immigrants brings that number closer to 80
million.235 Of the foreign-born population, nearly 60 percent were
of prime working age, compared with 37.1 percent of the nativeborn population. 236 In fact, the foreign-born account for more than
half of the growth in the U.S. labor force since 2007. Allowing
more legal immigrants to enter the United States would further
expand the workforce and increase economic growth.
In addition to expanding the size of the workforce, immigrants
contribute in several ways to the growth of the economy. They are
often entrepreneurial, with over one in 10 immigrants in the
workforce owning a business. Among those firms that hire
employees, they hire an average of 8 employees, providing jobs
both to other immigrants and to the native-born. 237
Immigrants contribute significantly to innovation, a key
component of productivity growth. One study estimates that
immigration of foreign STEM workers may explain between 30
and 50 percent of aggregate productivity growth between 1990
and 2010. 238 Another study finds that of over 900 respondents to
a survey of award-winning innovators and patent applicants, more
than a third were foreign-born and an additional 10 percent
reported having at least one foreign-born parent. 239 Immigrants
also account for over 30 percent of all U.S. Nobel Prize
laureates. 240
Immigration reform also can boost productivity by offering
unauthorized immigrants a path to legalization. This would
empower currently unauthorized workers to seek higher-paying
jobs that are a better match for their skills. American workers
could benefit from those productivity gains through higher wages.
It is sometimes argued that immigrants depress the wages of
native-born Americans. This may be partly true for the leastskilled immigrants, especially unauthorized immigrants who work
off the books for less than the minimum wage. To the extent that
competition from unauthorized workers is holding down the
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wages, granting these workers a path to legalization and ultimately
citizenship could diminish such pressure.
Legal immigrants mostly have a positive effect. Although
immigration may reduce wages and employment for particular
categories of U.S. born workers in the short run, in the long run
there is clear evidence that immigration boosts productivity and
average wages for all workers, with no adverse effect on the
employment of natives. 241
There are several different ways by which immigration can boost
employment and wages of natives. For example, one study
estimates that by boosting demand for locally-provided services,
each new immigrant creates 1.2 jobs for local workers, most of
whom are natives. 242 Another study finds that increases in foreignborn STEM workers are associated with wage gains for both
college-educated and non-college-educated natives. 243
Immigration reform is also likely to reduce the federal deficit, the
growth of which is largely driven by the aging of the U.S.
population and the growing costs of Medicare and Social Security.
Because immigrants are more likely to be of working age, they
contribute to social insurance programs such as Medicare or Social
Security. However, they typically won’t receive these benefits for
a number of years so their contributions help shore up funding
streams for these programs. 244 Unauthorized immigrants in
particular have been shown to shore up funding for the Social
Security Trust Fund. 245 Moreover, even though many immigrants
pay taxes that go into public assistance programs such as
Medicaid, they are ineligible to qualify for them for a number of
years. 246
Immigration also has an indirect effect on the federal deficit, by
boosting GDP via a larger labor force and gains in productivity.
For example, one study finds that the presence of all immigrant
workers (whether legal or unauthorized) in the labor market
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increases GDP by an estimated 11 percent ($1.6 trillion) each
year. 247
Raising Labor Productivity Growth
Given the demographic challenges the economy faces, producing
more output per worker will be critical to economic growth in the
years ahead. Increasing labor productivity is also effectively a
prerequisite for achieving real wage increases and a better quality
of life for American workers, even if productivity growth alone is
not sufficient to ensure that benefits are shared broadly with
workers throughout the economy.
There are myriad ways to raise labor productivity but no silver
bullets. As economist Paul Krugman writes, “…nobody knows the
secret of raising productivity growth.” 248 But keeping in mind the
three components of labor productivity growth—capital
deepening, labor quality improvements and total factor
productivity (TFP) growth—provides a useful framework for
thinking about policy approaches. Policies should promote capital
investment, enhance workers’ education and skills, and boost TFP
growth by spurring innovation. Making needed investments in
infrastructure is also critical to increasing productivity growth.
Several policy approaches outlined in the Report that would help
to achieve these goals are described below.
Preparing workers for the jobs of the future: Improving access
to high-quality education and training is essential, not only to raise
human capital and create the most productive workforce possible,
but also to make sure that technological innovations that raise
productivity do not leave American workers behind. As the Report
notes, the decline in prime-age men’s labor force participation
over the past several decades as the economy has transitioned
away from manufacturing and many middle-income jobs have
been automated suggests that policy has not been sufficiently
supportive of lifelong education and training in the past. 249
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As the President stated in his State of the Union address earlier
this year, “Say a hardworking American loses his job — we
shouldn’t just make sure he can get unemployment insurance; we
should make sure that program encourages him to retrain for a
business that’s ready to hire him.” 250 The Workforce Innovation
and Opportunity Act (WIOA), enacted in 2014, represents a
significant effort to modernize and reform the country’s workforce
training programs to reorient them toward preparing workers for
the jobs of the future. The Obama administration’s FY 2017
budget includes a number of additional proposals to train or retrain
workers for jobs, for example by increasing funding for
apprenticeship programs and creating a program to reach out to
the long-term unemployed and those who have dropped out of the
labor force to help them connect with training programs. 251
The President’s plan to make two years of community college
free-for-all responsible students would further bolster preparation
for the jobs of the future. Additional steps to improve the caliber
of the U.S. workforce by promoting access to education and
training at all levels—from early education to college and
beyond—are discussed in other parts of the policy section of this
report, since expanding access to education impacts not only
productivity but also workforce participation and the distribution
of benefits.
Investing in infrastructure: Investing in infrastructure has an
upfront cost, and some policymakers resist increasing spending for
it despite the long-term benefits, often expressing concerns about
the national debt. But as economist Larry Summers has pointed
out, not repairing crumbling infrastructure places a serious burden
on members of the next generation, forcing them to spend billions
in the far off future, while denying them the benefits of increased
productivity in the intervening years. 252
The Report provides a thorough analysis of the benefits of
infrastructure investment for the economy, and it outlines policy
approaches to address America’s infrastructure needs.
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As the Report points out, well-functioning infrastructure—from
roads and bridges to locks and dams to water systems and highspeed broadband networks—is critical to productivity growth.
High-quality infrastructure reduces the amount of time it takes for
workers to get to their jobs, for businesses to move their goods to
market and for ideas to spread around the world. Improving
America’s infrastructure is essential to long-term competitiveness.
With interest rates currently at very low levels, investing in
infrastructure right now is a relative bargain. In addition, it would
have the added benefit of stimulating the economy at a time when
it is still recovering from the Great Recession.
The private sector cannot provide the country with the level of
infrastructure it needs, despite the fact that it is essential for U.S.
businesses to survive in the highly competitive global economy.
This is because infrastructure is generally considered by
economists to be a public good, meaning that its benefits cannot
be captured fully by a given firm and it will be undersupplied in
the absence of government action. The federal government in
particular plays a necessary role in financing infrastructure since
networks often cross state and municipal lines. 253
The recently enacted Fixing America’s Surface Transportation
(FAST) Act provides some measure of stability to surface
transportation policy, authorizing about $306 billion in spending
for highways, transit, rail and safety over the next five years. 254
However, this level of funding falls well short of what
infrastructure experts believe is needed. 255 In its FY 2017 budget,
the Obama administration proposes to make major investments in
modernizing U.S. infrastructure to put it on a par with other major
industrialized nations. 256 The 21st Century Clean Transportation
Plan would increase investments in clean infrastructure by 50
percent, helping to reduce both congestion and carbon pollution.
Public investment in research and development: Innovation is
a core driver of productivity growth, and spurring new innovations
by investing in research and development is an important function
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of government. As described above, government funding for basic
research is particularly critical, since there are sizable economic
spillovers that private firms cannot fully capture. Private business
research and development spending tends to be tilted toward laterstage development of products with more immediate commercial
applicability. However, without public investment in early-stage,
basic research, the innovation pipeline risks breaking down.
The Bipartisan Budget Act of 2015 modestly increased budget
caps in FY 2016, allowing for an increase in federal research and
development investment this year. 257 However, the current level
remains woefully insufficient—both in comparison to historical
levels of spending as a share of GDP and with regard to the
challenges the country faces. In its FY 2017 budget, the Obama
administration proposes dedicating $4 billion in mandatory
spending to research and development on top of discretionary
spending levels. 258 Sequester-level spending caps would return by
FY 2018 in the absence of further action, which would constrain
research and development spending.
The Report and the President’s FY 2017 budget highlight two
areas in particular where federal research and development
investment should be focused: medical research and clean energy.
The President’s budget proposes funding that would allow for
nearly 10,000 new research grants at the National Institutes of
Health (NIH), as well as putting clean energy research and
development on a path to double over five years. 259 These
investments would help to save lives and combat the challenges of
global climate change while spurring investments that increase the
productivity and well-being of American workers.
Promoting entrepreneurship: Startups have long been an engine
of innovation for the U.S. economy, making recent trends toward
a decline in new firms as a share of all businesses worrisome. The
Report describes a variety of approaches to spur entrepreneurship,
including the administration’s “Startup in a Day” initiative,
designed to help communities streamline regulatory requirements
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for starting a business. 260 Improving access to sources of debt and
equity capital for startup businesses is particularly important for
helping entrepreneurs to turn their ideas into businesses. Small
business lending was greatly affected by the financial crisis and
has yet to return to levels that prevailed before the downturn. 261
The Report emphasizes the impact that inequality of opportunity
can have on entrepreneurship, innovation and productivity by
“preventing potential innovators from full economic
participation.” 262 In addition, it notes that immigrants have been
especially entrepreneurial, founding more than half of technology
and engineering firms in Silicon Valley between 1995 and 2005
that went on to have more than 1 million dollars in sales in 2006. 263
Comprehensive immigration reform, therefore, is a promising
approach to spurring innovation and entrepreneurship.
Cracking down on abuses of market power: An important
theme developed in the Report is that “economic rents” may be
distorting the economy in ways that detract from productivity
growth. As the Report describes, rents can occur when, for
example, “uncompetitive markets yield monopoly profits or
preferential regulation protects entities from competition.”264
Corporate lobbying for regulations that make it difficult for startup
firms to compete and an over-proliferation of occupational
licensing are forms of barriers to entry for new competitors. Since
startups often spur innovation that improves productivity and
reduces costs to consumers, overconcentration in industries can be
detrimental to growth.
As the Report notes, in many cases, antitrust regulations that
would prevent market power from leading to unproductive rents
already exist—they just need to be enforced more rigorously. 265
Reforming the patent system, zoning and land use regulations, and
occupational licensing requirements would also help to reduce the
power of incumbent firms and pave the way for competition from
innovative startups. In some cases, reforming these regulations
would require action at the state or local level.
265
Reforming the business tax code: Corporate tax reform can
boost productivity by increasing the quantity and quality of private
investment in the United States. 266
Under current law, the federal tax a business pays can vary
depending on its location, its industry, the composition of its asset
base, the particular means it uses to finance investment and its
organizational form. Such differences can distort economic
decisions, since they can lead businesses to invest in ways that
minimize their tax exposure without necessarily maximizing the
productive return on their investments. The use of tax planning
strategies to avoid paying U.S. taxes may cost the government
revenue equal to 30 percent of corporate tax receipts. 267 That
strains the federal budget and, if not addressed, could lead to
higher taxes on domestic businesses that do not pursue tax
avoidance strategies as well as families.
It is estimated that large corporations are holding more than $2
trillion in profits offshore in order to avoid paying taxes on
them. 268 This keeps this money from being put to productive use
in the United States.
By reducing marginal tax rates on corporations while broadening
the tax base on which those rates are applied, corporate tax reform
could reduce inefficiencies in the current tax system and spur
productive investment. While there is considerable disagreement
about the details, there is broad bipartisan support for reforming
and simplifying the corporate tax code to bolster U.S.
competitiveness. The Obama administration has proposed a
comprehensive plan for corporate tax reform that would decrease
inequities and inefficiencies in the current system.
Promoting Share Prosperity
Income inequality in the United States was at its lowest point in
the 1960s and has been rising for several decades. The United
States has one of the largest disparities in incomes among
advanced countries, according to the OECD. 269 Not only that,
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income inequality in the United States is worse than in Georgia,
Turkey and Iran. 270 By one measure of income inequality, the
United States ranks below Nigeria. 271
Since 1980, the average income for the top 1 percent of households
has grown more than seven times as fast as it has for the average
household. 272 The widening gap between the rich and everyone
else will not be reversed overnight. However, a sustained policy
focus could expand opportunity, reduce income inequality and
boost economic growth.
There are a number of actions policymakers can take to ensure that
more Americans reap the benefits of future economic growth. The
policies discussed in this section target three broad goals:
increasing wages; protecting individuals during times of economic
hardship; and leveling the playing field from children’s earliest
years to college. It also includes a special focus on expanding
economic opportunity for women, which was highlighted in the
Report.
Helping low-income workers earn a living: Many American
families do not earn enough to pay for the rising costs of housing,
education, child care and other necessities. Three million workers
earn at or below the federal minimum wage of $7.25 per hour.273
That rate has not been increased since 2009 and the real value of
the minimum wage is lower today than it was in 1968. A parent
who works full time year-round and is paid the federal minimum
wage earns approximately $15,000 a year, $5,000 lower than the
poverty level for a family of three. 274 Raising the wage to $12, as
proposed by Democrats in Congress, would help to lift millions
out of poverty. 275
The Earned Income Tax Credit (EITC) supports the earnings of
low-income workers and has been proven to lift people out of
poverty and increase labor force participation among single
mothers. 276 It has also been shown to have long-term positive
267
effects on children’s educational achievement which increase the
chances of attending college and leads to higher earnings. 277
An overwhelming number of Democrats support the EITC, joined
by a significant number of Republicans who back it because it
provides strong economic incentives to work. In 2013, the EITC
improved the economic position of approximately 27.8 million
people, lifting 6.2 million individuals out of poverty and lessening
the severity of poverty for an additional 21.6 million, including 7.8
million children. 278 One proposal, highlighted in the 2015 ERP,
would double the EITC for workers without children to $1,000
from the current maximum credit of $500. Presently, the average
credit for a family with children is about 10 times the benefit for a
family without children. 279
Increasing bargaining power for workers: The percentage of
American workers belonging to a union has declined significantly
over a period of decades. At least one in four workers were union
members during the 1950s through 1970s. By 2014, that share had
declined precipitously—to less than one in 10 workers.
Historically, unions have played a critical role in helping workers
secure higher wages and safe working conditions. Research
referenced in the Report finds that declining unionization since the
1970s accounts for between one-fifth and one-third of the increase
in inequality during this time. 280
Further declines are not inevitable. Public policies that encourage
higher rates of union membership and support collective
bargaining can provide leverage to workers in their wage
negotiations, promoting stronger wage growth.
Protecting individuals in times of economic hardship: Millions
of Americans will endure a period of unemployment at some time
during their working lives. However, unemployment, injury or
illness should not be a pathway to poverty.
268
The longer a worker is unemployed, the harder it is to find the kind
of job he or she had previously. Encouraging states to retrain
unemployed workers more effectively for in-demand jobs would
help shorten unemployment spells and mitigate the lasting effects
of long-term unemployment.
The present system could also be modified to increase incentives
to work and to hasten workers’ return to a full-time job. Currently,
when a worker is receiving unemployment insurance income,
there is a disincentive for workers who lose their job to accept a
new job that pays less. A wage insurance system would support
workers who accept a lower-paying job for a period of time,
moving them out of unemployment and keeping them attached to
the labor force.
Preserving the Affordable Care Act: The ACA represents a
major effort to protect Americans from hardship and keep medical
costs from bankrupting families and driving up inequality. Nearly
18 million Americans have gained health insurance coverage
through the ACA, including more than 3 million young adults who
are able to remain on their parents’ coverage. 281 Protecting these
gains and the additional protections contained in the legislation,
such as the ban on lifetime limits, is vital to continued
improvement in health care outcomes and to slowing the growth
of health care costs.
The ACA also has other important economic benefits. Notably,
Americans are no longer forced to stay in their jobs because they
are scared of losing their health insurance. This is particularly
important for people with “pre-existing” conditions—even if they
could get health insurance in a new job they could be prevented
from receiving benefits for those illnesses. The ACA bans clauses
denying reimbursement for pre-existing conditions.
Reducing what’s called “job lock” allows people to take jobs that
better match their skills and boosts overall productivity in the
economy. By having health care coverage that is portable,
269
individuals are able to start their own businesses, go back to school
or pursue new opportunities. This also may make them more
productive, furthering economic growth.
The same kind of portability that the ACA has enabled for health
insurance coverage can be extended to retirement and other
benefits traditionally based on employment. Workers would be
able to take their retirement savings with them from one job to the
next. This would particularly help the increasing number of
Americans engaged in contract or freelance work, because it
would enable them to pursue a range of employment opportunities
while also saving for retirement and accessing other important
benefits and protections. This would ensure that workers are able
to pursue opportunities for which they are best suited, making
them more productive.
Leveling the playing field from children’s earliest years to
college: The Report devotes considerable attention to the large
body of research which demonstrates that government investment
in early childhood programs has substantial long-term benefits.
These long-term benefits resulting from programs such as Head
Start, the Supplemental Nutrition Assistance Program (SNAP),
Women, Infants and Children (WIC) and Medicaid, include higher
rates of education, higher earnings and lower mortality rates.
Public investment in early childhood programs is not merely
altruistic, it provides benefits that even the biggest deficit-hawks
can appreciate: lower crime rates, lower incarceration rates, and
lower reliance on welfare. This also translates into increased
national productivity and economic growth.
Universal access to pre-kindergarten education would help to
reduce the inequality of opportunity in early years that contributes
to significant disparities in employment, income, health and
education in later years. Research cited in the Report finds that
parents in the top income quintile spend seven times as much as
families in the bottom quintile on books, camps, lessons and other
enrichment activities. Providing early childhood education for all
270
families will help to provide a common base of educational
experience that will serve as a critical platform for learning and
development as children age.
All Americans should have a shot at a college education. For years,
education has been a gateway to a middle-class life. But, as a
college has become even more important for success, the costs of
higher education have risen. Many Americans can no longer afford
a college education, and student debt levels have exploded.
Roughly 70 percent of college seniors graduated with debt in
2014, owing an average of almost $29,000 per borrower. 282
The federal government, states, colleges, and universities all have
a role to play in making higher education more affordable and
more accessible. The Obama administration’s proposals such as
free tuition for students at community colleges, increased
investments in Pell Grants and simplifying student aid forms
would help to ensure that education is accessible not just to those
at the top of the income spectrum.
The Obama administration’s proposals such as making two years
of community college free for students, strengthening Pell Grants,
increasing investments in the nation’s Historically Black Colleges
and Universities, and simplifying student aid forms would help to
ensure that higher education is accessible not just to those at the
top of the income spectrum.
Expanding Economic Opportunity for Women
As the Report makes clear, addressing economic inequality is
critical for economic growth. It also notes that “unequal outcomes
that arise from unequal opportunities—barriers that keep some
individuals from realizing their full potential—are a detriment to
growth and fairness.” 283 This is unfortunately true for many U.S.
women today—as barriers in the form of outdated workplace
policies prevent them from maximizing their economic potential.
271
The share of women in the labor force has grown dramatically in
the last 50 years. In 1963, only 44 percent of prime working-age
women (ages 25 to 54) were in the labor force. Today, about 75
percent of prime working-age women are in the labor force. More
than two-thirds of mothers with children under the age of 18 are
in the labor force. 284
However, little accommodation has been made for the fact that a
large percentage of women now work and they also remain the
primary caregivers for children. For too many women, the lack of
policies to support their dual roles keeps them out of the labor
force or limits them to working part time, diminishing their
earning power. In effect, women are penalized for being mothers.
Measuring the impact on women and their families: One useful
measure of the impact on women’s earning potential is the “gender
pay gap.” It compares the median annual earnings of a woman
working full time, year-round and her male counterpart. Data
show that the typical woman earns only 79 cents for every dollar
earned by her male counterpart. 285 That leaves a 21-percent
difference in earnings, or $10,800 per year. Over the span of a
career, that yearly difference could accumulate to about half a
million dollars.286
The gender pay gap typically starts off small for young women at
the start of their career, but due in part to career interruptions and
part-time work the pay gap becomes substantially larger for older
women. The fact that the pay gap increases over time is thought to
be due directly to the women interrupting their careers to have
children and then getting paid less than their former colleagues
when returning to work.
Women even suffer from the perception by employers that they
might have children. And women who do have children and return
to work face a “mommy penalty”—earning less than women
without children. Fathers, on the other hand, often benefit from a
“daddy bonus,”—and earn more than men without children, which
272
may reflect concern from their employers that they are supporting
a family. 287
Lower income over the course of a woman’s life also can
jeopardize her financial security in retirement. In 2014, the median
annual income of women ages 65 and older was just $17,400—56
percent of men’s the same age. 288 In other words, women face a
44 percent income gap in retirement—more than twice the overall
gender pay gap. Moreover, women are 1.6 times as likely as men
to live in poverty once they reach age 65, and nearly twice as likely
to live in poverty when they reach age 75. 289
Lower pay for women hurts American families: Women’s
earnings are more crucial than ever for many families because of
increased pressures resulting from the rising costs of raising a
family. Child care, education and health care costs have increased
substantially in the past quarter century, and families increasingly
rely on women’s earnings to make ends meet. In the typical
household with children, women contribute nearly 40 percent of
their family’s earnings. And of families with a mother working
outside the home, than about one-third depend solely on her
wages. For these reasons, millions of American families stand to
benefit from policies that would help women reach their full
economic potential.
In addition, making it easier for more women to work full time in
the paid labor force could reduce income inequality and lift many
women out of poverty, which would reduce government spending
on programs such as Medicaid and the Supplemental Nutrition
Assistance Program (SNAP). 290
Maximizing women’s potential is important for the economy:
Women’s increasing role in the workforce has had a dramatic
effect on economic growth. According to the Report, “Our [U.S.]
economy is $2.0 trillion, or 13.5 percent, larger than it would have
been without women’s increased participation in the labor force
and hours worked since 1970.” 291
273
The Organisation for Economic Co-operation and Development
(OECD) finds that reducing the difference between men’s and
women’s labor force participation in the United States by half by
2030 could increase economic growth (per capita GDP) by 0.2
percent. Fully closing the gap could increase growth by 0.5
percent. 292
The United States lags behind other countries in adopting “profamily” policies to lower the barriers that prevent women from
achieving their economic potential. For example, the United States
is the only advanced country that does not guarantee paid
maternity leave and one of just a handful of countries without a
national paid sick leave policy. The United States also ranks near
the bottom of OECD countries on for public spending on child
care and pre-primary education as a share of GDP, contributing to
the high out-of-pocket child care costs American families face.
U.S. women would directly benefit from policies which
effectively reduce the costs of caregiving. Expanding access to
paid family and sick leave, improving workplace flexibility and
valuing unpaid caregiving would all allow more women to remain
in the paid labor force throughout their prime working years. This
would not only boost women’s earning potential and strengthen
the financial security of American families, but it also would have
positive effects on productivity and economic growth.
The economy could benefit by making it easier for women to
remain in the workforce after they have children. Drawing more
women into the labor force also has the potential to increase
productivity by using labor resources more efficiently. Boosting
their earnings would put more money into the hands of women and
their families who in turn spend it, generating additional consumer
demand.
274
CONCLUSION
The Report and this response use extensive data to analyze the
state of the economy and to assess the outlook for future growth.
It is clear from the data that the economy continued to strengthen
in 2015 and is now on much stronger footing than when the Obama
administration began seven years ago. Prospects for future growth
are bright.
Nevertheless, the economy faces a number of long-term structural
challenges such as the aging of the labor force and increased
globalization. These challenges emerged long before the Great
Recession and have been anticipated by economists for decades.
Several policies to address these challenges are detailed in the
Report and have been discussed in this response. Underpinning
these policies is the need to increase the size and productivity of
the U.S. labor force.
In his recent letter to shareholders, Warren Buffett wrote, “For 240
years it’s been a terrible mistake to bet against America, and now
is no time to start.” He is right. Most recently, the United States
has led the global recovery from the Great Recession. With smart
investments and responsible policies, the United States will
continue to chart the path forward, driving innovation and
economic growth.
275
ENDNOTES
1
Pedro Nicolaci Da Costa, “Bernanke: 2008 Meltdown Was Worse Than
Great Depression,” The Wall Street Journal, August 26, 2014,
http://blogs.wsj.com/economics/2014/08/26/2008-meltdown-was-worse-thangreat-depression-bernanke-says/.
2
Alexandra Wolfe, “Alan Greenspan: What Went Wrong,” The Wall Street
Journal, October 18, 2013,
http://www.wsj.com/articles/SB1000142405270230441020457913990079632
4772.
3
Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report,
January 2011, https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPOFCIC.pdf.
4
JEC Democratic staff calculations based on data from the Bureau of Labor
Statistics; automotive industry includes workers in the motor vehicle and parts
industries of the manufacturing and retail trade sectors; data are seasonally
adjusted; for additional information, see Bureau of Labor Statistics,
“Automotive Industry: Employment, Earnings and Hours,”
http://www.bls.gov/iag/tgs/iagauto.htm.
5
The White House, “The Resurgence of the American Automotive Industry,”
June 2011,
https://www.whitehouse.gov/sites/default/files/uploads/auto_report_06_01_11
.pdf.
6
National Association of Realtors, “Return Buyers: Many Already Here,
Many More to Come,” April 17, 2015,
http://economistsoutlook.blogs.realtor.org/2015/04/17/return-buyers-manyalready-here-many-more-to-come/.
7
Council of Economic Advisers, 2015 Economic Report of the President,
February 2015,
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df.
8
For further discussion of fiscal policy measures implemented to bolster the
economy in the wake of the Great Recession, see Council of Economic
Advisers, 2014 Economic Report of the President, Chapter 3, “The Economic
Impact of the American Recovery and Reinvestment Act Five Years Later,”
March 2014,
https://www.whitehouse.gov/sites/default/files/docs/full_2014_economic_rep
ort_of_the_president.pdf.
9
Alan S. Blinder and Mark Zandi, “The Financial Crisis: Lessons for the Next
One,” Center on Budget and Policy Priorities, October 15, 2015,
http://www.cbpp.org/sites/default/files/atoms/files/10-15-15pf.pdf.
10
See, for example, Stephen Moore, “The Obama recovery that wasn’t,”
Washington Times, January 3, 2016,
http://m.washingtontimes.com/news/2016/jan/3/stephen-moore-the-obamaeconomic-recovery-that-was/.
11
Carmen M. Reinhart and Kenneth S. Rogoff, “Recovery from Financial
Crises: Evidence from 100 Episodes,” American Economic Review: Papers
276
and Proceedings 2014, 104 (5),
https://www.aeaweb.org/articles.php?doi=10.1257/aer.104.5.50.
12
Kevin A. Hassett, “Reaching America’s Potential: Delivering Growth and
Opportunity for All Americans,” American Enterprise Institute for Public
Policy Research, Testimony before the House Committee on Ways and
Means, February 2, 2016, http://waysandmeans.house.gov/wpcontent/uploads/2016/02/20160202FC-Hassett-Testimony-CLEAN.pdf.
13
Eric S. Rosengren, “Housing and Economic Recovery,” Federal Reserve
Bank of Boston, Economic Outlook Seminar, Stockholm, Sweden, September
28, 2011, http://www.bostonfed.org/news/speeches/rosengren/2011/092811/.
14
John Krainer and Erin McCarthy, “Housing Market Headwinds,” Federal
Reserve Bank of San Francisco, FRBSF Economic Letter, 2014-32, November
3, 2014, http://www.frbsf.org/economic-research/publications/economicletter/2014/november/housing-mortgage-economy-economic-recovery/.
15
Paul Krugman, “Modern and Postmodern Recessions,” The New York
Times, March 18, 2015,
http://krugman.blogs.nytimes.com/2015/03/18/modern-and-postmodernrecessions/.
16
Paul Krugman, “Presidents and the Economy,” The New York Times,
January 4, 2015, http://www.nytimes.com/2015/01/05/opinion/paul-krugmanpresidents-and-the-economy.html.
17
Macroeconomic Advisers, LLC, “The Cost of Crisis-Driven Fiscal Policy,”
Prepared for the Peter G. Peterson Foundation, October 2013,
http://www.pgpf.org/sites/default/files/10112013_crisis_driven_report_fullrep
ort.pdf.
18
Martin Neil Baily and Barry Bosworth, “The United States Economy: Why
Such a Weak Recovery?” The Brookings Institution, Paper prepared for the
Nomura Foundation’s Macro Economy Research Conference, “Prospects for
Growth in the World’s Four Major Economies,” September 11, 2013,
http://www.brookings.edu/~/media/research/files/papers/2013/09/unitedstates-economy-why-weak-recovery-baily-bosworth/united-states-economywhy-weak-recovery-baily-bosworth.pdf.
19
Congressional Budget Office, “What Accounts for the Slow Growth of the
Economy After the Recession?” November 14, 2012,
https://www.cbo.gov/publication/43707.
20
ERP, p. 108.
21
JEC Democratic staff calculation based on data from the Bureau of
Economic Analysis and the Congressional Budget Office.
22
JEC Democratic staff calculation based on data from the Bureau of
Economic Analysis and the Congressional Budget Office.
23
This average for 2012 excludes the 4th quarter, when disposable income was
artificially boosted by a shift in the timing of year-end bonus payments in
anticipation of the expiration of Bush-era tax cuts for high-income taxpayers.
24
Haver Analytics based on data from the Federal Reserve Board of
Governors and the Bureau of Economic Analysis.
25
JEC Democratic staff calculation based on data from the Bureau of
Economic Analysis, based on a 40-year average through 2003.
26
JEC Democratic staff calculation based on data from the Bureau of
Economic Analysis.
277
27
Ibid.
Congressional Budget Office, “Estimated Impact of the American Recovery
and Reinvestment Act on Employment and Economic Output in 2014”
February 20, 2015, https://www.cbo.gov/publication/49958.
29
Ibid.
30
JEC Democratic staff calculation based on data from the Bureau of
Economic Analysis.
31
Ibid.
32
CBO current 10-year economic projections are available at
https://www.cbo.gov/about/products/budget_economic_data#4; FOMC
economic projections for December are available at
http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20151216.htm
33
Prerecession average is based on Council of Economic Advisers, “2015
Economic Report of the President”
https://www.whitehouse.gov/administration/eop/cea/economic-report-of-thePresident/2015
34
Ibid.
35
Ibid.
36
Ibid.
37
JEC Democratic staff calculation based on data from the Bureau of Labor
Statistics.
38
Ibid.
39
Ibid.
40
JEC Democratic staff calculation based on data from the Bureau of Labor
Statistics, assuming actual population growth but holding labor force
participation rates within all age-sex categories constant at their 2007
averages.
41
FOMC Press Release, January 27, 2016,
http://www.federalreserve.gov/newsevents/press/monetary/20160127b.htm
42
ERP, p. 108
43
JEC Democratic staff calculations based on data from the Congressional
Budget Office. For other forecasts, see “Advance release of table 1 of the
Summary of Economic Projections” from FOMC December 15-16, 2016
meeting available at
http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20151216.htm;
Blue Chip Economic Indicators, Vol. 41, No. 1, January 10, 2016.
44
JEC Democratic staff calculations based on data from the Congressional
Budget Office and ERP, p.108 (Table 2-2).
45
Blue Chip Economic Indicators, Vol. 41, No. 2, February 10, 2016
46
International Monetary Fund, “World Economic Outlook Subdued Demand,
Diminished Prospects,” January 2016,
http://www.imf.org/eXternal/pubs/ft/weo/2016/update/01/pdf/0116.pdf
47
Real broad trade weighted exchange rate of U.S. Dollar, Haver Analytics.
48
JEC Democratic staff calculations based on data from the Bureau of
Economic Analysis.
49
JEC Democratic staff calculations based on data from the U.S. Energy
Information Administration International Energy Statistics.
50
Ibid.
51
U.S. Energy Information Administration,
28
278
https://www.eia.gov/dnav/pet/pet_pri_gnd_dcus_nus_m.htm.
52
U.S. Energy Information Administration,
http://www.eia.gov/todayinenergy/detail.cfm?id=20752.
53
JEC Democratic staff calculations based on data from the U.S. Energy
Information Administration International Energy Statistics.
54
Ibid.
55
U.S. Energy Information Administration,
https://www.eia.gov/tools/faqs/faq.cfm?id=33&t=6.
56
JEC Democratic staff calculations based on data from the U.S. Energy
Information Administration International Energy Statistics.
57
JEC Democratic staff calculations based on data from the U.S. Energy
Information Administration International Energy Statistics; Council of
Economic Advisers, “Explaining the U.S. Petroleum Consumption Surprises,”
June 2015,
https://www.whitehouse.gov/sites/default/files/docs/explaining_us_petroleum
_consumption_surprise_final.pdf.
58
JEC Democratic staff calculations based on data from the Bureau of
Economic Analysis.
59
Ibid.
60
Wall Street Journal, “For Shoppers, It’s Not What Gas Costs Now, It’s
What It Will Cost Tomorrow” May 7, 2015,
http://blogs.wsj.com/economics/2015/05/07/for-shoppers-its-not-what-gascosts-now-its-what-it-will-cost-tomorrow/.
61
JEC Democratic staff calculations based on data from the Bureau of Labor
Statistics.
62
James Feyrer et al, “Geographic Dispersion of Economic Shocks: Evidence
from the Fracking Revolution,” October 2015,
http://www.nber.org/papers/w21624.
63
U.S. Energy Information Administration,
http://www.eia.gov/todayinenergy/detail.cfm?id=23072.
64
Council on Foreign Relations, “The Shale Gas and Tight Oil Boom: U.S.
State’s Economic Gains and Vulnerabilities,” October, 2013,
http://www.cfr.org/united-states/shale-gas-tight-oil-boom-us-states-economicgains-vulnerabilities/p31568.
65
JEC Democratic staff calculations based on data from the World Bank,
http://data.worldbank.org/country/china.
66
The World Bank, “China Economic Update,” June 2015, http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/07/0
7/090224b082fd8144/1_0/Rendered/PDF/China0economic0update0.pdf.
67
JEC Democratic staff calculations based on data from the International
Monetary Fund Balance of Payment Statistics.
68
Naveen Thukral, “U.S. soybean, corn prices seen dropping below
production costs: industry,” Reuters, August 27, 2015
http://www.reuters.com/article/us-us-grains-pricesidUSKCN0QW14420150827; Ruby Lian, “China steel prices hit record low
as crisis deepens with possible mill closure,” November 17, 2015,
http://www.reuters.com/article/us-china-steel-tangshanidUSKCN0T618320151117.
279
69
Robin Goldwyn Blumenthal, “China’s Growing Household Wealth,”
Barron’s, October 31, 2015, http://www.barrons.com/articles/chinas-growinghousehold-wealth-1446261633.http://fortune.com/2015/09/02/heres-whatyou-may-not-know-about-the-chinese-stock-market/
70
Keith Bradsher, “Chinese Start to Lose Confidence in Their Currency,” The
New York Times, February 13, 2016,
http://www.nytimes.com/2016/02/14/business/dealbook/chinese-start-to-loseconfidence-in-their-currency.html; USDCNY Spot Exchange Rate, Bloomberg
Business http://www.bloomberg.com/quote/USDCNY:CUR.
71
JEC Democratic staff calculations based on data from the Bureau of
Economic Analysis.
72
Richard Dobbs, Susan Lund, Jonathan Woetzel, and Mina Mutafchieva,
“Debt and (not much) deleveraging,” McKinsey & Company, February, 2015,
http://www.mckinsey.com/global-themes/employment-and-growth/debt-andnot-much-deleveraging.
73
Eswar Prasad, “The path to sustainable growth in China,” Brookings
Institute, April 22, 2015,
http://www.brookings.edu/research/testimony/2015/04/22-sustainable-growthchina-prasad.
74
William Watts, “These charts show you can’t blame China for U.S. stockmarket selloff,” Market Watch, January 11, 2016,
http://www.marketwatch.com/story/these-charts-show-you-cant-blame-chinafor-us-stock-market-selloff-2016-01-11.
75
The Economist, “Beyond petroleum,” January 29th, 2015,
http://www.economist.com/news/americas/21641288-growth-shifting-oilproducing-west-back-traditional-economic-heartland.
76
Pete Evans, “Recession confirmed as Canada’s GDP shrank in 2nd quarter,”
CBC News, September 2, 2015, http://www.cbc.ca/news/business/gdpeconomy-recession-1.3210790.
77
Bank of Canada, “Monetary Policy Report,” January 2016,
http://www.bankofcanada.ca/wp-content/uploads/2016/01/mpr-2016-0120.pdf.
78
Eugenio J. Aleman, “Mexican Industrial Production Ended 2015 Very
Weak,” Wells Fargo Economics Group, February 12, 2016,
https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economi
cs/international-reports/mexico-industrial-production-20160212.pdf.
79
Eurostat, “First quarter of 2015 compared with fourth quarter of 2014
Government debt rose to 92.9% of GDP in euro area Up to 88.2% in EU28,”
July 22, 2015, http://ec.europa.eu/eurostat/documents/2995521/6923259/222072015-AP-EN.pdf/bf173a0e-0eba-4ab9-878c-6db8d1f6452b.
80
Ernst & Young, “Eurozone Forecast,” December 2015,
http://www.ey.com/Publication/vwLUAssets/EY-eurozone-forecastdecember-2015/$FILE/EY-eurozone-forecast-december-2015.pdf.
81
International Monetary Fund, “World Economic Outlook Subdued Demand,
Diminished Prospects,” January 2016,
http://www.imf.org/external/pubs/ft/weo/2016/update/01/.
82
Everett Rosenfeld, “Fed's Brainard: Not Seeing Significant Q2 Bounce,”
CNBC, June 2, 2015, http://www.cnbc.com/2015/06/02/brainard-data-do-notsuggest-significant-q2-bounce-strong-dollar-delays-rate-normalization.html.
280
83
Wells Fargo Economics Group, “2016 Annual Economic Outlook”
December 9, 2015,
https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economi
cs/annual-economic-outlook/economic-outlook-report-2016.pdf.
84
OECD, “Financial Contagion in the Era of Globalised Banking?” OECD
Economics Department Policy Notes, No. 14, June 2012,
http://www.oecd.org/eco/monetary/50556019.pdf.
85
IHS Engineering 360, “Construction Costs Driven Lower by Falling Oil and
Commodity Prices,” March 27, 2015,
http://insights.globalspec.com/article/752/construction-costs-driven-lower-byfalling-oil-and-commodity-prices.
86
Congressional Budget Office, “The Budget and Economic Outlook: 2016 to
2026,” January 2016, https://www.cbo.gov/sites/default/files/114th-congress2015-2016/reports/51129-2016Outlook.pdf.
87
Congressional Budget Office, “Number of People Age 65 or Older, by Age
Group,” Figure 3-2, https://www.cbo.gov/sites/default/files/114th-congress2015-2016/reports/51129-2016OutlookFigureData_0.xlsx.
88
David Harrison, “Janet Yellen: 100,000 Jobs Enough to Absorb New Labor
Force Entrants,” The Wall Street Journal, December 3, 2015,
http://www.wsj.com/articles/janet-yellen-100-000-jobs-enough-to-absorbnew-labor-force-entrants-1449162337.
89
Congressional Budget Office, “The Budget and Economic Outlook: 2016 to
2026,” January 2016, https://www.cbo.gov/sites/default/files/114th-congress2015-2016/reports/51129-2016Outlook.pdf; Council of Economic Advisers,
“The Labor Force Participation Rate Since 2007: Causes and Policy
Implications,” July 2014,
https://www.whitehouse.gov/sites/default/files/docs/labor_force_participation
_report.pdf; Stephanie Aaronson et.al., “Labor Force Participation: Recent
Developments and Future Prospects,” Brookings Papers on Economic
Activity, Fall 2014, http://www.brookings.edu/~/media/projects/bpea/fall2014/fall2014bpea_aaronson_et_al.pdf.
90
Jeremy Greenwood, Ananth Seshadri and Mehmet Yorukoglu, “Engines of
Liberation,” The Review of Economic Studies Limited, Vol. 72, January 2005,
http://www.jeremygreenwood.net/papers/engines.pdf.
91
U.S. Department of Agriculture, “Expenditures on Children by Families,
2013,” August 2014,
http://www.cnpp.usda.gov/sites/default/files/expenditures_on_children_by_fa
milies/crc2013.pdf.
92
Ibid. The 2 percent of child-rearing expenditures on child care and
education in 1960 includes families with and without the expense. The 18
percent is for families with the expense. The increased child care costs reflect
the increase in women’s participation in the labor force and the growing need
for child care.
93
Ibid.
94
National Center for Education Statistics, “Digest of Education Statistics,”
Table 330.10, Average undergraduate tuition and fees and room and board
rates charged for full-time students in degree-granting postsecondary
institutions, by level and control of institution: 1963-64 through 2012-13,
https://nces.ed.gov/programs/digest/d13/tables/dt13_330.10.asp; not taking
281
into account the effects of inflation, the average total cost increased nearly
16.5 times during that time, from $912 to $15,022.
95
Francine D. Blau and Lawrence M. Kahn, “Female Labor Supply: Why is
the US Falling Behind?” Institute for the Study of Labor (IZA), Discussion
Paper No. 7140, January 2013, http://ftp.iza.org/dp7140.pdf.
96
Christopher L. Foote and Richard W. Ryan, “Labor Market Polarization
Over the Business Cycle,” Federal Reserve Bank of Boston, Working Paper
No. 14-16, December 26, 2014,
http://www.bostonfed.org/economic/wp/wp2014/wp1416.pdf.
97
Stephanie Aaronson et.al., “Labor Force Participation: Recent
Developments and Future Prospects,” Brookings Papers on Economic
Activity, Fall 2014, http://www.brookings.edu/~/media/projects/bpea/fall2014/fall2014bpea_aaronson_et_al.pdf.
98
Ibid.
99
U.S. Census Bureau, “School Enrollment,” Table A-5a, Population 14 to 24
Years Old by High School Graduate Status, College Enrollment, Attainment,
Sex, Race, and Hispanic Origin: October 1967 to 2014,”
http://www.census.gov/hhes/school/data/cps/historical/.
100
Louis Jacobson, “Donald Trump says U.S. has 93 million people 'out of
work,' but that's way too high,” PolitiFact, August 31, 2015,
http://www.politifact.com/truth-o-meter/statements/2015/aug/31/donaldtrump/donald-trump-says-us-has-93-milion-people-out-work/; Louis
Jacobson, “Ted Cruz says 92 million Americans aren’t working,” PolitiFact,
February 10, 2015, http://www.politifact.com/truth-ometer/statements/2015/feb/10/ted-cruz/ted-cruz-says-92-million-americansarent-working/.
101
Scott Winship, “Responses for Ranking Member Maloney,” Questions for
the Record, Joint Economic Committee Hearing on “What Lower Labor Force
Participation Rates Tell Us About Work Opportunities and Incentives,” held
July 8, 2015; Josh Zumbrun, “What We Know About the 92 Million
Americans Who Aren’t in the Labor Force,” The Wall Street Journal, October
21, 2015, http://blogs.wsj.com/economics/2015/10/21/what-we-know-aboutthe-92-million-americans-who-arent-in-the-labor-force/.
102
James Pethokoukis, “Death of a talking point: No, there aren’t more than
90 million Americans unemployed,” American Enterprise Institute, October
22, 2015, https://www.aei.org/publication/death-of-a-talking-point-no-therearent-more-than-90-million-americans-unemployed/; Louis Jacobson,
“Donald Trump says U.S. has 93 million people 'out of work,' but that's way
too high,” PolitiFact, August 31, 2015, http://www.politifact.com/truth-ometer/statements/2015/aug/31/donald-trump/donald-trump-says-us-has-93milion-people-out-work/; Louis Jacobson, “Ted Cruz says 92 million
Americans aren’t working,” PolitiFact, February 10, 2015,
http://www.politifact.com/truth-o-meter/statements/2015/feb/10/ted-cruz/tedcruz-says-92-million-americans-arent-working/.
103
Congressional Budget Office, “The Budget and Economic Outlook: 2016
to 2026,” January 2016, https://www.cbo.gov/sites/default/files/114thcongress-2015-2016/reports/51129-2016Outlook.pdf.
104
Douglas Elmendorf and Louise Sheiner, “Federal Budget Policy with an
Aging Population and Persistently Low Interest Rates,” Hutchins Center on
282
Fiscal & Monetary Policy at Brookings, Working Paper #18, February 5,
2016, http://www.brookings.edu/~/media/Research/Files/Papers/2016/02/03hutchins-working-paper/WP18-Elmendorf-Sheiner_Final.pdf?la=en.
105
Budget data are detailed in Congressional Budget Office, “10-Year Budget
Projections,” January 2016, https://www.cbo.gov/sites/default/files/511182016-01-BudgetProjections3.xlsx.
106
Ibid.
107
Jared Bernstein, “The claim that no one’s doing anything about the costs of
social insurance is not correct,” On the Economy Jared Bernstein Blog,
February 16, 2016, http://jaredbernsteinblog.com/the-claim-that-no-onesdoing-anything-about-the-costs-of-social-insurance-is-not-correct/.
108
Congressional Budget Office, “The Long-Term Budget Outlook,”
December 2007, https://www.cbo.gov/sites/default/files/110th-congress-20072008/reports/12-13-ltbo.pdf.
109
Congressional Budget Office, “Long-Term Budget Projections,” June
2015, https://www.cbo.gov/sites/default/files/51119-2015-06LongTermBudgetProjections.xlsx.
110
Congressional Budget Office, “Budgetary and Economic Effects of
Repealing the Affordable Care Act,” June 19, 2015,
https://www.cbo.gov/publication/50252.
111
Kathy Ruffing and Joel Friedman, “Economic Downturn and Legacy of
Bush Policies Continue to Drive Large Deficits,” Center on Budget and Policy
Priorities, February 28, 2013, http://www.cbpp.org/research/economicdownturn-and-legacy-of-bush-policies-continue-to-drive-large-deficits.
112
Organisation for Economic Co-operation and Development (OECD), “The
Future of Productivity – Preliminary Version,” 2015,
http://www.oecd.org/eco/growth/OECD-2015-The-future-of-productivitybook.pdf.
113
Lawrence Mishel, Elise Gould and Josh Bivens, “Wage Stagnation in Nine
Charts,” Economic Policy Institute, January 6, 2015,
http://www.epi.org/publication/charting-wage-stagnation/.
114
ERP, p. 236-239.
115
Congressional Budget Office, “Federal Policies and Innovation,”
November 2014, https://www.cbo.gov/sites/default/files/113th-congress-20132014/reports/49487-Innovation.pdf.
116
Peter L. Singer, “Federally Supported Innovations: 22 Examples of Major
Technology Advances That Stem From Federal Research Support,” The
Information Technology & Innovation Foundation, February 2014,
http://www2.itif.org/2014-federally-supported-innovations.pdf.
117
Congressional Budget Office, “Federal Investment,” December 2013,
https://www.cbo.gov/sites/default/files/113th-congress-20132014/reports/44974-FederalInvestment.pdf.
118
Jason Furman, “Productivity Growth in the Advanced Economies: The
Past, the Present, and Lessons for the Future,” Remarks at the Peterson
Institute for International Economics, July 9, 2015,
https://www.whitehouse.gov/sites/default/files/docs/20150709_productivity_a
dvanced_economies_piie.pdf.
119
Jan Hatzius, “Productivity paradox v2.0,” Goldman Sachs, Global Macro
Research, Issue 39, October 5, 2015, http://www.goldmansachs.com/our-
283
thinking/pages/macroeconomic-insights-folder/the-productivityparadox/report.pdf.
120
Chad Syverson, “Challenges to Mismeasurement Explanations for the U.S.
Productivity Slowdown,” National Bureau of Economic Research, NBER
Working Paper No. 21974, February 2016,
http://www.nber.org/papers/w21974.
121
Jason Furman, “Productivity Growth in the Advanced Economies: The
Past, the Present, and Lessons for the Future,” Remarks at the Peterson
Institute for International Economics, July 9, 2015,
https://www.whitehouse.gov/sites/default/files/docs/20150709_productivity_a
dvanced_economies_piie.pdf.
122
Ibid.
123
Organisation for Economic Co-operation and Development (OECD),
“Lifting Investment for Higher Sustainable Growth,” OECD Economic
Outlook, Volume 2015/1, 2015, http://www.oecd.org/investment/EconomicOutlook-97-Lifting-investment-for-higher-sustainable-growth.pdf.
124
ERP, p. 99.
125
Roberto Cardarelli and Lusine Lusinyan, “U.S. Total Factor Productivity
Slowdown: Evidence from the U.S. States,” International Monetary Fund,
IMF Working Paper, WP/15/116, May 2015,
https://www.imf.org/external/pubs/ft/wp/2015/wp15116.pdf.
126
For a detailed breakdown of public and private sector research and
development expenditures by category of research, see National Science
Foundation, “U.S. R&D Increased in 2013, Well Ahead of the Pace of Gross
Domestic Product,” NSF 15-330, September 8, 2015,
http://www.nsf.gov/statistics/2015/nsf15330/.
127
National Science Foundation, “Federal Funds for Research and
Development: Fiscal Years 2013-15,” NSF 15-324, June 29, 2015,
http://www.nsf.gov/statistics/2015/nsf15324/.
128
Peter L. Singer, “Federally Supported Innovations: 22 Examples of Major
Technology Advances That Stem From Federal Research Support,” The
Information Technology & Innovation Foundation, February 2014,
http://www2.itif.org/2014-federally-supported-innovations.pdf.
129
Jason Furman, “Business Investment in the United States: Facts,
Explanations, Puzzles, and Policies,” Remarks at the Progressive Policy
Institute, September 30, 2015,
https://www.whitehouse.gov/sites/default/files/page/files/20150930_business_
investment_in_the_united_states.pdf.
130
Ryan Decker, et.al., “The Role of Entrepreneurship in US Job Creation and
Economic Development,” Journal of Economic Perspectives, Volume 28,
Number 3, Summer 2014,
http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.28.3.3; John Haltiwanger, Ian
Hathaway and Javier Miranda, “Declining Business Dynamism in the U.S.
High-Technology Sector,” Ewing Marion Kauffman Foundation, February 214,
http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and
%20covers/2014/02/declining_business_dynamism_in_us_high_tech_sector.p
df.
131
ERP, p. 210.
284
132
Robert W. Fairlie et.al., “The Kauffman Index Startup Activity National
Trends,” Ewing Marion Kauffman Foundation, 2015,
http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and
%20covers/2015/05/kauffman_index_startup_activity_national_trends_2015.p
df.
133
ERP, p. 31, 214.
134
Jason Furman and Peter Orszag, “A Firm-Level Perspective on the Role of
Rents in the Rise of Inequality,” Presentation at “A Just Society” Centennial
Event in Honor of Joseph Stiglitz, Columbia University, October 16, 2015,
https://www.whitehouse.gov/sites/default/files/page/files/20151016_firm_leve
l_perspective_on_role_of_rents_in_inequality.pdf.
135
ERP, p. 38.
136
Claudia Goldin and Lawrence F. Katz, “The Race between Education and
Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to
2005,” National Bureau of Economic Research, NBER Working Paper No.
12984, March 2007, http://www.nber.org/papers/w12984, cited in ERP, p. 36.
137
National Center for Education Statistics, “Digest of Education Statistics,”
Table 104.20, Percentage of persons 25 to 29 years old with selected levels of
educational attainment, by race/ethnicity and sex: Selected years, 1920
through 2014, October 2014,
http://nces.ed.gov/programs/digest/d14/tables/dt14_104.20.asp.
138
William C. Dunkelberg and Holly Wade, “NFIB Small Business Economic
Trends,” National Federation of Independent Business, January 2016,
http://www.nfib.com/assets/SBET-January-2016.pdf; Jonathan House, “Is the
Skills Gap Real?” The Wall Street Journal, January 9, 2015,
http://blogs.wsj.com/economics/2015/01/09/is-the-skills-gap-real/;
139
Sarah House and Alex V. Moehring, “Job Openings vs. Turnover: Mixed
Messages from JOLTS,” Wells Fargo Economics Group, Special
Commentary, September 24, 2015,
https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economi
cs/special-reports/openings-turnover-09242015.pdf.
140
ERP, p. 220.
141
Jason Furman, “Six Economic Benefits of the Affordable Care Act,”
February 6, 2014, https://www.whitehouse.gov/blog/2014/02/06/sixeconomic-benefits-affordable-care-act.
142
Council of Economic Advisers, “Gender Pay Gap: Recent Trends and
Explanations,” Issue Brief, April 2015,
https://www.whitehouse.gov/sites/default/files/docs/equal_pay_issue_brief_fi
nal.pdf.
143
Organisation for Economic Co-operation and Development (OECD), “The
Future of Productivity – Preliminary Version,” 2015,
http://www.oecd.org/eco/growth/OECD-2015-The-future-of-productivitybook.pdf.
144
Robert J. Gordon, “Is U.S. Economic Growth Over? Faltering Innovation
Confronts the Six Headwinds,” National Bureau of Economic Research,
NBER Working Paper No. 18315, August 2012,
http://www.nber.org/papers/w18315.
145
Organisation for Economic Co-operation and Development (OECD), “The
Future of Productivity – Preliminary Version,” 2015,
285
http://www.oecd.org/eco/growth/OECD-2015-The-future-of-productivitybook.pdf; Jason Furman, “Productivity Growth in the Advanced Economies:
The Past, the Present, and Lessons for the Future,” Remarks at the Peterson
Institute for International Economics, July 9, 2015,
https://www.whitehouse.gov/sites/default/files/docs/20150709_productivity_a
dvanced_economies_piie.pdf.
146
Ben S. Bernanke, “Irreversibility, Uncertainty, and Cyclical Investment,”
The Quarterly Journal of Economics, Vol. 98, No. 1, February 1983,
http://www.jstor.org/stable/1885568.
147
ERP, p. 231-248.
148
Congressional Budget Office, “The Budget and Economic Outlook: 2016
to 2026,” January 2016, https://www.cbo.gov/sites/default/files/114thcongress-2015-2016/reports/51129-2016Outlook.pdf.
149
Ibid.
150
Organisation for Economic Co-operation and Development (OECD), “The
Future of Productivity – Preliminary Version,” 2015,
http://www.oecd.org/eco/growth/OECD-2015-The-future-of-productivitybook.pdf.
151
Barack Obama, “Remarks by the President on Economic Mobility,”
THEARC, December 4, 2013, https://www.whitehouse.gov/the-pressoffice/2013/12/04/remarks-president-economic-mobility.
152
Sewell Chan, “In Interview, Bernanke Backs Tax Code Shift,” The New
York Times, December 5, 2010,
http://www.nytimes.com/2010/12/06/business/06bernanke.html.
153
Rob Garver, “These Top Economists All Agree on the Biggest Problem the
U.S. Faces,” The Fiscal Times, February 25, 2014,
http://www.thefiscaltimes.com/Articles/2014/02/25/These-Top-EconomistsAll-Agree-Biggest-Problem-US-Faces.
154
Pedro Nicolaci Da Costa, “Janet Yellen Decried Widening Income
Inequality,” The Wall Street Journal, October 17, 2014,
http://www.wsj.com/articles/feds-yellen-says-extreme-inequality-could-be-unamerican-1413549684.
155
Janet Yellen, “Perspectives on Inequality and Opportunity from the Survey
of Consumer Finances,” Speech at the Conference on Economic Opportunity
and Inequality, Federal Reserve Bank of Boston, October 17, 2014,
http://www.federalreserve.gov/newsevents/speech/yellen20141017a.htm.
156
ERP, p. 34-35.
157
Council of Economic Advisers, 2015 Economic Report of the President,
February 2015,
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df.
158
Ibid.
159
Chad Stone et.al., “A Guide to Statistics on Historical Trends in Income
Inequality,” Center on Budget and Policy Priorities, October 26, 2015,
http://www.cbpp.org/sites/default/files/atoms/files/11-28-11pov_0.pdf.
160
Ibid.
161
Ibid.
162
ERP, p. 24.
163
ERP, p. 24.
286
164
ERP, p. 25.
ERP, p. 25.
166
Congressional Budget Office, “The Budget and Economic Outlook: 2016
to 2026,” January 2016, https://www.cbo.gov/sites/default/files/114thcongress-2015-2016/reports/51129-2016Outlook.pdf.
167
ERP, p. 28.
168
Jesse Bricker et al., “Changes in U.S. Family Finances from 2010 to 2013:
Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin,
vol. 100, no. 4, September 2014,
http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf.
169
ERP, p. 29.
170
ERP, p. 29.
171
ERP, p. 29.
172
The Pew Charitable Trusts, “Pursuing the American Dream: Economic
Mobility Across Generations,” July 2012,
http://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/pursu
ingamericandreampdf.pdf.
173
Barack Obama, “Remarks by the President on Economic Mobility,”
THEARC, December 4, 2013, https://www.whitehouse.gov/the-pressoffice/2013/12/04/remarks-president-economic-mobility.
174
Among countries with data available; Elise Gould, “U.S. lags behind peer
countries in mobility,” Economic Policy Institute, October 2012,
http://www.epi.org/publication/usa-lags-peer-countries-mobility/.
175
Ibid.
176
Raj Chetty et al., “Where is the Land of Opportunity? The Geography of
Intergenerational Mobility in the United States,” National Bureau of
Economic Research, NBER Working Paper No. 19843, January 2014,
http://www.nber.org/papers/w19843.pdf.
177
Jim Zarroli, “Study: Upward Mobility No Tougher In U.S. Than Two
Decades Ago,” NPR, January 24, 2014,
http://www.npr.org/2014/01/23/265356290/study-upward-mobility-notougher-in-u-s-than-two-decades-ago.
178
Joint Economic Committee Democratic staff, “State Economic Snapshots:
2015 Year in Review,” February 2, 2016,
http://www.jec.senate.gov/public/_cache/files/845d797b-bf0c-43e0-9bca7f9bb9596b30/jec-state-economic-snapshots---2015-year-in-reviewcombined-.pdf.
179
U.S. Census Bureau, American Fact Finder, Table S1501, Educational
Attainment, 2015 American Community Survey 1-Year Estimates.
180
U.S. Census Bureau, American Fact Finder, Table B19083, Gini Index of
Income Inequality, Universe: Households, 2014 American Community Survey
1-Year Estimates.
181
Joint Economic Committee Democratic staff report, “Income Inequality in
the United States,” January 2014,
http://www.jec.senate.gov/public/_cache/files/04a5e372-05d5-4f06-a95eede43027c6cd/inequality-report---01-16-2014.pdf, based on data from The
Equality of Opportunity Project, http://www.equality-of-opportunity.org.
182
Ibid.
183
ERP, p. 34.
165
287
184
Council of Economic Advisers, 2014 Economic Report of the President,
March 2014,
https://www.whitehouse.gov/sites/default/files/docs/full_2014_economic_rep
ort_of_the_president.pdf.
185
Ibid.
186
“Report of the Commission on Inclusive Prosperity,” Convened by the
Center for American Progress, Co-Chaired by Lawrence H. Summers and Ed
Balls, January 2015, https://cdn.americanprogress.org/wpcontent/uploads/2015/01/IPC-PDF-full.pdf.
187
Carl Benedikt Frey and Michael A. Osborne, “The Future of Employment:
How Susceptible Are Jobs to Computerisation?” Oxford Martin Programme
on the Impacts of Future Technology, September 2013, cited in ERP, p. 39.
188
David H. Autor, David Dorn and Gordon H. Hansen, “The China
Syndrome: Local Labor Market Effects of Import Competition in the United
States,” American Economic Review. 103(6), 2013,
http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.103.6.2121; David H. Autor,
David Dorn and Gordon H. Hansen, “The China Shock: Learning from Labor
Market Adjustment to Large Changes in Trade,” National Bureau of
Economic Research, NBER Working Paper No. 21906, January 2016,
http://www.nber.org/papers/w21906.
189
Claudia Goldin and Lawrence F. Katz, “The Race between Education and
Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to
2005,” National Bureau of Economic Research, NBER Working Paper No.
12984, March 2007, http://www.nber.org/papers/w12984.
190
U.S. Census Bureau, “Educational Attainment,” Table A-2, Percent of
People 25 Years and Over Who Have Completed High School or College, by
Race, Hispanic Origin and Sex: Selected Years 1940 to 2014,
https://www.census.gov/hhes/socdemo/education/data/cps/historical/tabA2.xlsx.
191
ERP, p. 163.
192
Allison Schrager, “Why Companies Don’t Train Workers Anymore,”
Bloomberg Business, August 22, 2014,
http://www.bloomberg.com/bw/articles/2014-08-22/is-on-the-job-trainingstill-worth-it-for-companies.
193
ERP, p. 38-44.
194
Jason Furman and Peter Orszag, “A Firm-Level Perspective on the Role of
Rents in the Rise of Inequality,” Presentation at “A Just Society” Centennial
Event in Honor of Joseph Stiglitz, Columbia University, October 16, 2015,
https://www.whitehouse.gov/sites/default/files/page/files/20151016_firm_leve
l_perspective_on_role_of_rents_in_inequality.pdf.
195
Ibid.
196
Council of Economic Advisers, “Worker Voice in a Time of Rising
Inequality,” October 2015,
https://www.whitehouse.gov/sites/default/files/page/files/worker_voice_issue
_brief_cea.pdf.
197
David Card, “The Effect of Unions on the Structure of Wages: A
Longitudinal Analysis,” Econometrica, Vol. 64, No. 4, July 1996,
http://davidcard.berkeley.edu/papers/union-struct-wage.pdf.
288
198
Council of Economic Advisers, “Worker Voice in a Time of Rising
Inequality,” October 2015,
https://www.whitehouse.gov/sites/default/files/page/files/worker_voice_issue
_brief_cea.pdf.
199
Ibid.
200
Ibid.
201
Bruce Western and Jake Rosenfeld, “Unions, Norms, and the Rise in U.S.
Wage Inequality,” American Sociological Review, Vol. 76, No. 4, 2011,
http://asr.sagepub.com/content/76/4/513.abstract, cited in ERP, p. 39.
202
ERP, p. 39.
203
“Report of the Commission on Inclusive Prosperity,” Convened by the
Center for American Progress, Co-Chaired by Lawrence H. Summers and Ed
Balls, January 2015, https://cdn.americanprogress.org/wpcontent/uploads/2015/01/IPC-PDF-full.pdf.
204
Ibid.
205
Congressional Budget Office, “The Distribution of Major Tax
Expenditures in the Individual Tax System,” May 2013,
http://www.cbo.gov/sites/default/files/cbofiles/attachments/43768_Distributio
nTaxExpenditures.pdf.
206
Center on Budget and Policy Priorities, “Federal Tax Expenditures,”
February 23, 2016,
http://www.cbpp.org/sites/default/files/atoms/files/policybasicstaxexpenditures.pdf.
207
Barack Obama, “Remarks of President Barack Obama – State of the Union
Address As Delivered,” January 13, 2016, https://www.whitehouse.gov/thepress-office/2016/01/12/remarks-president-barack-obama-%E2%80%93prepared-delivery-state-union-address.
208
ERP, p. 31.
209
Jonathan D. Ostry et al., “Redistribution, Inequality, and Growth,”
International Monetary Fund, IMF Staff Discussion Note, February 2014,
https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf.
210
Federico Cingano, “Trends in Income Inequality and its Impact on
Economic Growth,” OECD Social, Employment and Migration Working
Papers, No. 163, http://dx.doi.org/10.1787/5jxrjncwxv6j-en, cited in ERP, p.
46.
211
Joseph E. Stiglitz, “The Price of Inequality: How Today’s Divided Society
Endangers Our Future,” Sustainable Humanity, Sustainable Nature: Our
Responsibility, Pontifical Academy of Sciences, Extra Series 41, Vatican City,
2014, http://www.pas.va/content/dam/accademia/pdf/es41/es41-stiglitz.pdf.
212
Ibid; Bart Hobijn and Alexander Nussbacher, “The Stimulative Effect of
Redistribution,” Federal Reserve Bank of San Francisco, FRBSF Economic
Letter, 2015-21, June 29, 2015, http://www.frbsf.org/economicresearch/files/el2015-21.pdf.
213
Council of Economic Advisers, 2015 Economic Report of the President,
February 2015,
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df.
214
Council of Economic Advisers, 2015 Economic Report of the President,
February 2015,
289
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df.
215
Council of Economic Advisers, 2015 Economic Report of the President,
February 2015,
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df.
216
Council of Economic Advisers, 2015 Economic Report of the President,
February 2015,
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df
217
Office of Representative Carolyn Maloney, NY-12, “Maloney, Casey:
Workers Should Have Right to Request Flexible Work Arrangement Without
Fear of Retribution,” March 18, 2015, https://maloney.house.gov/mediacenter/press-releases/maloney-casey-workers-should-have-right-to-requestflexible-work)
218
Council of Economic Advisers, 2015 Economic Report of the President,
February 2015,
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df
219
Elise Gould and Tanyell Cooke, “High quality child care is out of reach for
working families,” Economic Policy Institute, October 6, 2015,
http://www.epi.org/publication/child-care-affordability/#child-care-costsexceed-college-tuition-in-many-states
Child care expenses are based a monthly cost of $468 in MS and $1,868 in
DC. From.
220
Elise Gould and Tanyell Cooke, “High quality child care is out of reach for
working families” Economic Policy Institute, October 6, 2015,
http://www.epi.org/publication/child-care-affordability/#child-care-costsexceed-college-tuition-in-many-states.
221
Eileen Patten, “On Equal Pay Day, key facts about the gender pay gap”
Pew Research Center, April 14, 2015, http://www.pewresearch.org/facttank/2015/04/14/on-equal-pay-day-everything-you-need-to-know-about-thegender-pay-gap/.
222
Kim Parker, “5 facts about today’s fathers” FactTank: News in the
Numbers, Pew Research Center, June 18, 2015,
http://www.pewresearch.org/fact-tank/2015/06/18/5-facts-about-todaysfathers/.
223
Council of Economic Advisers, “The Economics of Early Childhood
Investments” December 2014,
https://www.whitehouse.gov/sites/default/files/docs/early_childhood_report1.
pdf.
224
Council of Economic Advisers, “The Economics of Early Childhood
Investments” December 2014,
https://www.whitehouse.gov/sites/default/files/docs/early_childhood_report1.
pdf.
225
Council of Economic Advisers, “The Economics of Early Childhood
Investments” December 2014,
https://www.whitehouse.gov/sites/default/files/docs/early_childhood_report1.
pdf.
290
226
Danielle Kaeble, Lauren Glaze, Anastasios Tsoutis and Todd Minton,
“Correctional Populations in the United States, 2014” Revised January 21,
2016, http://www.bjs.gov/content/pub/pdf/cpus14.pdf; and Melissa S.
Kearney, Benjamin H. Harris, Elisa Jácome and Lucie Parker, “Ten Economic
Facts about Crime and Incarceration in the United States” The Hamilton
Project, May 2014,
http://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/v8_
THP_10CrimeFacts.pdf.
227
Joseph E. Stiglitz, Foreword to What Caused the Crime Decline? The
Brennen Center for Justice, February 12, 2015
https://www.brennancenter.org/publication/what-caused-crimedecline#Foreword.
228
Maurice Emsellem and Jason Ziedenberg, “Strategies for Full Employment
Through Reform of the Criminal Justice System” March 30, 2015,
http://www.cbpp.org/research/full-employment/strategies-for-fullemployment-through-reform-of-the-criminal-justice.
229
Danielle Kaeble, Lauren Glaze, Anastasios Tsoutis and Todd Minton,
“Correctional Populations in the United States, 2014” Revised January 21,
2016, http://www.bjs.gov/content/pub/pdf/cpus14.pdf.
230
Melissa S. Kearney, Benjamin H. Harris, Elisa Jácome and Lucie Parker,
“Ten Economic Facts about Crime and Incarceration in the United States” The
Hamilton Project, May 2014,
http://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/v8_
THP_10CrimeFacts.pdf.
231
Jeremy Travis, Bruce Western, and Steve Redburn, The Growth of
Incarceration in the United States: Exploring Causes and Consequences,
National Research Council, The National Academies Press, 2014, p.2,
http://www.nap.edu/catalog/18613/the-growth-of-incarceration-in-the-unitedstates-exploring-causes.
232
Melissa S. Kearney, Benjamin H. Harris, Elisa Jácome and Lucie Parker,
“Ten Economic Facts about Crime and Incarceration in the United States” The
Hamilton Project, May 2014,
http://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/v8_
THP_10CrimeFacts.pdf.
233
CBO, “The Economic Impact of S. 744, the Border Security, Economic
Opportunity, and Immigration Modernization Act” (2013),
https://www.cbo.gov/publication/44346.
234
CDC, “Births: Final Data for 2014” (December 23, 2015), Births: Final
Data for 2014.
235
2014 ACS 1-year estimates. American FactFinder Table S0501; Migration
Policy Institute, “Frequently Requested Statistics on Immigrants and
Immigration in the United States” (February 26, 2015),
http://www.migrationpolicy.org/article/frequently-requested-statisticsimmigrants-and-immigration-united-states.
236
2014 ACS 1-year estimates. American FactFinder Table S0501.
237
Small Business Administration, “Immigrant Entrepreneurs and Small
Business Owners, and their Access to Financial Capital” (May 2012),
https://www.sba.gov/sites/default/files/rs396tot.pdf
291
238
Giovanni Peri, Kevin Y. Shih, and Chad Sparber, “Foreign STEM Workers
and Native Wages and Employment in U.S. Cities” (May 2014),
http://www.nber.org/papers/w20093.
239
Adams Nager, David Hart, Stephen Ezell, and Robert Atkinson, “The
Demographics of Innovation in the United States” (February 2016),
http://www2.itif.org/2016-demographics-ofinnovation.pdf?_ga=1.222202520.1864595962.1456414698.
240
George Mason Institute for Immigration Studies, “The Nobel Prize:
Excellence Among Immigrants” (November 2013),
http://s3.amazonaws.com/chssweb/documents/20864/original/Nobel_Prize_Re
search_Brief_Final.pdf?1447975594; Slate, “Foreigners Hold Half of All U.S.
Patents Annually” (April 10, 2014),
http://www.slate.com/blogs/moneybox/2014/04/10/american_innovation_imm
igrants_hold_half_of_all_u_s_patents_annually.html; Marjolaine GauthierLoiselle and Jennifer Hunt, “How Much Does Immigration Boost
Innovation?” (April 2010),
http://pubs.aeaweb.org/doi/pdfplus/10.1257/mac.2.2.31.
241
Giovanni Peri, “Impact of Immigrants in Recession and Economic
Expansion” (June 2010), http://www.migrationpolicy.org/research/impactimmigrants-recession-and-economic-expansion; George Borjas, “The
analytics of the wage effect of immigration” (2013),
http://link.springer.com/article/10.1186%2F2193-9039-2-22.
242
Gihoon Hong and John McLaren, “Are Immigrants a Shot in the Arm for
the Local Economy?” (April 2015), http://www.nber.org/papers/w21123.
243
Giovanni Peri, Kevin Y. Shih, and Chad Sparber, “Foreign STEM Workers
and Native Wages and Employment in U.S. Cities” (May 2014),
http://www.nber.org/papers/w20093.
244
Health Affairs, “Immigrants Contributed An Estimated $115.2 Billion
More To The Medicare Trust Fund Than They Took Out In 2002–09” (2013),
http://content.healthaffairs.org/content/32/6/1153.full.pdf+html.
245
Social Security Administration, “Effects of Unathorized Immigration on
the Actuarial Status of the Social Security Trust Funds” (April 2013),
https://www.socialsecurity.gov/oact/NOTES/pdf_notes/note151.pdf.
246
CRS, “Noncitizen Eligibility for Federal Public Assistance: Policy
Overview and Trends” (September 24, 2014),
https://www.fas.org/sgp/crs/misc/RL33809.pdf.
247
George Borjas, “Immigration and the American Worker” (April 2013),
http://cis.org/sites/cis.org/files/borjas-economics.pdf.
248
Paul Krugman, “Realistic Growth Prospects,” The New York Times,
February 23, 2015, http://krugman.blogs.nytimes.com/2016/02/23/realisticgrowth-prospects/.
249
ERP, p. 236
250
Barack Obama, “Remarks of President Obama – State of the Union
Address as Delivered,” January 13, 2016, https://www.whitehouse.gov/thepress-office/2016/01/12/remarks-president-barack-obama-%E2%80%93prepared-delivery-state-union-address.
251
For additional information, see Office of Management and Budget,
“Budget of the United States Government, Fiscal Year 2017,” 2016,
292
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/bud
get.pdf, p. 46-48.
252
Ezra Klein, “Now is the time to be an infrastructure hawk, not a deficit
hawk,” The Washington Post, June 5, 2013,
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/05/now-is-thetime-to-be-an-infrastructure-hawk-not-a-deficit-hawk/.
253
ERP, p. 282.
254
ERP, p. 287.
255
American Society of Civil Engineers (ASCE), “2013 Report Card for
America’s Infrastructure,” March 2013,
http://www.infrastructurereportcard.org/a/documents/2013-Report-Card.pdf.
256
Office of Management and Budget, “Budget of the United States
Government, Fiscal Year 2017,” 2016,
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/bud
get.pdf, p. 24.
257
ERP, p. 60.
258
Office of Management and Budget, “Budget of the United States
Government, Fiscal Year 2017,” 2016,
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/bud
get.pdf, p. 26.
259
Ibid, p. 19-26.
260
For additional information, see Charlie Anderson, “Startup in a Day: Four
Things You Should Know,” The White House, August 4, 2015,
https://www.whitehouse.gov/blog/2015/08/04/startup-day-four-things-youshould-know.
261
Karen Gordon Mills and Brayden McCarthy, “The State of Small Business
Lending: Credit Access during the Recovery and How Technology May
Change the Game,” Harvard Business School, Working Paper 15-004, July
22, 2014, http://www.hbs.edu/faculty/Publication%20Files/15-004_09b1bf8beb2a-4e63-9c4e-0374f770856f.pdf.
262
ERP, p. 29-30.
263
ERP, p. 219.
264
ERP, p. 22.
265
ERP, p. 49.
266
Council of Economic Advisers, 2015 Economic Report of the President,
February 2015,
https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.p
df.
267
Kimberly A. Clausing, “The Revenue Effects of Multinational Firm
Income Shifting,” Tax Notes, March 28, 2011,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2488860.
268
“Big U.S. firms hold $2.1 trillion overseas to avoid taxes,” Reuters,
October 6, 2015, http://www.reuters.com/article/us-usa-tax-offshoreidUSKCN0S008U20151006.
269
OECD, “Income Distribution and Poverty” (accessed February 29, 2016),
https://stats.oecd.org/Index.aspx?DataSetCode=IDD
270
The World Bank, “GINI index, World Bank estimate” (accessed February
29, 2016), http://data.worldbank.org/indicator/SI.POV.GINI.
293
271
Max Fisher, “Map: How the world’s countries compare on income
inequality (the U.S. ranks below Nigeria)” The Washington Post, September
27, 2013,
https://www.washingtonpost.com/blogs/worldviews/wp/2013/09/27/maphow-the-worlds-countries-compare-on-income-inequality-the-u-s-ranksbelow-nigeria.
272
Joint Economic Committee Democratic Staff, 113th Congress, “ Income
Inequality in the United States” January 2014,
http://www.jec.senate.gov/public/_cache/files/d72ff522-e470-496d-90ffb8f7ac9c4c2c/income-inequality-in-america.pdf
273
Bureau of Labor Statistics, “Characteristics of Minimum Wage Workers,
2014” April 2015, http://www.bls.gov/opub/reports/cps/characteristics-ofminimum-wage-workers-2014.pdf.
274
David Cooper, “The Minimum Wage Used to be Enough to Keep Workers
Out of Poverty—It’s Not Anymore” December 4, 2013,
http://www.epi.org/publication/minimum-wage-workers-poverty-anymoreraising/; and “Federal Poverty Level (FPL)” Healthcare.gov (accessed
February 29, 2016), https://www.healthcare.gov/glossary/federal-povertylevel-FPL/.
275
Bryce Covert, “Raising the Minimum Wage to $10.10 Could Lift Nearly 5
Million Out of Poverty” January 3, 2014,
http://thinkprogress.org/economy/2014/01/03/3115831/minimum-wagepoverty.
276
ERP, p. 49.
277
CLASP, “Research shows long-lasting benefits of EITC” January 2013.
278
“Policy Basics: The Earned Income Tax Credit,” Center on Budget and
Policy Priorities, Updated January 20, 2015,
http://www.cbpp.org/cms/?fa=view&id=2505.
279
Ibid.
280
ERP, p. 39.
281
Department of Health and Human Services, “The ACA is Working for
Young Adults” (accessed February 29, 2016),
http://www.hhs.gov/healthcare/facts-and-features/fact-sheets/aca-workingyoung-adults/index.html.
282
The Institute for College Access, “Student Debt and the Class of 2014”
October 2015, http://ticas.org/sites/default/files/pub_files/classof2014.pdf.
283
ERP, p. 22.
284
JEC Democratic staff calculations based on data from Bureau of Labor
Statistics, Unpublished Table: Employment status of the civilian
noninstitutional population by sex, age, presence and age of youngest child,
marital status, race, and Hispanic origin, March 2014 ASEC, (Provided on
December 3, 2015).
285
U.S. Census Bureau, Historical Income Tables Table P-40: Women’s
Earnings as a Percentage of Men’s Earnings by Race and Hispanic Origin
(Data for 2014 are based on median earnings of full-time, year-round workers
15 and older as of March 2015),
http://www.census.gov/hhes/www/income/data/historical/people/.
286
According to the Center for American Progress, the “career earnings gap”
is now nearly $434,000. The Institute for Women’s Policy Research (IWPR)
294
has separately estimated that women born between 1955 and 1959 who
worked full-time, year-round each year lost more than $530,000 by the time
they reached age 59. Reports are available at
https://www.americanprogressaction.org/wpcontent/uploads/issues/2008/pdf/equal_pay.pdf and
http://statusofwomendata.org/app/uploads/2015/09/PDF-of-finalEmployment-Earnings-chapter-9-4-15.pdf.
287
JEC Democratic Staff 114th Congress, “How Working Mothers Contribute
to the Economic Security of American Families” May 7, 2015,
http://www.jec.senate.gov/public/index.cfm/democrats/2015/5/how-workingmothers-contribute-to-the-economic-security-of-american-families.
288
JEC Democratic staff calculations based on data from the U.S. Census
Bureau, PINC-08: Source of Income in 2014 - People 15 Years Old and Over,
by Income of Specified Type in 2014, Age, Race, Hispanic Origin, and Sex
(Both Sexes, 65 Years and Over, All Races),
https://www.census.gov/hhes/www/cpstables/032015/perinc/pinc08_000.htm
289
U.S. Census Bureau, Table POV01: Age and Sex of All People, Family
Members and Unrelated Individuals Iterated by Income-to-Poverty Ratio and
Race (Below 100 Percent of Poverty, All Races, 2014),
http://www.census.gov/hhes/www/cpstables/032015/pov/pov01_000.htm.
290
International Monetary Fund, “Catalyst for Change: Empowering Women
and Tackling Income Inequality” October 2015,
http://www.imf.org/external/pubs/ft/sdn/2015/sdn1520.pdf; and OECD, “In It
Together: Why Less Inequality Benefits All” May 21, 2015,
http://dx.doi.org/10.1787/9789264235120-en.
291
ERP, p. 33.
292
OECD “Closing the Gender Gap: Act Now” Table I.A3.1, December 17,
2012, http://www.oecd.org/gender/closingthegap.htm.
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