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1
Union Calendar No. 81
117TH CONGRESS
"
1st Session
HOUSE OF REPRESENTATIVES
!
REPORT
117–111
THE 2021 JOINT ECONOMIC REPORT
R E P O R T
OF THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ON THE
2021 ECONOMIC REPORT
OF THE PRESIDENT
U.S. GOVERNMENT PUBLISHING OFFICE
WASHINGTON
45–240
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rmajette on DSKBCKNHB2PROD with HEARING
JULY 28, 2021.—Committed to the Committee of the Whole House on
the state of the Union and ordered to be printed
JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5 (a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES
DONALD S. BEYER JR., Virginia, Chairman
DAVID TRONE, Maryland
JOYCE BEATTY, Ohio
MARK POCAN, Wisconsin
SCOTT PETERS, California
SHARICE L. DAVIDS, Kansas
DAVID SCHWEIKERT, Arizona
JAIME HERRERA BEUTLER, Washington
JODEY C. ARRINGTON, Texas
RON ESTES, Kansas
SENATE
MARTIN HEINRICH, New Mexico, Vice Chairman
AMY KLOBUCHAR, Minnesota
MARGARET WOOD HASSAN, New Hampshire
RAPHAEL G. WARNOCK, Georgia
MARK KELLY, Arizona
MIKE LEE, Utah, Ranking Member
TOM COTTON, Arkansas
ROB PORTMAN, Ohio
BILL CASSIDY, M.D., Louisiana
TED CRUZ, Texas
Tamara L. Fucile, Executive Director
Vanessa Brown Calder, Republican Staff Director
II
LETTER OF TRANSMITTAL
__________________
July 28, 2021
HON. NANCY PELOSI
Speaker, U.S. House of Representatives
Washington, DC
DEAR MADAM SPEAKER:
Pursuant to the requirements of the Employment Act of 1946, as
amended, I hereby transmit the 2021 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,
Donald S. Beyer Jr.
Chairman
III
CONTENTS
CHAIRMAN’S VIEWS .................................................................... 1
CHAPTER 1: CREATING SHARED PROSPERITY AFTER AN
UNPRECEDENTED CRISIS ......................................................... 4
President Trump had the worst economic record of any
modern U.S. president ........................................................... 4
President Trump’s policies hurt American workers and
families before the coronavirus pandemic ............................ 6
President Trump’s failure to address the coronavirus
pandemic had deadly consequences ..................................... 8
The American Rescue Plan and the Biden administration’s
successful vaccination program have delivered a robust
economic recovery .............................................................. 10
Broadly shared economic growth requires real investments
in physical infrastructure and care economy
infrastructure ...................................................................... 13
Congress can invest in America’s future without burdening
working families .................................................................. 14
CHAPTER 2: PUBLIC INVESTMENT IS KEY TO FUTURE
ECONOMIC GROWTH ............................................................... 16
Investing in physical infrastructure to increase U.S. capital
stock and power future economic growth ........................... 16
Increasing U.S. labor force participation and labor
productivity ......................................................................... 19
Growth through innovation ................................................. 22
CHAPTER 3: THE CARE ECONOMY IS CRITICAL
INFRASTRUCTURE .................................................................... 23
Care work supports the balance between work and family,
and care workers should be valued accordingly ................ 24
Care work strengthens labor force ties, especially for
women ................................................................................. 25
The resilience of working families is dependent on
expanding access to quality, dependable and affordable
care...................................................................................... 26
The long-term benefits of investing in care work
infrastructure are enormous ............................................... 28
V
VI
CHAPTER 4: AMERICA HAS THE FISCAL SPACE TO INVEST FOR
THE FUTURE ............................................................................ 30
“Output gap” criticisms of government fiscal policies do not
pass muster.......................................................................... 30
Expectations of medium and long-term inflation are modest
and well within normal ranges for recent inflation ............ 33
Low interest rates provide an opportunity to make long-term
investments .......................................................................... 35
CHAPTER 5: RAISING REVENUE THROUGH CONSISTENT TAX
ENFORCEMENT AND A FAIR TAX CODE.................................. 37
Estimates of the tax gap reach the trillions of dollars ........ 38
The IRS’s budget and staff have been slashed, leading to
deteriorating tax enforcement ............................................. 39
The wealthy take advantage of lax tax enforcement ........... 41
Increased enforcement and reporting requirements will
boost revenue ...................................................................... 42
Corporations and the wealthy should pay their fair share . 48
CONCLUSION ............................................................................ 51
ENDNOTES ................................................................................ 52
VIEWS OF RANKING MEMBER MIKE LEE ............................... 77
CHAPTER 1: THE YEAR IN REVIEW......................................... 80
PRE-PANDEMIC: JANUARY AND FEBRUARY........................... 80
POST-PANDEMIC: MARCH THROUGH DECEMBER, ECONOMIC
RESPONSE ................................................................................ 90
MARCH THROUGH DECEMBER: CONSTRAINTS ON THE
ECONOMY ................................................................................ 99
CHAPTER 2: POLICIES FOR RECOVERY – CONNECTING MORE
PEOPLE TO WORK & SUPPORTING FAMILIES ........................ 103
CONNECTING PEOPLE TO WORK ......................................... 103
Improving Healthcare Response and Vaccination Rates
Come First......................................................................... 103
Reducing Regulatory Barriers Is Important in Order to
Clear the Path for Recovery.............................................. 105
Preparing a Skilled Workforce Remains an Imperative ... 113
SUPPORTING FAMILIES ......................................................... 117
Improving Family Affordability through the Tax Code .... 118
Increasing Family Flexibility ............................................ 121
VII
Increasing Childcare Access and Affordability ................ 122
Improving the Quality of K-12 Education......................... 125
CONCLUSION ............................................................................ 131
Recommendations ............................................................. 131
ENDNOTES ................................................................................ 133
1
117th CONGRESS
1st Session
}
HOUSE OF REPRESENTATIVES
{
REPORT
117-111
THE 2021 JOINT ECONOMIC REPORT
_____________
JULY 28, 2021 – Committed to the Committee of the Whole House on the state of
the Union and ordered to be printed
_______________
MR. BEYER, from the Joint Economic Committee,
submitted the following
REPORT
Report of the Joint Economic Committee on the 2021 Economic Report of the
President
CHAIRMAN’S VIEWS
I am pleased to share the Joint Economic Committee (JEC)
Democratic response to the 2021 Economic Report of the
President. The JEC is required by law to submit findings and
recommendations in response to the Economic Report of the
President (the Report), which is prepared and released each year
by the Council of Economic Advisers (CEA). This year’s report
was published by the outgoing Trump administration in January
2021.
Much has changed since the Report was originally released.
President Biden has been sworn into office, the American Rescue
2
Plan has been passed into law and coronavirus vaccinations have
become available to all Americans over the age of 12. As I write
this, the United States is in the midst of recovering from the
economic downturn caused by the coronavirus pandemic. With
vaccination rates increasing, a return to normal levels of economic
activity is within reach. The stimulus provided by the American
Rescue Plan is playing a crucial role in smoothing and facilitating
this transition back to a more normal economy.
This response assesses where we are and how we got here, but it
focuses primarily on forward-looking policies to invest in our
future economic growth and establish a stronger, more equitable
and more just economy. Achieving these goals requires making
long-term investments in our physical and human infrastructure
and addressing long-standing racial and gender inequalities.
This response will also consider and analyze concerns that have
been raised that the federal government does not have the fiscal
capacity to make these investments, especially on top of the
stimulus funds already passed. As Congress considers the
American Jobs Plan and the American Families Plan, or other
legislative proposals, it is crucial to remember there are revenueraising options to ensure public investments are not entirely
deficit-financed.
But even more importantly, we must keep in mind that investing
in our physical and human infrastructure will increase and enhance
the two primary inputs of economic growth—capital and labor.
Therefore, these investments will increase our economy’s future
potential output and improve future economic growth prospects.
Regardless of the exact set of options we use to pay for these
investments, their returns will be greater than the opportunity costs
of financing them.
3
We have an opportunity to rebuild a stronger, more equitable,
more just economy. It is the economically sound thing to do, it is
the right thing to do and it will be a legacy we can be proud of.
DONALD S. BEYER JR.
CHAIRMAN
4
CHAPTER 1: CREATING SHARED PROSPERITY AFTER
AN UNPRECEDENTED CRISIS
Millions of Americans have returned to work and the United States
is experiencing strong economic growth thanks to the American
Rescue Plan and the successful vaccination program overseen by
President Biden. President Trump’s policies and his failed
response to the coronavirus pandemic left him with the worst
economic record of any modern U.S. president. Even before the
pandemic, the Trump administration implemented policies that
harmed working families.1 Despite the strong economic recovery
under the Biden administration and the 117th Congress, additional
investments in physical and human infrastructure are necessary to
advance long-term, broadly shared economic growth.
President Trump had the worst economic record of any modern
U.S. president
President Trump inherited the longest economic expansion in U.S.
history from President Obama and left as the first president since
World War II to oversee net American job loss during his term in
office.2 President Obama left President Trump an economy that
was growing and adding jobs. Specifically, President Obama cut
the unemployment rate from 10 percent to 4.7 percent in January
2017.3 President Obama oversaw an economic comeback in which
the U.S. economy grew by 15 million jobs over 76 consecutive
months, and the economy grew by an average of 2.4 percent during
his second term.4 However, monthly job growth slowed under
President Trump, even before his failed response to the
coronavirus left millions of Americans without jobs.5
President Trump left office with 3 million fewer Americans
employed than when he was sworn in.6 Among the 22 million
Americans who lost their job at the onset of the coronavirus
5
pandemic in the spring of 2020, just over half had returned to work
by January 2021, and there was a net loss of 10 million U.S. jobs
from February 2020 to January 2021.7 Despite inheriting an
economy with 4.7 percent unemployment rate from President
Obama, President Trump left office with an unemployment rate of
6.3 percent.8 If unemployment statistics included workers who left
the labor force and others who have been misclassified, the
unemployment rate would have been 9.7 percent at President
Trump’s departure from the White House.9
Millions of workers left the U.S. labor force during President
Trump’s term in office. From February 2020 through the end of
President Trump’s term, 5 million Americans had stopped looking
for work and left the labor force.10 The labor force participation
rate fell by 1.4 percentage points, and President Trump oversaw
the biggest 12-month decline in labor participation in over 70
years.11
6
The U.S. economy’s performance was particularly poor under
President Trump, and annual real GDP growth averaged only 1
percent during his term—the worst record of any president since
World War II.12
President Trump’s policies hurt American workers and families
before the coronavirus pandemic
President Trump’s economic record before the coronavirus
pandemic was unremarkable, and he implemented policies that
hurt American workers and families. Average monthly job growth
slowed under President Trump, with 183,000 new jobs on average
added during his first three years in office compared to 220,000
new jobs on average each month during the last three years of
President Obama’s administration.13 President Trump’s trade war
with China cost jobs and hurt farmers.14 Job growth in
manufacturing slowed significantly before the coronavirus
pandemic, and manufacturing contracted in 2019.15 President
Trump’s 2017 tax cuts gave a windfall to the wealthy and
corporations without spurring promised business investment.16
7
The Trump administration consistently implemented policies that
favored big businesses at the expense of workers and consumers.
The aftermath of President Trump’s trade war with China was
higher prices, fewer American jobs, more farm bankruptcies and a
larger trade deficit. Studies found that U.S. businesses and
consumers paid almost the entire cost of President Trump’s tariffs,
and an analysis estimated that the tariffs cost American families
an average of $460 over the course of a year.17 Moody’s Analytics
estimated that President Trump’s trade war had cost the United
States almost 300,000 job by September 2019.18 In addition,
farmers suffered because of the trade war, and bankruptcy filings
among small and mid-sized farms increased 20 percent in 2019.19
President Trump failed to deliver on American manufacturing,
thanks in part to his destructive trade war with China.
Manufacturing production fell in 2019, and the sector added just
70,000 new jobs that year, a significant reduction from previous
trends.20
President Trump’s 2017 tax cuts failed to deliver record growth or
increased business investment, instead providing a major windfall
for the wealthy and corporations. Despite promises that the 2017
tax cuts would yield 6 percent economic growth and pay for
themselves, the economic results were paltry.21 Even though the
tax cuts increased the budget deficit by an estimated $1.9 trillion,
real GDP growth in 2019 was just 2.2 percent—below the 2.4
percent average during President Obama’s second term in office.22
Business investment decreased after the tax cuts, slowing to 2.9
percent on average for the eight quarters after the tax cuts
compared to 4.0 percent in the previous eight quarters.23 The
benefits of the tax cuts accrued mostly to the very wealthy and
corporations. Households in the top 1 percent of income were
expected to receive a tax break of $50,000 in 2020, while those in
8
the lowest 20 percent of income were set to receive an average tax
cut of only $60.24
The Trump administration pushed policies that hurt consumers
and workers. President Trump signed a bill under the
Congressional Review Act overturning the Consumer Financial
Protection Bureau’s rule to prohibit binding arbitration
agreements, which can deprive consumers of their ability to
protect their legal rights in a court of law.25 President Trump’s
appointed director of the Consumer Financial Protection Bureau
revised the payday lending rule, allowing lenders to give out highinterest loans without checking whether borrowers had the
financial ability to repay the loans.26 President Trump’s
Department of Labor issued a “joint employer” rule limiting how
and when big businesses could be held accountable for violating
the Fair Labor Standards Act, a rule that would have made it more
difficult for temp workers and workers at franchises to seek
adequate redress for wage-and-hours violations.27 The Trump
administration’s final overtime rule covered 2.8 million fewer
workers than under the proposal from the Obama administration.28
The Economic Policy Institute estimated that the Trump
administration’s overtime rule would cost workers at least $1.2
billion in wages, a figure that would only grow over time.29 The
Trump administration used the power of the federal government
to help large corporations at the expense of workers and
consumers.
President Trump’s failure to address the coronavirus pandemic
had deadly consequences
President Trump repeatedly downplayed the dangers of the
coronavirus, ignored the advice of public health experts and failed
to use his powers as president to effectively address the
coronavirus. At the onset of the pandemic, President Trump
9
publicly downplayed the risks, repeatedly claiming the virus was
“going to disappear.”30 Privately, however, President Trump told
journalist Bob Woodward in February 2020 that the coronavirus
was “more deadly than even your strenuous flus.” Trump
subsequently said to Woodward in a March 2020 private
conversation, “I wanted to always play it down” and “I still like
playing it down, because I don’t want to create a panic.”31
President Trump publicly downplaying the risks of the
coronavirus and his failure to act had deadly costs for Americans.
President Trump spread falsehoods that harmed public health and
went against the advice of public health experts, with serious
consequences for human lives and the U.S. economy. President
Trump dismissed the need for coronavirus tests, touted unproven
medical treatments, mocked the importance of wearing face masks
to prevent the spread of the coronavirus and urged his supporters
to attend crowded political rallies in violation of social distancing
guidelines.32 Researchers estimated that well over 100,000 lives
could have been saved had Americans adopted universal mask
usage in public—something that the Trump administration could
have encouraged.33 According to a study conducted by Goldman
Sachs, the widespread adoption of face masks under a national
mask mandate would have avoided the need for lockdowns and
prevented GDP losses up to 5 percent, or about $1 trillion.34
President Trump resisted efforts to relieve economic suffering
during the pandemic. The House Democratic majority and Senate
Democrats worked on a bipartisan basis during the 116th Congress
to deliver relief to American families, workers and small
businesses affected by the coronavirus pandemic. Bills such as the
Families First Coronavirus Response Act; the Coronavirus Aid,
Relief, and Economic Security Act (CARES) Act; the Paycheck
Protection Program Flexibility Act; and the Consolidated
10
Appropriations Act of 2021 passed through bipartisan votes to
provide critically needed assistance to the American people during
an unprecedented crisis. Thanks to these bills, unemployed
workers received a $600 weekly supplement to unemployment
benefits, direct payments helped families in need, state and local
governments were able to keep essential workers on the job and
small businesses received grants and forgivable loans to help them
survive the pandemic.
However, these bills were not enough to relieve the full scope of
economic suffering in the aftermath of the coronavirus pandemic.
President Trump and his allies refused good-faith negotiations on
a compromise economic relief bill as the $600 federal enhanced
unemployment benefits expired in the summer of 2020,
prolonging economic suffering for unemployed Americans.
President Trump also refused additional federal assistance to state,
city, tribal and territorial governments that employ firstresponders in health care and law enforcement, even as these
governments faced a significant drop in revenue in 2020.35
President Trump exacerbated the human toll and economic
suffering of the coronavirus pandemic through his public
falsehoods about the coronavirus, mismanagement of the federal
government and refusal to negotiate in good faith as economic
relief programs under the CARES Act expired.
The American Rescue Plan and the Biden administration’s
successful vaccination program have delivered a robust
economic recovery
Under President Biden’s administration and the 117th Congress,
America’s economic outlook has significantly improved with the
passage of the American Rescue Plan and the implementation of a
successful vaccination program. The American Rescue Plan
provided vital assistance to small businesses, unemployed
11
workers, families with children, public schools and the state and
local governments that employ first responders. As of the end of
July 2021, 163 million Americans were fully vaccinated,
compared to just 3 million fully vaccinated Americans when
President Biden took office.36 As a result of these efforts, millions
of Americans have returned to work, real GDP is expected to grow
in 2021 at rates not seen in over 30 years and retail sales have
exceeded pre-pandemic levels.
Projections of economic growth are strong and have only become
stronger after the passage of the American Rescue Plan. As of July
2021, CBO projected that the United States would see 7.4 percent
real GDP growth in 2021.37 This was an upward revision in CBO’s
projected growth rate from its February 2021 projection of 3.7
percent real GDP growth, issued before the American Rescue Plan
became law.38 CBO said that its upward revision to real GDP
growth projections for 2021 was due, in part, to “recently enacted
fiscal policies” and “a more rapid return to normalcy.” CBO also
projected 3.1 percent real GDP growth in 2022—higher real GDP
growth than any year under the Trump administration.39
Millions of American have returned to work under President
Biden’s administration and the 117th Congress. Total nonfarm
employment rose by 850,000 in June 2021, and the United States
has added over 3 million jobs in President Biden’s first five
months in office.40 As of June 2021, all 50 states and the District
of Columbia had more jobs and lower unemployment than a year
before.41 At the same time, the number of new unemployment
claims has declined as more Americans have found jobs and
returned to work. In mid-July 2021, new claims for unemployment
benefits fell to 360,000—the lowest point since the beginning of
the pandemic and far below the 1.5 million new claims for the
same week a year earlier.42
12
The trend of Americans returning to work is expected to continue.
CBO expects that in 2022 overall employment will exceed levels
seen before the pandemic and the average unemployment rate will
be 3.8 percent. CBO also projects that average unemployment rate
will be 3.7 percent in 2023.43
Retails sales are also positive as the Biden administration’s
successful vaccination program has allowed more Americans to
resume normal levels of economic activity. Retail sales rose 0.6
percent in June 2021 and were 18 percent above the pre-pandemic
level.44
The outlook for federal budget deficits and public debt continues
to improve under the current administration. From its February
2021 estimate to July 2021, CBO revised down its estimate of
cumulative federal budget deficits for 2022 through 2031 by $173
billion, even as emergency measures temporarily increased the onbudget deficit in 2021. CBO projected the 2021 on-budget federal
deficit will be $158 billion lower than in 2020 and expects the
13
federal budget deficit to continually decline in 2022, 2023 and
2024. CBO also projected that federal debt held by the public as a
percentage of GDP will decline in 2022, 2023 and 2024.45
Inflation expectations in the medium- and long-term are consistent
with price stability and strong economic growth. In July 2021,
CBO projected core PCE price index inflation of 2.0 percent in
2022 and 2.2 percent in 2023.46 Similarly, the Federal Reserve
projected core PCE inflation of 2.1 percent in 2022 and 2023.47
Federal Reserve Chair Jerome Powell testified to Congress that
“longer‑term inflation expectations remain well anchored at 2
percent,” and at the Federal Open Market Committee’s June
meeting, officials reaffirmed the Fed’s commitment to using its
full range of tools to promote its goals of maximum employment
and price stability, including its goal of 2 percent inflation on
average over time.48 Market-based measures of inflation
expectations, including 10-year Treasury breakeven rates also
remain within normal ranges, which suggests that investors share
the Fed’s assessment of inflation risks.49
Thanks to the efforts of the Biden administration and Congress,
the U.S. economy continues to rebound and millions of Americans
have safely returned to work. To promote sustained growth and
shared prosperity, the federal government needs to make long
overdue investments in physical and human infrastructure.
Broadly shared economic growth requires real investments in
physical infrastructure and care economy infrastructure
The American Rescue Plan has put the United States on a course
of rapid economic recovery, but the federal government must
make significant additional investments in physical infrastructure
and the care economy to promote long-term, broadly shared
economic growth. Investing in deteriorating physical
14
infrastructure will yield long-term dividends for economic output.
Federal investment in lagging transportation infrastructure, water
systems, public schools, the power grid and other physical
infrastructure will help maintain America’s economic
competitiveness and increase the productivity of capital.
Investing in care infrastructure will strengthen the overall
economy and support working families, particularly women,
participating fully in the labor market. High-quality investments
in families and children lead to higher human capital and improve
long-term labor productivity. While investing in care
infrastructure will help all Americans, it will be particularly
beneficial for women of color who bear a disproportionate burden
of care duties.50 To bolster economic resilience and long-term
prosperity, the time is now for investing in our crumbling
infrastructure and building new kinds of infrastructure to help
working families participate in the modern economy.
Congress can invest in America’s future without burdening
working families
The United States has the fiscal space to make investments that
generate broadly shared economic growth, and the federal
government can invest in America’s future without burdening
working families. Low interest rates make it possible for
policymakers to invest in infrastructure at a low cost. Inflation
expectations are moderate, and the Federal Reserve has the tools
to maintain long-term price stability. In addition, public
investments offset by new revenue would not have any expected
impact on inflation.
The United States can bring in additional revenue simply by
enforcing the tax laws already on the books. Strengthening IRS
enforcement after years of underfunding and staffing cuts would
15
bring in additional revenue without forcing anyone to pay more
than they already owe. The IRS has options to ensure that wealthy
taxpayers and big corporations pay what they owe, without
burdening working families or saddling small businesses with
egregious audits. In addition, Congress should ensure the very
wealthy and big corporations pay their fair share for public
investments that benefit all Americans.
16
CHAPTER 2: PUBLIC INVESTMENT IS KEY TO FUTURE
ECONOMIC GROWTH
Even before the pandemic and resulting recession, decades of
underinvestment in physical infrastructure—and a failure to invest
in a 21st century care and human infrastructure—limited the
economy’s growth potential. The United States needs to make real
investments in physical and care infrastructure to create long-term,
broadly shared economic growth. Investing in the main drivers of
economic growth—capital and labor—as well as innovationenhancing policies will increase future U.S. economic output.
Investing in physical infrastructure to increase U.S. capital stock
and power future economic growth
In 2018, infrastructure investment was only 1.5 percent of the
United States’ GDP, the third lowest percentage among highincome countries.51 As a 2015 report from the Business
Roundtable noted, public investment in transportation
infrastructure in the United States has fallen from its 1960s high
of 2.2 percent of GDP to only 1.6 percent—well below the five
percent spent by comparable advanced economies.52 In addition,
the federal government’s share of investment in water
infrastructure has fallen from 31 percent in 1977 to only four
percent in 2017, contributing to an $81 billion gap between total
local, state and federal spending and investment needs, according
to an analysis by the American Society of Civil Engineers.53 The
failure of government investment to keep up with water
infrastructure needs means that rising consumer costs are forced
to make up the difference, putting undue pressure on households
with the most demand and the lowest financial capacity. For
example, one analysis found that water bills exceed 10 percent of
monthly disposable income in 11 U.S. cities, including cities
17
considered to have relatively low costs of living, such as Houston
and Indianapolis.54
Investment in other types of physical infrastructure, such as
housing and schools, has also fallen behind in recent decades.
Today, there are only 1.1 million public housing units in the
United States and since 1973 the number of public housing units
has fallen by more than 200,000.55 A Government Accountability
Office survey found that 41 percent of school districts need to
replace or update their heating, ventilation and air conditioning
(HVAC) systems in at least half of their schools.56 More than half
of school districts still use local revenues as the primary financing
for school facilities, which may risk widening existing
inequalities.57
Investments in physical infrastructure will have positive spillover
effects for the broader economy as well. One literature review of
the research into the macroeconomic benefits of infrastructure
investment found that “the median and average estimates of a
review of dozens of studies on infrastructure indicate that each
$100 spent on infrastructure boosts private-sector output by $13
(median) and $17 (average) in the long run.”58
There is strong evidence from the American Recovery and
Reinvestment Act that investing in physical infrastructure creates
long-term economic benefits that exceed the budgetary costs.
Research by the U.S. Conference of Mayors found that $1 in water
and sewer infrastructure investment increases GDP in the longterm by $6.35, and that adding one job in water and sewer creates
almost four jobs in the national economy to support that job.59
Further, past analysis of the American Recovery and
Reinvestment Act by the Congressional Budget Office estimated
18
that $1 spent on infrastructure brought an economic benefit of up
to $2.20.60
Addressing racial inequities must be central to future investments
in U.S. physical infrastructure. For example, access to plumbing
is not equitably distributed.61 American Indian or Alaskan Native
households represent 6.2 percent of U.S. households that lack a
plumbed connection to potable water and sewage despite
representing only 1.5 percent of the overall population. Black
households make up 16.6 percent of the households lacking
complete plumbing but only 12.8 percent of the U.S. population,
and Hispanic families represent 16.7 percent of the un-plumbed
households but only 12.5 percent of U.S. households.62
New investments in transportation infrastructure should correct
harms done by past transportation infrastructure investments. For
example, as NYU School of Law professor Deborah N. Archer
writes, when the federal interstate system was built, “In states
around the country, highway construction displaced Black
households and cut the heart and soul out of thriving Black
communities as homes, churches, schools and businesses were
destroyed. In other communities, the highway system was a tool
of a segregationist agenda, erecting a wall that separated White
and Black communities and protected White people from Black
migration. In these ways, construction of the interstate highway
system contributed to the residential concentration of race and
poverty, and created physical, economic and psychological
barriers that persist.”63
Investment in broadband infrastructure will give communities
access to jobs and improve the productivity of the labor force,
particularly in rural areas. While 75 percent of U.S. adults overall
have access to broadband, only 63 percent of rural residents do.64
19
Research has found that access to broadband is associated with a
1.8 percent increase in the employment rate, with a greater impact
in rural and isolated areas. In the most rural locations, the effect of
changing from no broadband availability to full availability is
more than 2.2 percent increase in the employment rate.65
These are all examples of how underinvestment in physical
infrastructure is a long-standing, pre-existing problem that needs
to be addressed as the United States recovers from the impact of
the coronavirus pandemic. By making these investments that will
improve both the quality and productivity of physical capital, as
well as using the opportunity to address racial inequities in current
physical infrastructure, the United States will also be making
investments in future potential output, powering and driving longterm economic growth.
Increasing U.S. labor force participation and labor productivity
In addition to investing in physical infrastructure, investing in
human infrastructure will increase labor force participation and
productivity. Specifically, investing in child care will facilitate
greater labor force participation—particularly among women—as
well as improve children’s human capital development in ways
that will drive future economic growth for decades to come.
Women’s labor force participation stalled out by 2000 likely in
part because of the failure to invest in paid leave and child care
infrastructure.66 The stalled labor force participation of women
hurts economic growth. One Brookings analysis found that if
American prime-age women’s labor force participation had kept
pace with that of Japanese women’s from 2000 to 2016, for
example, U.S. GDP would have been nearly four percent higher,
or $800 billion greater, than it actually was.67 Because
responsibility for child care continues to fall disproportionately on
20
women, affordable child care is crucial to facilitating greater labor
force participation by women.68 The experience of mothers over
the past year of the pandemic particularly underscores this point.
Mothers’ labor force participation fell dramatically in 2020, first
as schools transitioned to distance learning and again in fall of
2020 as the new school year started—online in many places—after
only partially regaining some of the losses in the summer of
2020.69 Women’s labor force participation is now near its lowest
level in 33 years.70
In addition to helping facilitate greater labor force participation
among women, investment in child care would also boost future
economic growth by increasing the human capital of future
workers. Early childhood environments are crucial for the
development of both cognitive and noncognitive skills, which are
the foundation on which later learning capabilities and earning
potential are built. Research into the effects of early childhood
education have found benefits not only for the individual children
in terms of better school performance, graduation rates and future
earnings, but also for the economy at large with rates of return
between seven and 20 percent depending on the exact program
analyzed.71
Investment in broadband availability will create long-term
benefits for the labor force by helping students access reliable,
high-speed internet. During the pandemic, widespread remote
learning has brought into stark relief the role of reliable internet in
children’s learning and ability to accumulate human capital.
Analysis by the Pew Research Center had previously found that
“roughly one-third (35 percent) of households with children ages
6 to 17 and an annual income below $30,000 a year do not have a
high-speed internet connection at home, compared with just 6
percent of such households earning $75,000 or more a year.”72
21
This digital divide is further exacerbated by racial disparities, with
25 percent of Black teens reporting that they are sometimes or
often unable to complete homework assignments because of a lack
of a reliable computer or internet connection, compared to 13
percent of White teens and 17 percent of Hispanic teens.73 As
schools have relied on online learning during the pandemic,
children’s ability to fully participate in their learning and grow
their human capital has differed based on their family’s economic
and racial demographics.
Racial discrimination in the labor market hurts Americans in
innumerable ways, including hindering workforce productivity by
influencing the career pathways that people pursue. Research
shows that, as social dynamics have shifted over the last 50 years,
Black Americans and women of all races have been able to pursue
careers better suited to their interests and talents. This progress
towards a more equitable distribution of talent across occupations
can account for up to 40 percent of growth in U.S. GDP since
1960.74 When people lose the ability to pursue their talents and
interests, whether through outright hostility, unwelcoming and
unsupportive environments or systemic barriers to advancement,
such as the high costs of higher education, they and society lose
their full labor market potential.
Investing in people can improve the economy’s future potential
output. Facilitating greater labor force participation among women
through greater access to child care, improving human capital
development for American children and providing access to the
technology and opportunities that will allow people to fulfill their
full potential will improve productivity to drive long-term
economic growth.
22
Growth through innovation
The United States should make public investments in order to use
two key inputs of production—capital and labor—more efficiently
and intensely, thereby increasing future potential output and
driving economic growth. Improving total factor productivity,
commonly thought of as innovation, will also increase future
potential economic output. Total factor productivity refers to the
part of output that cannot be explained by the inputs of labor and
capital alone but by the way in which they are combined.75
Policymakers should look for opportunities to improve rates of
future innovation and increase future potential output.
Increasing participation in STEM fields among women and
marginalized communities is one way to drive future innovation.
Research has shown that if more women and Black Americans
were engaged in the technical innovation that leads to patents, U.S.
GDP per capita could be 0.6 to 4.4 percent higher.76 Policies that
encourage more women and underrepresented minorities to go
into and stay in STEM fields will stimulate new innovation and
help ensure that future generations of researchers have supportive
mentors and welcoming work environments. Facilitating wider
participation in STEM fields by skilled and talented people who
are more likely to be sidelined by lack of opportunity or support,
the United States can increase the chances of transformational
leaps forward in innovation that drive future potential output.
23
CHAPTER 3: THE CARE ECONOMY IS CRITICAL
INFRASTRUCTURE
Investing in the care economy is a critical tool for helping working
families and making the economy more productive. Policymakers
should consider the care economy as an important part of
American infrastructure—a concept that has expanded and
evolved over time. The word “infrastructure,” originally a
technical term from railway engineering that referred to the
structure supporting train tracks, has changed drastically through
time to meet the needs of the economy. Today, it broadly refers to
“long-lived, capital-intensive systems and facilities.”77 During the
time of the New Deal, for example, academics and policymakers
expanded the definition of public infrastructure to include
universal access to electricity, a utility few Americans live without
today.78
Similar to the crises of the Great Depression and the Dust Bowl,
the coronavirus pandemic has highlighted the technologies and
resources required to meet the needs of an evolving economy. The
past year made it all too clear that the ability of workers to get to
their job and work may depend just as much on broadband and
care workers as on roads and bridges. It also highlighted the role
of the workers who sustain these essential supports, and how
unlivable wages, poor working conditions and tight margins
prevent the care industry from growing to meet the needs of
workers and families safely and affordably.
The coronavirus pandemic and economic crises have also
highlighted the tragically incomplete and unequal reach of existing
U.S. infrastructure. All Americans, regardless of race, ethnicity,
gender, national origin and religion deserve to be able to care for
their families without risking financial ruin or leaving the labor
24
force entirely. The American Families Plan and the efforts of the
Biden administration will help families balance the demands of
care and work through strengthened care infrastructure.
Ultimately, care work infrastructure supports the balance between
work and family, strengthens ties to the labor force—especially
for women—and increases the resilience of working families in
the face of crises to come.
Care work supports the balance between work and family, and
care workers should be valued accordingly
Human capital infrastructure requires policymakers’ most urgent
attention. In the United States, four out of five parents of young
children report that finding quality, affordable child care in their
area was a serious problem.79 More than 50 percent of families
with young children lived in areas where the demand for licensed
child care far outpaced the local supply, known as “child care
deserts.”80 This is especially true for families of color. One study
that analyzed state-funded preschools found that not one of the 26
states analyzed provided both high quality and high access
preschool for Black and Latino 3- and 4-year-olds.81
The disconnect between the demand for care work and the supply
of care workers can be explained by the low value placed on doing
this work. Care workers, in both child care and elder care,
frequently do not make a living wage. In 40 states, the median
hourly wage for a child care worker is below the living wage, and
in 17 states, the median hourly wage for a child care worker is
below 90 percent of the living wage. The result is that many care
workers are forced to search for alternatives in order to meet their
basic needs like food, rent, medication and their own family’s care
needs.82
25
Care work strengthens labor force ties, especially for women
The future growth of the U.S. economy depends in part on
increasing the labor force participation rate, or the share of the
working-age population that is employed or looking for a job.83
From the mid-1960s through 2000, the U.S. labor force
participation rate rose significantly, partly as a result of millions
of women entering the workforce—mainly those with young
children.84 Women’s labor force participation in the United States
reached a peak in 2000 and then plateaued until the Great
Recession when it declined slightly and settled at a lower plateau
until March 2020. It then fell precipitously as a result of the
pandemic.85
Providing adequate and affordable child care is an important lever
for increasing labor force participation—particularly for women,
who shoulder a disproportionate share of child care
responsibilities.86 OECD countries that offer better family policies
including affordable child care have higher rates of female labor
26
force participation than the United States.87 Research consistently
reveals that maternal labor force participation rises when
affordable child care is available—as much as five to 10
percentage points when the care is available at no cost.88 A study
by the Economic Policy Institute found that capping child care
expenditures at 10 percent of family income could increase overall
women’s labor force participation enough to boost GDP by
roughly $210 billion (1.2 percent).89
The participation rate for mothers with school-age children
declined by 3.3 percentage points between February and
September 2020, while it only declined 1.3 percentage points for
fathers with school-age children.90 As child care centers and
schools closed or shifted to remote learning, mothers shouldered
most of the burden. The resulting decline in women’s participation
is happening at time when women again comprised half of the U.S.
workforce right before the pandemic began.91 For the first time
since April 1986, women’s labor force participation dipped below
55 percent in April 2020.92
The resilience of working families is dependent on expanding
access to quality, dependable and affordable care
In the wealthiest country in the world, parents and adult children
should not be forced to choose between work and providing
quality care for a relative.93 The pain and complexity of those
decisions has been widely publicized in the news of the last year.
For example, many Americans have watched their children
struggle to learn remotely or their parents experience low quality
of care at nursing homes, all while trying to perform their jobs in
an unfamiliar and capricious economic landscape.94
As Americans live longer, more families are facing difficult
choices between work and caring for their aging relatives.95
27
Although between 65 and 70 percent of people ages 65 and older
will need long-term care, the cost of this care is cripplingly
expensive in the United States.96 The median annual cost of home
health care varies among states from almost $40,000 to over
$75,000. In 16 states, the median cost of home health care is above
$60,000 a year.97
Many Americans who are aging, who are ill or who live with a
disability cannot afford to cover the cost of their care, requiring
their relatives to step in and cover the costs. Only slightly more
than one-half of people with severe long-term service and support
needs could fund two years of paid home care themselves, even if
they liquidated all available assets. Only two out of 10 people with
severe long-term service and support needs could fund paid home
care with their income alone.98
Similarly to home health care, the cost and availability of quality,
dependable and affordable child care is not adequate to meet the
needs of all Americans. Nearly 12 million children under age five
are in some form of child care in the United States.99 More than
four out of five (83 percent) parents of young children report that
finding quality, affordable child care in their area was a serious
problem.100 One study that analyzed state-funded preschools
found that not one of the 26 states analyzed provided both high
quality and high access preschool for Black and Latino 3- and 4year-olds.101
In 31 states, a typical married couple with two children (an infant
and a four-year-old) in child care spends on average more than 20
percent of their income on child care. In six states, a typical
married couple with two young children in child care spends more
than 25 percent of their income on child care. In every state, the
average cost of child care for a typical family with two young
28
children exceeds the median cost of rent.102 These costs are not
sustainable and are too often the reason workers choose to leave
the labor force to care for their families.
The long-term benefits of investing in care work infrastructure
are enormous
The failures in American human capital infrastructure discussed
above have enormous consequences and costs for the United
States’ economic prospects. If more Americans were given the
resources to care for their families and pursue work without taking
on the strain of costs pushing them toward personal fiscal cliffs,
the U.S. economy would be more prosperous.103
With access to quality, affordable and dependable child care,
parents can remain in the workforce and earn needed income.
Those who leave the workforce to care for children—
disproportionately mothers—can suffer depressed earnings
throughout their careers.104 The lack of affordable child care is a
major factor driving the gender wage gap, with the median woman
earning 82 percent of what the median man earns.105 Closing the
gender wage gap would add $541 billion to GDP and would reduce
poverty for working women by 40 percent.106
Child care also provides an excellent return on investment in the
children themselves. Economists at the Federal Reserve Bank of
Minneapolis found that investments in child care and early
education are “the most efficient means to boost the productivity
of the workforce 15 to 20 years down the road.”107 Early education
interventions are estimated to have produced returns of $3 to $17
for every dollar invested, with lower crime and teenage birth rates,
higher high school graduation and college attendance rates, and
higher lifetime earnings.108
29
Economists have measured particularly high rates of return for
certain types of human capital infrastructure, including investment
in childhood education and health. Indeed, these policies are so
cost-effective that they often pay for themselves through higher
tax revenues from the increased incomes earned by beneficiaries
of the programs later in life.109 One study found that every dollar
spent on an early childhood program targeting disadvantaged
families in North Carolina resulted in up to $7.30 in benefits in
education, health, social behaviors and employment.110
Low interest rates continue to make timely investment in
infrastructure particularly cost-effective. These economic
conditions also make concerns about crowding out private
investment much less relevant.111 Indeed, present-day conditions
make it more likely for public infrastructure investment to “crowd
in” private activity by promoting overall economic growth, a
primary determinant of business investment.112
Today’s low interest rates and low employment levels mean that
infrastructure investment is at its most cost-effective now.
Lawmakers should take advantage of favorable economic
conditions by investing in a broad set of policies aimed at
addressing the nation’s declining infrastructure quality. In addition
to providing the nation with crucial public goods, if targeted
correctly, these investments will promote racial and economic
equity and help lay the groundwork for stronger, cleaner future
growth.113
30
CHAPTER 4: AMERICA HAS THE FISCAL SPACE TO
INVEST FOR THE FUTURE
The United States has enough fiscal space to make necessary
investments in physical infrastructure and the care economy.
Hypothetical concerns about future Consumer Price Index (CPI)
increases at a time of low interest rates and low projected longterm inflation should not outweigh the current empirical evidence
that there is sufficient fiscal space to make the kind of investments
proposed by the Biden administration, or the existence of revenueraising options.
“Output gap” criticisms of government fiscal policies do not pass
muster
Some critiques of government spending have relied on the “output
gap,” which purports to measure the difference between the actual
and potential output of the economy.114 Hawkish macroeconomic
commentators have said that the American Rescue Plan exceeded
the output gap by at least three times.115 The risk of the stimulus
exceeding the output gap is that it could cause the economy to
overheat, which, over time, could lead to inflation.
However, inflation concerns based on estimates of the output gap
rely on models of potential output that are imperfect and coming
under increased scrutiny. Potential output is an imperfect policy
target because it is hard to estimate accurately, as Federal Reserve
Chair Jerome Powell pointed out in his 2018 speech at Jackson
Hole. Powell referred to the practice of formulating policy using
estimates of the output gap and the natural rates of unemployment
and interest as “navigating by the stars” because the values are
often denoted by an asterisk in economic literature. He warned that
“[g]uiding policy by the stars in practice, however, has been quite
challenging of late because our best assessments of the location of
31
the stars have been changing significantly.”116 As an example of
how difficult it can be to estimate potential output, the
Congressional Budget Office (CBO) revises its estimates of the
output gap every year.
32
The economic policy research group Employ America points out
that models for calculating potential output use outdated
assumptions and methodologies that bake racial inequality into
estimates for the future. For example, they explain that the CBO’s
estimates for potential output rely on a model that assumes that the
2005 unemployment rates for different demographic groups in the
United States are representative of their “natural” rate of
unemployment. This means that the CBO’s estimates assume that
the “natural” rate of unemployment for Black Americans is 10
percent and that policies to drive down that unemployment rate are
unattractive because of their inflation risk.117
Given the difficulty of precisely estimating, or even defining, the
current output gap, policymakers would do better to pursue
policies that will increase the potential output of the economy in
the long-run.
33
Expectations of medium and long-term inflation are modest and
well within normal ranges for recent inflation
Official projections and market expectations for medium and longterm inflation are modest and within normal ranges for recent
inflation. In July 2021, the Federal Reserve projected that core
PCE inflation will be 2.1 percent in 2022, similar to projections by
the Congressional Budget Office of 2.0 percent core PCE inflation
in 2022.118 The Federal Reserve has failed to reach its own two
percent inflation target for most of the past decade, even as
unemployment fell dramatically over the same time.
Evidence suggests that the Phillips Curve—the inverse
relationship between unemployment and inflation—has flattened,
meaning that the relationship between the two has weakened.119
One reason for this is that long-run inflation expectations have
become more firmly anchored.120 As noted by Federal Reserve
34
Chair Jerome Powell recently in testimony to Congress, “[w]ellanchored inflation expectations enhance our ability to meet both
our employment and inflation goals, particularly in the current
low-interest rate environment in which our main policy tool is
likely to be more frequently constrained by the lower bound.”121
Powell has also said that the Fed would be able to take the
necessary actions if expectations became unanchored.122
The central macroeconomic challenge of recent decades has been
a shortfall in aggregate demand, rather than the risk of inflation.123
This is the “secular stagnation” advanced by some to explain the
rate of recovery from the Great Recession.124 In fact, concerns that
inflation expectations had become anchored below two percent led
the Federal Reserve to formulate a new monetary policy
framework, according to which they seek to balance out periods
of below two percent inflation with periods of above two percent
inflation.125 Given that the reality for the past decade has been
weak demand and low inflation, short-term increases in demand
and inflation after an extraordinary year are unlikely to change
these longer-term trends.
The past year has been characterized by a lack of demand as public
health policies to slow the spread of the coronavirus meant people
couldn’t engage in many economic activities, such as dining out,
traveling or going to see a movie. As more people become
vaccinated and demand returns, there have been some immediate,
short-term bumps in CPI because of “base effects”—distortions in
year-over-year measures due to abnormally high or low numbers
in the preceding year. As the Council of Economic Advisers
explained in a blog post on this issue, “[t]welve months later, due
to the suddenness and scale of this earlier decline, we expect yearover-year inflation growth rates for the next few months to be
temporarily distorted by these sorts of base effects.”126
35
Supply chain bottlenecks as demand comes back have also
contributed to some short-term increases in CPI. As companies readjust to new levels of demand, these bottlenecks should clear.
Federal Reserve Chair Powell does not expect them to be
contributors to long-term inflation.127
These short-term increases will not actually affect long-term
trends in inflation because one-off events will not influence
inflation expectations. As Chair Powell said recently when
testifying before Congress, “[i]nflation dynamics do change over
time, but they don’t change on a dime.”128
Low interest rates provide an opportunity to make long-term
investments
Low interest rates continue to make timely investment in
infrastructure particularly cost-effective.129 These economic
conditions also make concerns about crowding out private
investment much less relevant. Indeed, present-day conditions
make it more likely for public infrastructure investment to “crowd
in” private activity by promoting overall economic growth, a
primary determinant of business investment.130
While there are many possible causes for today’s low real interest
rates, they provide a strong signal that now is the right time for
bold public investments. Many investments—particularly
investments in the human capital of today’s children—are all but
guaranteed to generate a social rate of return greater than the cost
of borrowing, even very long-term borrowing, for the U.S.
government—possibly even generating more in future tax revenue
than it takes to fund them today. If the private sector had similar
or better opportunities, here or overseas, for productive
investment, or if owners of capital collectively preferred current
36
consumption to the growth opportunities presented by available
infrastructure investments, then the competition for loanable funds
would have pushed interest rates above their current, rock bottom
levels.131
Low real rates and high expected GDP growth rates make it quite
possible that we are experiencing a period when GDP growth
exceeds the interest rate on U.S. government debt. Under those
circumstances, the national debt will tend to shrink over time,
relative to GDP, even without the government running budget
surpluses.132 In addition, the real cost of servicing the debt—in
other words, interest payments—is currently smaller relative to
GDP than it was in 2000.133
37
CHAPTER 5: RAISING REVENUE THROUGH
CONSISTENT TAX ENFORCEMENT AND A FAIR TAX
CODE
There are also opportunities to increase total spending capacity by
raising additional revenues. The easiest way to do this is by simply
enforcing the tax codes already on the books. In April 2021, IRS
Commissioner Charles Rettig estimated that the tax gap—the
difference between the taxes that are owed and the taxes that are
actually paid—“could approach and possibly exceed $1 trillion”
each year.134 Commissioner Rettig attributed much of the growing
tax gap to the lightly regulated cryptocurrency sector, foreignsource income and the abuse of pass-through provisions.135 As
some taxpayers continuously develop ever more sophisticated
methods of tax evasion, it has become increasingly difficult for the
IRS to maintain strong enforcement efforts, particularly as its
budget and staffing levels have been slashed in recent years.
As a result, not all taxes that are owed are actually paid, and this
tax gap translates into lower revenue, reduced fiscal health for the
nation as a whole, a less progressive tax system and greater
economic inequality. It means that the burden of paying for public
services falls disproportionately on taxpayers who are compliant
and on wage earners whose income is reported and transparent.
Changes to the tax code, particularly as it relates to wealthy
individuals and corporations, are necessary to improve tax
fairness, raise revenue and make the United States more
competitive. But the federal government must also do a better job
of collecting the taxes that are already owed.
Collecting taxes is a basic function of the federal government, and
the IRS needs to be restored with multiyear funding and
investment to better perform this duty. Cracking down on tax
38
avoidance does not increase the amount any individual or
company owes in taxes but rather increases the amount actually
paid—adding revenue that can be used to invest in workers and
families. The Biden administration’s FY 2022 budget request
includes needed investments in the IRS and would provide the IRS
with greater resources to stop sophisticated forms of tax evasion,
collect more information about obscure forms of income and
overhaul outdated technology.136 These increased IRS investments
have the bipartisan support of five recent Treasury secretaries,
who have stressed the importance of collecting unpaid taxes, as
well as economists and former IRS commissioners.137
Estimates of the tax gap reach the trillions of dollars
The tax gap is projected to total $7 trillion over the next decade,
according to the Treasury Department.138 The last official IRS
estimate revealed that the tax gap averaged $441 billion each year
from 2011 to 2013, and the Treasury Department estimates that
after extrapolating for growth in the intervening years, the tax gap
reached $584 billion in 2019.139 Each year, the tax gap costs the
federal government around 3 percent of GDP.140
The tax gap has grown substantially in recent years. Commissioner
Rettig’s estimate of a $1 trillion tax gap would be more than
double the $441 billion average annual gap from 2011 to 2013.141
For those three years, the bulk of the tax gap (80 percent) was due
to the underreporting of income on timely filed tax returns. Failure
to file a tax return on time or at all and the underpayment of
reported taxes accounted for the rest.142 Total unpaid taxes amount
to more than the collective individual income taxes paid by the
bottom 90 percent of earners.143 The top 1 percent account for as
much as 70 percent of the tax gap.144
Much of the tax gap, particularly among the wealthy, is due to
different reporting requirements for different forms of income.
39
Roughly 99 percent of the taxes due on wage and salary income,
which is documented by employers and taxpayers and almost
universally automatically withheld, is reported to the IRS. Only 45
percent of more opaque forms of income—such as capital gains,
rental income, self-employment income and pass-through
business income—is reported.145
The IRS’s budget and staff have been slashed, leading to
deteriorating tax enforcement
The IRS’s overall budget has declined by 20 percent over the last
decade, while its enforcement budget has decreased by more than
20 percent.146 The number of IRS staff is down by 23 percent, or
more than 22,000 employees, over the same period.147 Lower
budgets translate into fewer auditors. In 2017, the IRS had 9,510
auditors—down from over 14,000 in in 2010. The last time the
IRS had so few auditors was in the mid-1950s, when the U.S.
population was half the size it is today.148
Other estimates confirm these trends. In 2020, while testifying
before the House Ways and Means Committee, Chye-Ching
Huang (now the executive director of the Tax Law Center at NYU
Law) showed that, since 2010, overall IRS funding was cut by 21
percent and enforcement funding was cut by 24 percent, while the
number of income tax returns grew by 9 percent.149 At the same
time, the number of operations staff fell by 31 percent, and the
number of revenue agents with the expertise to conduct audits of
complex returns fell by 35 percent.150
40
At the same time, the IRS has taken on more responsibilities,
particularly since 2020. These include two consecutive tax filing
seasons with delayed filing deadlines, three rounds of Economic
Impact Payments (EIPs), a retroactive change to the taxation of
unemployment benefits to provide up to $10,200 in relief and the
administration of the new enhanced child tax benefit.151
Between 2000 and 2018, the share of individual income tax returns
examined by the IRS plummeted by 46 percent, and the share of
corporate income tax returns examined fell by 37 percent.152 The
audit rate for filers with more than $1 million in annual income
fell by 61 percent, while the audit rate for corporations with more
than $1 billion in assets is down 51 percent.153
Audit rates have plummeted across the board but especially for
wealthy taxpayers. The audit rate for millionaires fell from 8.4
percent in 2010 to just 2.4 percent in 2019.154 In the mid-2010s,
the richest 0.01 percent of taxpayers saw close to 30 percent of
their tax returns audited. Just a few years later in 2019, that number
fell to under 10 percent.155 A 2020 report from the Treasury
41
Inspector General for Tax Administration (TIGTA) found that the
IRS failed to investigate more than 369,000 high-income
individuals, with estimated tax due of $21 billion, that did not file
a tax return from 2014 to 2016.156 The IRS successfully detected
tax noncompliance among these households but did not have the
staff to work the cases. Another 510,000 individuals, with an
estimated tax liability of $25 billion, are sitting in the agency’s
inventory streams but are unlikely to be pursued.157
The collapse in enforcement—mainly due to decreased IRS
budgets and staff but also due to a lack of political will—also
manifests itself in taxes on particular forms of income. The audit
rates for both S Corporation and partnership returns—two forms
of pass-through income—have fallen by more than 40 percent
since 2010. High-income individuals, who have seen their audit
rates fall overall, disproportionately own such pass through
businesses.158
The wealthy take advantage of lax tax enforcement
Fewer enforcement capabilities within the IRS mean more
opportunities for the wealthy to take advantage. Estimates suggest
that the top 1 percent account for at least 28 percent and potentially
as much as 70 percent of the tax gap.159 New research from IRS
analysts John Guyton and Patrick Langetieg and economists
Daniel Reck, Max Risch and Gabriel Zucman shows that tax
evasion is significantly higher at the top of the income distribution.
Underreported income rises from 7 percent in the bottom 50
percent of the income distribution to over 20 percent in the top 1
percent of the income distribution.160 This evasion among the top
1 percent is costing the federal government $175 billion per year.
The researchers also demonstrated that random audits
underestimate tax evasion at the top of the income distribution and
do not capture more sophisticated forms of tax evasion, such as
42
utilizing offshore accounts and manipulating pass-through
business income.161 Similarly, economists Natasha Sarin and
Larry Summers found that underreporting of income is more than
five times as high for individuals who earn $10 million or more
each year than it is for those who make under $200,000.162 The
2020 TIGTA report found that almost 880,000 high-income
individuals, with an estimated collective tax liability of nearly $46
billion, did not file tax returns from 2014 to 2016.163
Increased enforcement and reporting requirements will boost
revenue
Increased IRS enforcement and reforms to reporting requirements
will significantly boost federal revenue. Economists Natasha Sarin
and Larry Summers posited in a 2019 paper that the IRS could
shrink the tax gap by around 15 percent over the next decade and
generate over $1 trillion in additional revenue by increasing
enforcement resources, performing more targeted audits of highincome earners, raising information reporting requirements and
investing in information technology. Sarin and Summers found
that increasing audit rates to 2011 levels could generate over $700
billion in additional tax revenue between 2020 and 2029.164
Audits of high-income earners are a more efficient use of IRS
resources and yield greater revenue. In 2013, the IRS estimated
that an extra hour spent auditing someone who earns $200,000 a
year generated only $650, while an extra hour spent auditing
someone who makes $5 million or more a year generated around
$4,900.165 Wealthier individuals tend to have larger tax liabilities,
so discrepancies between what is owed and what is paid can be
larger in magnitude. They also have more complex returns, as their
income frequently comes in more opaque forms where
information reporting and compliance are lower, as well as more
incentives to evade or avoid taxes.
43
Improved information reporting can increase compliance and
shrink the tax gap. Underreporting of income on filed tax returns
accounts for 80 percent of the tax gap, and underreporting is most
common among categories of income that are less visible to the
IRS, such as capital gains, rental income, self-employment income
and pass-through business income.166 Wealthier Americans are
more likely to have these forms of income, and the IRS estimates
that up to 55 percent of such income can go unreported.167 Sarin
and Summers find that increasing reporting requirements for
individual income categories subject to “some information
reporting” and for income subject to “little or no information
reporting” would generate nearly $2 trillion in tax revenue.168
Overhauling antiquated IT systems and increasing IT outlays can
also help shrink the tax gap. In 2018, the IRS spent only $2.5
billion on IT investments—just 15 percent of what Bank of
America spent to serve only a quarter of Americans. Most of the
IRS’s hardware is beyond its useable life, while some of its
software is several releases behind the most up-to-date version.169
Some of the IRS’s IT systems are over 50 years old—the oldest
and highest risk systems in the federal government.170 Maintaining
the antiquated IT systems that layer new systems on top of an
obsolete infrastructure is actually more costly for the IRS than
switching to a modern system.171 Better systems for matching
taxpayer filings with third-party information returns and increased
investigation of mismatches can also yield significant revenue.172
Economists Daniel Reck, Max Risch and Gabriel Zucman also
find that greater fiscal support for the IRS is necessary to combat
widespread tax evasion by the top income earners in the United
States. They propose a number of strategies to clamp down on tax
evasion: greater scrutiny of pass-through businesses, more
comprehensive audits, more thorough litigation of tax disputes,
new regulations that explicitly prohibit legally questionable
44
avoidance strategies and programs to encourage whistleblowing.173
The Congressional Budget Office (CBO) estimates that increasing
IRS funding for examinations and collections by $20 billion over
10 years would increase revenue by $61 billion and that increasing
funding by $40 billion over 10 years would increase revenue by
$103 billion. These estimates only capture the direct effect of
enforcement and do not include the indirect effects, such as
deterrence and greater voluntary compliance.174 Additionally, the
estimates understate the level of investment necessary to restore
the IRS, assume rapidly diminishing returns to modest increases
in investment, exclude the long-run benefits of increased
enforcement beyond a 10-year window and consider a limited
range of IRS interventions (excluding better information reporting
and IT improvements).175
CBO acknowledges that increased funding for IRS enforcement
activities could improve tax compliance and increase federal
revenue, but due to the scorekeeping rules used by Congress, it
does not count this additional revenue in formal cost estimates or
for budget enforcement purposes.176 Under these scorekeeping
rules, CBO does not include added revenue or reductions in
mandatory spending that might result from additional spending.
Congress established these rules to avoid crediting uncertain
potential savings as an offset against certain upfront spending.
CBO does not count potential revenue from legislation in a cost
estimate if that revenue does not come from changes in the tax
code; it also does not count budgetary savings if they result from
funding in authorizing legislation for administrative or program
management activities (such as increased IRS enforcement).177
President Biden’s FY 2022 budget request boosts the IRS’s
funding. The Biden administration’s budget calls for a $13.2
billion baseline budget for the IRS in fiscal year 2022, which
45
would amount to a $1.2 billion or 10.4 percent increase over the
2021 enacted level. Part of that increased baseline budget,
combined with an additional increase of $417 million for tax
enforcement as part of a multiyear initiative to increase tax
compliance and revenues, would boost resources for tax
enforcement by a total of $0.9 billion.178 The IRS would use this
funding to increase oversight of high-income and corporate tax
returns.179
President Biden’s American Families Plan includes significant
investment in the IRS to help pay for the American Families Plan,
President Biden has proposed giving the IRS more enforcement
power and an extra $80 billion over the next 10 years to help crack
down on tax evasion by high-earners and large corporations.180
The plan also includes new disclosure requirements for individuals
who own pass-through businesses and for other wealthy
individuals who may use sophisticated methods to hide income.
The Treasury Department believes that reforms to the IRS and
more aggressive tax enforcement will generate an additional $700
billion in tax revenue over the next decade ($460 billion from
expanded information reporting and $240 billion from increased
IRS staff and upgraded IT systems).181 This is a conservative
estimate, as studies have shown that investments of this magnitude
could generate more than $1 trillion over a decade.182 The
Treasury Department also finds that these reforms will raise $1.6
trillion in the second decade, as investments in the IRS often take
several years to reach their ultimate payoff.183
The Treasury Department has outlined reforms that will provide
the IRS with greater resources to stop sophisticated forms of tax
evasion, provide the agency with more complete information,
overhaul outdated technology and give the IRS the authority to
regulate tax preparers.184 Specifically, the Biden administration
46
“would require financial institutions to report information on
account flows so that earnings from investments and business
activity are subject to reporting more like wages already are.”185
Importantly, this would not create an additional burden on the
taxpayers affected (with income from financial accounts) as
financial institutions would report information they already know
about taxpayers in reports they already file.186 But the IRS would
have the information to verify income, incentivizing taxpayers to
accurately report their income. President Biden has committed to
focusing more aggressive tax enforcement on the most wealthy
individuals, rather than Americans with incomes of less than
$400,000.187
The extra $80 billion would be an increase of two-thirds over the
IRS’s entire funding levels for the past decade. President Biden’s
commitment over the 10 years is important because it signals to
potential tax evaders that stronger enforcement is here to stay, and
it will take time to build up the necessary infrastructure and
technology and to train IRS staff to conduct complex audits. The
disclosure requirements are important because as former IRS
commissioner Fred Goldberg said, “audits alone will never do the
trick.”188 Investment in the IRS truly pays for itself. The IRS
estimates that each additional dollar spent on tax enforcement
yields $4 in revenue. The potential deterrence effects, given that
the U.S. tax system largely depends on voluntary compliance, are
even greater, with an estimated return of $24 for each dollar
invested.189
Only multiyear funding, such as that included in the American
Families Plan, will enable the IRS to make the necessary
reforms—to hire and train staff, make multiyear investments in
upgrading information technology (IT) and build up enforcement
capabilities. IRS Commissioner Rettig told Congress earlier this
year that “mandatory, consistent, adequate, multiyear funding
47
allows us to plan appropriately.”190 More IRS staff must be hired
and trained. It takes four to five years for the IRS to train new staff
to become revenue auditors capable of detecting fraud in the most
complex cases, such as those common among high-income
individuals, partnerships and large corporations.191 IRS staffing
suffered from a hiring freeze from 2011 to 2018, which has
contributed to a generation gap at the agency with as much as 40
percent of the agency’s current workforce eligible to retire in the
next several years.192
The IRS also must overhaul its antiquated IT systems to better
match information and more efficiently process and examine tax
returns. In 2019, the IRS outlined its multiyear IRS Modernization
Plan, which is a six-year strategy to modernize the agency’s IT
infrastructure expected to cost approximately $2.3 billion to $2.7
billion.193 Incremental, yearly funding will not enable the IRS to
fully implement this plan. Many economists and tax policy experts
have consistently made the case for multiyear funding provided
directly through authorizing law, as well as a “multi-year
‘allocation adjustment’ to appropriations” that would allow for
additional appropriations for the IRS that would not count toward
its overall appropriations and thus would not be forced to compete
with other discretionary spending priorities.194
Reforms to and reinvestment in the IRS are necessary to
administer a more fair and effective tax system—one in which
individuals of different income levels and with different sources
of income contribute equitably. A foundational principle of good
taxation is that individuals with the same level of income,
regardless of the type, should pay the same in taxes. Increased
funding and staff as well as improved disclosure requirements,
information and technology will help the IRS pursue high-income
taxpayers who evade their tax liability, ensure that more opaque
forms of income are reported, investigate cases of underreported
48
income and begin to close the tax gap. Even in its current state of
continued disinvestment, the IRS collected more than $3.5 trillion
in taxes in 2018 with a budget of just $11.4 billion; greater
investment will empower the IRS to be even more effective.195
Reforms to the IRS will lead to greater revenue, improved fiscal
health for the nation and a more progressive tax system.
Corporations and the wealthy should pay their fair share
The United States can raise revenue for public investments by
asking corporations and the wealthy to pay their fair share. The
Biden administration has proposed restoring the top individual
marginal tax rate to its pre-2017 Tax Cuts and Jobs Act level and
taxing labor and capital income at the same rates for households
with incomes exceeding $1 million.196 Going beyond current law,
the Biden administration has announced intentions to reform
corporate taxes to raise an additional $2.5 trillion over the next 15
years.197 The plan would set the corporate tax rate at 28 percent,
which is higher than the current 21 percent, but still lower than the
35 percent rate before the passage of the Trump administration’s
tax law. 198 The changes would also bring U.S. corporate taxes
more in line with those of other advanced economies. The only
OECD countries whose corporate taxes account for a lower share
of their GDP than the United States’ are Hungary and Latvia.199
The changes would also help end the “race to the bottom” in
international tax laws, in which countries compete against one
another by lowering their tax rates to attract multinational
corporations’ profits and activities.200 This harms all countries’
abilities to raise adequate revenue to fund necessary public
investments.
49
In June of 2021, the G7 reached an agreement on a U.S. proposal
for international corporate taxation, which was then accepted by
the G20 in July.201 This agreement is evidence of renewed
international cooperation under the Biden administration and
could lead to the largest change in international corporate taxation
in a century, solving a long-running structural problem with
international tax and contributing to the fiscal sustainability of the
American Families Plan and American Jobs Plan.202
The agreement would be an important step in preventing large
companies from shifting their profits to tax havens by requiring
them to pay taxes in the place where they actually sell their
products. The agreement also would institute a global minimum
tax of at least 15 percent on a country by country basis. These
measures would increase tax revenue in the United States and
places with similar tax rates, while making large companies pay
taxes in the places where they actually do business. The
Organisation for Economic Co-operation and Development
50
(OECD) has estimated that the agreement could generate an
additional $150 billion a year overall in tax revenues.203
The OECD announced in early July that 130 countries had agreed
to the proposal on a global minimum tax of at least 15 percent on
multinational corporations. The 130 countries, which include
major economies such as China and India and major tax havens
such as Bermuda and the Cayman Islands, represent more than 90
percent of global GDP.204 The agreement, which is identical to the
one agreed to by the G7 and G20, is a significant accomplishment
for the Biden administration after just six months in office, and as
Treasury Secretary Janet Yellen said, marks “an historic day for
economic diplomacy.”205 The 130 countries endorsed a blueprint
for a global minimum tax and pledged to work for final approval
by the end of October with the new rules set to be implemented by
2023.
In short, there are ample opportunities for raising additional
revenue from the very wealthy and big corporations that will
benefit from long-term investments that boost capital and labor
productivity.
51
CONCLUSION
The United States has chronically underinvested in the inputs to
economic growth—capital and labor—for decades. This hurts our
long-term economic prospects. The American Rescue Plan and the
successful roll out of coronavirus vaccinations have led to a robust
economic recovery. Additional investments in our physical and
human capital that will increase our future potential output are
needed to drive long-term economic growth.
Policies to invest in our crumbling physical infrastructure, bring it
into the 21st century, facilitate the greater labor force participation
of women and allow everyone to make investments in and make
good on their investments in their human capital will all increase
the capital and labor stocks and their productivity, increasing the
future potential output of our economy and driving long-term
economic growth.
We have the fiscal capacity to make these investments, with wellanchored expectations about inflation as well as continuing low
interest rates that make the cost of servicing debt minimal. We
also have revenue-raising options, even before discussion of
raising taxes, with the low-hanging fruit of ensuring that existing
tax laws are enforced, especially so that the wealthy pay their fair
share.
This is a unique moment to rebuild our economy to be stronger,
more equitable and more just. We have the policy tools to meet
the moment.
52
ENDNOTES
JEC Democratic staff, “The Trump Presidency: A Final Economic
Scorecard,” February 12, 2021,
https://www.jec.senate.gov/public/_cache/files/7d9aa96b-429a-494c-907f3ccc5bb31a14/the-trump-presidency---a-final-economic-scorecard.pdf; JEC
Democratic staff, “President Trump’s Record on the Economy,” November
10, 2020, https://www.jec.senate.gov/public/_cache/files/56ebd1d1-bca5493d-880f-e62597e306b9/president-trump-s-record-on-the-economy.pdf; JEC
Democratic staff, “Response of the Joint Economic Committee Democrats on
the 2020 Economic Report of the President,” December 18, 2020,
https://www.jec.senate.gov/public/_cache/files/1c598860-47b3-4693-a1f813f0ddfbc26f/jec-response-to-the-2020-erp-dem-only---normal-format-.pdf.
2
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, All
Employees, Total Nonfarm, https://fred.stlouisfed.org/graph/?g=wMz5; Glenn
Kessler, “Obama’s claim that businesses are in the ‘longest uninterrupted
stretch of job creation,’” The Washington Post, September 15, 2014,
https://www.washingtonpost.com/news/fact-checker/wp/2014/09/15/obamasclaim-that-businesses-are-in-thelongest-uninterrupted-stretch-of-job-creation;
Glenn Kessler, “Biden’s claim that Trump will be the first president with a
negative jobs record, The Washington Post, October 2, 2020,
https://www.washingtonpost.com/politics/2020/10/02/bidens-claim-thattrump-will-be-first-president-with-negative-jobs-record/.
3
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis,
Unemployment Rate, https://fred.stlouisfed.org/series/UNRATE; “The Trump
vs. Obama economy — in 16 charts,” The Washington Post, September 5,
2020, https://www.washingtonpost.com/business/2020/09/05/trump-obamaeconomy/.
4
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, All
Employees, Total Nonfarm, https://fred.stlouisfed.org/graph/?g=wMz5;
Heather Long, “The Trump vs. Obama economy — in 16 charts,” The
Washington Post, September 5, 2020,
https://www.washingtonpost.com/business/2020/09/05/trump-obamaeconomy/; Paul Romer,
https://twitter.com/paulmromer/status/1316366899391807488.
5
Catherine Rampell, “Trump boasts about a great economic record. Too bad
it’s Obama’s,” The Washington Post, August 31, 2020,
https://www.washingtonpost.com/opinions/trump-boasts-about-a-greateconomic-record-too-bad-its-obamas/2020/08/31/1eebc59a-ebb8-11ea-b4bc3a2098fc73d4_story.html.
1
53
6
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, All
Employees, Total Nonfarm, https://fred.stlouisfed.org/graph/?g=FAGb;
Andrew Van Dam, “Trump will have the worst jobs record in modern U.S.
history. It’s not just the pandemic,” The Washington Post, January 8, 2021,
https://www.washingtonpost.com/business/2021/01/08/trump-jobs-record/;
Glenn Kessler, “Biden’s claim that Trump will be the first president with a
negative jobs record,” The Washington Post, October 2, 2020,
https://www.washingtonpost.com/politics/2020/10/02/bidens-claim-thattrump-will-be-first-president-with-negative-jobsrecord/.
7
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, All
Employees, Total Nonfarm, https://fred.stlouisfed.org/graph/?g=FAGi;
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, All
Employees, Total Nonfarm, https://fred.stlouisfed.org/graph/?g=FAGj.
8
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis,
Unemployment Rate, https://fred.stlouisfed.org/graph/?g=FAGp.
9
JEC Democratic staff calculations using Federal Reserve Economic Data,
Federal Reserve Bank of St. Louis, Labor Force Participation Rate,
https://fred.stlouisfed.org/graph/?g=FAGv and U.S. Bureau of Labor
Statistics, Table A-1. Employment status of the civilian population by sex and
age, https://www.bls.gov/news.release/archives/empsit_02052021.pdf.
10
JEC Democratic staff calculations using Federal Reserve Economic Data,
Federal Reserve Bank of St. Louis, Labor Force Participation Rate,
https://fred.stlouisfed.org/graph/?g=FAGv and U.S. Bureau of Labor
Statistics, Table A-1. Employment status of the civilian population by sex and
age, https://www.bls.gov/news.release/archives/empsit_02052021.pdf.
11
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Labor
Force Participation Rate, https://fred.stlouisfed.org/graph/?g=FAGv; Chair
Jerome H. Powell, “Getting Back to a Strong Labor Market,” Board of
Governors of the Federal Reserve System, February 11, 2021,
https://www.federalreserve.gov/newsevents/speech/powell20210210a.htm.
12
David Leonhardt, “Why Are Republican Presidents So Bad for the
Economy?,” The New York Times, February 2, 2021,
https://www.nytimes.com/2021/02/02/opinion/sunday/democratseconomy.html; Rachel Siegel, Andrew Van Dam and Erica Werner, “2020
was the worst year for economic growth since World War II,” The
Washington Post, January 28, 2021,
https://www.washingtonpost.com/business/2021/01/28/gdp-2020-economyrecession/; Wayne Duggan, “How GDP Growth Under Trump Compares To
Clinton, Obama And Other Presidents,” Yahoo, October 29, 2020,
https://www.yahoo.com/now/gdp-growth-under-trump-compares121008953.html.
13
Jan. 2017-Jan. 2020 for President Trump and Dec. 2013-Dec. 2016 for
President Obama. JEC Democratic staff calculations.
54
Mark Zandi, Jesse Rogers and Maria Cosma, “Trade War Chicken: The
Tariffs and the Damage Done,” Moody’s Analytics, September 2019,
https://www.moodysanalytics.com/-/media/article/2019/trade-warchicken.pdf; Gina Heeb, “As small U.S. farms face crisis, Trump’s trade aid
flowed to corporations,” CNBC, September 2, 2020,
https://www.cnbc.com/2020/09/02/as-small-us-farms-face-crisis-trumpstrade-aid-flowed-tocorporations.html.
15
JEC Democratic staff, “What ‘Blue Collar Boom’?” March 20, 2020,
https://www.jec.senate.gov/public/_cache/files/0e7ada08-81db-4f17-bb000cbfb9a6f315/blue-collar-boom-report-final.pdf; Heather Long and Andrew
Van Dam. “U.S. manufacturing was in a mild recession during 2019, a sore
spot for the economy.” The Washington Post. January 17, 2020.
https://www.washingtonpost.com/business/2020/01/17/usmanufacturing-wasmild-recession-during-2019-sore-spot-economy/.
16
JEC Democratic staff, “Two Years of Evidence Show 2017 Tax Cuts Failed
to Deliver Promised Economic Boost,” December 20, 2019,
https://www.jec.senate.gov/public/_cache/files/4150f60c-56af-4b6a-8f0efb0b34aafed8/tax-cuts-fail-to-deliver-promised-economic-boost.pdf.
17
Jeanna Smialek and Ana Swanson, “American Consumers, Not China, Are
Paying for Trump’s Tariffs,” The New York Times, January 6, 2020,
https://www.nytimes.com/2020/01/06/business/economy/trade-wartariffs.html; Quoctrung Bui and Karl Russell, “How Much Will the Trade War
Cost You by the End of the Year?,” The New York Times, September 1, 2019,
https://www.nytimes.com/interactive/2019/business/economy/trade-warcosts.html; Xavier Jaravel and Erick Sager, “What are the Price Effects of
Trade? Evidence from the US and Implications for Quantitative Trade
Models,” Centre for Economic Performance, August 2019,
http://cep.lse.ac.uk/pubs/download/dp1642.pdf.
18
Mark Zandi, Jesse Rogers and Maria Cosma, “Trade War Chicken: The
Tariffs and the Damage Done,” Moody’s Analytics, September 2019,
https://www.moodysanalytics.com/-/media/article/2019/trade-warchicken.pdf.
19
Gina Heeb, “As small U.S. farms face crisis, Trump’s trade aid flowed to
corporations,” CNBC, September 2, 2020,
https://www.cnbc.com/2020/09/02/as-small-us-farms-face-crisis-trumpstrade-aid-flowed-to-corporations.html.
20
Heather Long and Andrew Van Dam. “U.S. manufacturing was in a mild
recession during 2019, a sore spot for the economy.” The Washington Post.
January 17, 2020.
https://www.washingtonpost.com/business/2020/01/17/usmanufacturing-wasmild-recession-during-2019-sore-spot-economy/; Federal Reserve Economic
Data, Federal Reserve Bank of St. Louis, All Employees, Manufacturing,
https://fred.stlouisfed.org/graph/?g=FBKX.
14
55
Rex Nutting, “What ever happened to Trump’s boast of 4%, 5% or even 6%
growth?” MarketWatch, October 2, 2019,
https://www.marketwatch.com/story/how-trumps-economy-went-from-rocketship-to-lead-balloon-2019-09-27; Rebecca Ballhaus, “Trump Says Tax Cuts
Will Supercharge Economic Growth,” The Wall Street Journal, September 29,
2017, https://www.wsj.com/articles/trump-says-tax-cuts-will-superchargeeconomic-growth1506703428; Scott Horsley, “After 2 Years, Trump Tax
Cuts Have Failed To Deliver On GOP's Promises,” NPR, December 20, 2019,
https://www.npr.org/2019/12/20/789540931/2-years-later-trump-tax-cutshave-failed-todeliver-on-gops-promises.
22
Congressional Budget Office, “The Budget and Economic Outlook: 2019 to
2029,” January 28, 2019, https://www.cbo.gov/publication/54918; Federal
Reserve Economic Data, Federal Reserve Bank of St. Louis, Real Gross
Domestic Product, https://fred.stlouisfed.org/series/GDPC1#0; 5 Paul Romer,
https://twitter.com/paulmromer/status/1316366899391807488.
23
House Committee on the Budget, “President Trump Has Failed the
American Economy,” October 29, 2020,
https://budget.house.gov/publications/report/president-trump-hasfailedamerican-economy.
24
Institute on Taxation and Economic Policy, “TCJA by the Numbers, 2020,”
August 28, 2019, https://itep.org/tcja2020/.
25
Andrew Ackerman and Yuka Hayashi, “Congress Makes It Harder to Sue
the Financial Industry,” The Wall Street Journal, October 24, 2017,
https://www.wsj.com/articles/congress-votes-to-overturn-cfpb-arbitrationrule-1508897968; Katherine V.W. Stone and Alexander J.S. Colvin, “The
arbitration epidemic,” Economic Policy Institute, December 7, 2015,
https://www.epi.org/publication/the-arbitration-epidemic/.
26
Scott Horsley, “CFPB Strips Some Consumer Protections For Payday
Loans,” NPR, July 7, 2020, https://www.npr.org/2020/07/07/888499021/cfpbstrips-some-consumer-protections-for-payday-loans.
27
Ben Penn, “Trump Cements Rule to Limit Companies’ Joint-Employer
Risk,” Bloomberg Law, January 12, 2020,
https://news.bloomberglaw.com/daily-labor-report/trump-cements-rule-tolimit-companies-joint-employer-liability; National Employment Law Project,
“Labor Department’s ‘Joint Employer’ Final Rule Exposes More Workers to
Wage Theft,” January 13, 2020, https://www.nelp.org/news-releases/labordepartments-joint-employer-final-rule-exposes-workers-wage-theft/; Laura
Padin, “Federal Court Decision on Joint Employer Rule a Win for Temp
Workers,” National Employment Law Project, September 28, 2020,
https://www.nelp.org/blog/federal-court-decision-joint-employer-rule-wintemp-workers/.
28
Alexia Fernández Campbell, “1.3 million winners and 2.8 million losers
from Trump’s new overtime rule,” Vox, September 24, 2019,
21
56
https://www.vox.com/identities/2019/9/24/20835653/trump-overtime-payrule-explained.
29
Economic Policy Institute, “The Trump administration has abandoned the
Department of Labor’s overtime pay regulations,”
https://www.epi.org/multimedia/overtime-pay-cut/.
30
Daniel Wolfe and Daniel Dale, “'It's going to disappear': A timeline of
Trump's claims that Covid-19 will vanish,” CNN, October 31, 2020,
https://www.cnn.com/interactive/2020/10/politics/covid-disappearing-trumpcomment-tracker/.
31
Robert Costa and Philip Rucker, “Woodward book: Trump says he knew
coronavirus was ‘deadly’ and worse than the flu while intentionally
misleading Americans,” The Washington Post, September 9, 2020,
https://www.washingtonpost.com/politics/bob-woodward-rage-booktrump/2020/09/09/0368fe3c-efd2-11ea-b4bc-3a2098fc73d4_story.html.
32
Christian Paz, “All the President’s Lies About the Coronavirus.” The
Atlantic, November 2, 2020,
https://www.theatlantic.com/politics/archive/2020/11/trumps-lies-aboutcoronavirus/608647/; Glenn Kessler, “Trump’s claim that 99 percent of
coronavirus cases are ‘totally harmless,’” The Washington Post, July 8, 2020,
https://www.washingtonpost.com/politics/2020/07/08/trumps-claim-that-99percent-covid-9-cases-are-totallyharmless/; Sonam Sheth, “Trump says that 'if
we stop testing right now, we'd have very few cases' of the coronavirus,”
Business Insider, June 5, 2020, https://www.businessinsider.com/trump-stopcoronavirus-testing-right-now-havevery-few-cases-2020-6; Aaron Blake,
“Trump’s dumbfounding refusal to encourage wearing masks,” The
Washington Post, June 25, 2020,
https://www.washingtonpost.com/politics/2020/06/25/trumps-dumbfoundingrefusal-encourage-wearingmasks/; Libby Cathey, “Trump, downplaying virus,
has mocked wearing masks for months,” ABC News, October 2, 2020,
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alongside scientific developments on hydroxychloroquine,” ABC News,
August 8, 2020, https://abcnews.go.com/Health/timeline-tracking-trumpalongside-scientificdevelopments-hydroxychloroquine/story?id=72170553.
33
IHME COVID-19 Forecasting Team, “Modeling COVID-19 scenarios for
the United States,” Nature Medicine, October 3, 2020,
https://www.nature.com/articles/s41591-020-1132-9.
34
Goldman Sachs, “Face Masks and GDP,” June 29, 2020,
https://www.goldmansachs.com/insights/pages/facemasks-and-gdp.html; Tory
Newmyer, “The Finance 202: Goldman Sachs says wearing face masks could
save the economy,” The Washington Post, July 1, 2020,
https://www.washingtonpost.com/news/powerpost/paloma/thefinance202/2020/07/01/the-finance-202-goldman-sachs-says-wearing-face-maskscould-save-theeconomy/5efbc17388e0fa7b44f6b7f9/.
57
JEC Democratic staff, “Response of the Joint Economic Committee
Democrats on the 2020 Economic Report of the President,” December 18,
2020, https://www.jec.senate.gov/public/_cache/files/1c598860-47b3-4693a1f8-13f0ddfbc26f/jec-response-to-the-2020-erp-dem-only---normal-format.pdf.
36
Center for Disease Control and Prevention, “COVID-19 Vaccinations in the
United States,” https://covid.cdc.gov/covid-data-tracker/#vaccinations; The
White House, “Remarks by President Biden on the COVID-19 Response and
the Vaccination Program,” July 6, 2021,
https://www.whitehouse.gov/briefing-room/speechesremarks/2021/07/06/remarks-by-president-biden-on-the-covid-19-responseand-the-vaccination-program-6/.
37
Congressional Budget Office, “An Update to the Budget and Economic
Outlook: 2021 to 2031,” July 1, 2021, https://www.cbo.gov/system/files/202107/57218-Outlook.pdf.
38
Congressional Budget Office, “The Budget and Economic Outlook: 2021 to
2031,” February 1, 2021, https://www.cbo.gov/publication/56991.
39
Congressional Budget Office, “An Update to the Budget and Economic
Outlook: 2021 to 2031,” July 1, 2021, https://www.cbo.gov/system/files/202107/57218-Outlook.pdf; Federal Reserve Economic Data, Federal Reserve
Bank of St. Louis, Real Gross Domestic Product,
https://fred.stlouisfed.org/graph/?g=FBwi.
40
Bureau of Labor Statistics, “The Employment Situation — June 2021,” July
2, 2021, https://www.bls.gov/news.release/archives/empsit_07022021.pdf;
The White House, “Remarks by President Biden on the June Jobs Report,”
July 2, 2021, https://www.whitehouse.gov/briefing-room/speechesremarks/2021/07/02/remarks-by-president-biden-on-the-june-jobs-report/.
41
Bureau of Labor Statistics, “State Employment and Unemployment — June
2021,” July 16, 2021,
https://www.bls.gov/news.release/archives/laus_07162021.pdf.
42
U.S. Department of Labor, “Unemployment Insurance Weekly Claims,”
July 15, 2021, https://oui.doleta.gov/press/2021/071521.pdf; Federal Reserve
Economic Data, Federal Reserve Bank of St. Louis, Initial Claims,
https://fred.stlouisfed.org/graph/?g=FBw3.
43
Congressional Budget Office, “An Update to the Budget and Economic
Outlook: 2021 to 2031,” July 1, 2021, https://www.cbo.gov/system/files/202107/57218-Outlook.pdf.
44
Census Bureau, “Advance Monthly Sales for Retail and Food Services, June
2021,” July 16, 2021,
https://www2.census.gov/retail/releases/historical/marts/adv2106.pdf; JEC
Democratic staff calculations.
45
Congressional Budget Office, “An Update to the Budget and Economic
Outlook: 2021 to 2031,” July 1, 2021, https://www.cbo.gov/system/files/202107/57218-Outlook.pdf.
35
58
46
Ibid.
Federal Reserve, Semiannual Monetary Policy Report, July 9, 2021,
https://www.federalreserve.gov/monetarypolicy/files/20210709_mprfullreport
.pdf.
48
Federal Reserve, “Semiannual Monetary Policy Report to the Congress,”
July 14, 2021,
https://www.federalreserve.gov/newsevents/testimony/powell20210714a.htm;
Federal Reserve, “Minutes of the Federal Open Market Committee” June 1516, 2021,
https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20210616.p
df.
49
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, 10Year Breakeven Inflation Rate, https://fred.stlouisfed.org/series/T10YIE.
50
Jocelyn Frye, “On the Frontlines at Work and at Home: The
Disproportionate Economic Effects of the Coronavirus Pandemic on Women
of Color,” Center for American Progress, April 23, 2020,
https://www.americanprogress.org/issues/women/reports/2020/04/23/483846/f
rontlines-work-home/.
51
Global Infrastructure Hub, “Infrastructure Monitor 2020 Data-Driven
Insights Into Selected G20 Infrastructure Priorities,” October 2020,
https://cdn.gihub.org/umbraco/media/3241/gih_monitorreport_final.pdf; JEC
Democratic staff, “The United States Invests Significantly Less in Physical
Infrastructure Than Other Developed Countries,”
https://www.jec.senate.gov/public/_cache/files/5cb115b1-e01f-4d8f-b94a97bab6c30ad2/fast-facts-us-investment-vs.-global-final.pdf.
52
Business Roundtable, “Road to Growth: The Case for Investing in
America’s Transportation Infrastructure,” September 2015,
https://s3.amazonaws.com/brt.org/staging-qeOOpdhhbbqqq3/2015.09.16InfrastructureReport-Final.pdf.
53
American Society of Civil Engineers, “The Economic Benefits of Investing
in Water Infrastructure How a Failure to Act Would Affect the US Economic
Recovery,”
http://www.uswateralliance.org/sites/uswateralliance.org/files/publications/Th
e%20Economic%20Benefits%20of%20Investing%20in%20Water%20Infrastr
ucture_final.pdf.
54
Manuel P. Teodoro, “Measuring Household Affordability for Water and
Sewer Utilities,” Journal – American Water Works Association, Vol. 110,
February 6, 2018,
https://awwa.onlinelibrary.wiley.com/doi/full/10.5942/jawwa.2018.110.0002.
55
Center on Budget and Policy Priorities, “Policy Basics: Public Housing,”
November 15, 2017, https://www.cbpp.org/research/public-housing; Maggie
McCarty, “Introduction to Public Housing,” Congressional Research Service,
January 3, 2014, https://fas.org/sgp/crs/misc/R41654.pdf.
47
59
Government Accountability Office, “K-12 Education: School Districts
Frequently Identified Multiple Building Systems Needing Updates or
Replacement,” GAO-20-494, June 4, 2020,
https://www.gao.gov/products/gao-20-494.
57
American Society of Civil Engineers, “2021 Report Card for American
Infrastructure: Schools,” https://infrastructurereportcard.org/cat-item/schools/.
58
Josh Bivens, “The potential macroeconomic benefits from increasing
infrastructure investment,” Economic Policy Institute, July 18, 2017,
https://www.epi.org/publication/the-potential-macroeconomic-benefits-fromincreasing-infrastructure-investment/.
59
The U.S. Conference of Mayors, “Local Government Investment in
Municipal Water and Sewer Infrastructure: Adding Value to the National
Economy,” August 14, 2008,
https://nacwa50report.org/Content/documents/G3_R8_LocalGovtInvtInMunic
ipalWaterandSewerInfrastructure-Krop-et-al-2008.pdf.
60
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; Jared Katseff,
Shannon Peloquin, Michael Rooney and Todd Wintner, “Reimagining
infrastructure in the United States: How to build better,” July 6, 2020,
McKinsey and Company, https://www.mckinsey.com/businessfunctions/operations/our-insights/reimagining-infrastructure-in-the-unitedstates-how-to-build-better.
61
American Society of Civil Engineers,” The Economic Benefits of Investing
in Water Infrastructure,”
http://www.uswateralliance.org/sites/uswateralliance.org/files/publications/Th
e%20Economic%20Benefits%20of%20Investing%20in%20Water%20Infrastr
ucture_final.pdf.
62
Shiloh Deitz and Katie Meehan, “Plumbing Poverty: Mapping Hot Spots of
Racial and Geographic Inequality in U.S. Household Water Insecurity,”
Annals of the American Association of Geographers, 2019, Vol. 109, No. 4,
https://kclpure.kcl.ac.uk/portal/files/102505217/Plumbing_poverty_mapping_
hot_DEITZ_accepted22August2018_GREEN_AAM.pdf.
63
Deborah N. Archer, “‘White Men’s Roads Through Black Men’s Homes’:
Advancing Racial Equity Through Highway Reconstruction,” 73 Vanderbilt
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64
Andrew Perrin, “Digital gap between rural and nonrural America persists,”
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65
Hilal Atasoy, “The Effects of Broadband Internet Expansion on Labor
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56
60
Elisabeth Jacobs and Kate Bahn, “Women’s History Month: U.S. women’s
labor force participation,” Washington Center for Equitable Growth, March
22, 2019, https://equitablegrowth.org/womens-history-month-u-s-womenslabor-force-participation/.
67
Jay Shambaugh, Ryan Nunn and Becca Portman, “Lessons from the rise of
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1, 2017, https://www.brookings.edu/research/lessons-from-the-rise-ofwomens-labor-force-participation-in-japan/.
68
JEC Democratic staff, “We Need To Save Child Care Before It's Too Late,”
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2D-A871-4112-BC94-2ABDE49BA6A7.
69
Olivia Lofton, Nicolas Petrosky-Nadeau and Lily Seitelman, “Parental
Participation in a Pandemic Labor Market,” Federal Reserve Bank of San
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70
Claire Ewing-Nelson, “Another 275,000 Women Left the Labor Force in
January,” National Women’s Law Center, February 2021,
https://nwlc.org/resources/january-jobs-day-2021/; Federal Reserve Economic
Data, Federal Reserve Bank of St. Louis, “Labor Force Participation Rate –
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71
Elisabeth Jacobs and Liz Hipple, “Are today’s inequalities limiting
tomorrow’s opportunities?,” Washington Center for Equitable Growth,
October 3, 2018, https://equitablegrowth.org/research-paper/are-todaysinequalities-limiting-tomorrowsopportunities/?longform=true#how_does_economic_inequality_limit_the_dev
elopment_of_human_potential%3F; Jean Burr and Rob Grunewald, “Lessons
Learned: A Review of Early Childhood Development,” April 2006,
http://citeseerx.ist.psu.edu/viewdoc/download;jsessionid=B0CDC2BD6D4DC
721E430A8AC6C6B2D34?doi=10.1.1.141.5961&rep=rep1&type=pdf.
72
Brooke Auxier and Monica Anderson, “As schools close due to the
coronavirus, some U.S. students face a digital ‘homework gap,’” Pew
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73
Ibid.
74
Chang-Tai Hsieh, Erik Hurst, Charles I. Jones and Peter J. Klenow, “The
Allocation of Talent and U.S. Economic Growth,” Econometrica, Vol. 87, No.
5, September 2019, https://web.stanford.edu/~chadj/HHJK.pdf.
75
Robert Shackleton, “Total Factor Productivity Growth in Historical
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66
61
Lisa Cook and Jan Gerson, “The implications of U.S. gender and racial
disparities in income and wealth inequality at each stage of the innovation
process,” Washington Center for Equitable Growth, July 24, 2019,
https://equitablegrowth.org/the-implications-of-u-s-gender-and-racialdisparities-in-income-and-wealth-inequality-at-each-stage-of-the-innovationprocess/; Lisa Cook, “Racism Impoverishes the Whole Economy,” The New
York Times, November 18, 2020,
https://www.nytimes.com/2020/11/18/business/racism-impoverishes-thewhole-economy.html.
77
Congressional Research Service, “Infrastructure Investment and the Federal
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https://crsreports.congress.gov/product/pdf/IF/IF10592.
78
Jim Tankersley and Jeanna Smialek, “Biden Plan Spurs Fight Over What
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https://www.nytimes.com/2021/04/05/business/economy/bideninfrastructure.html.
79
Rasheed Malik, Katie Hamm, Leila Schochet, Cristina Novoa, Simon
Workman and Steven Jessen-Howard, “America’s Child Care Deserts in
2018,” Center for American Progress, December 6, 2018,
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80
“An Open Letter from Economists in Support of Child Care Relief,”
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sts-letter.pdf.
81
The Education Trust, “Young Learners, Missed Opportunities: Ensuring
That Black and Latino Children Have Access to High-Quality State-Funded
Preschool,” November 2019, https://s3-us-east2.amazonaws.com/edtrustmain/wpcontent/uploads/2014/09/05162154/Young-Learners-MissedOpportunities.pdf.
82
Center for the Study of Child Care Employment, “Early Childhood
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83
Edith S. Baker, “Down and down we go: the falling U.S. labor force
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84
Allyson Sherman Grossman, “Special Labor Force Reports-Summaries,”
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85
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Labor
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76
62
Nicole Bateman and Martha Ross, “Why has COVID-19 been especially
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87
OECD Economics Department, “Female Labour Force Participation: Past
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88
Rasheed Malik, “The Effects of Universal Preschool in Washington, D.C.,”
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89
Josh Bivens, Emma García, Elise Gould, Elaine Weiss and Valerie Wilson,
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90
Ernie Tedeschi, “The Mystery of How Many Mothers Have Left Work
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91
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis,
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https://fred.stlouisfed.org/series/CES0000000039.
92
Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Labor
Force Participation Rate – Women,
https://fred.stlouisfed.org/series/LNS11300002.
93
“Gross domestic product 2020,”
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94
Dana Goldstein, “Research Shows Students Falling Months Behind During
Virus Disruptions,” The New York Times, June 5, 2020,
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https://www.nytimes.com/2021/05/06/health/covid-nursing-homes.html.
95
Lauren Medina, Shannon Sabo and Jonathan Vespa, “Living Longer:
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86
63
Kristi L. Kirschner, Lisa I. Iezzoni and Tanya Shah, “The Invisible COVID
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97
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98
Richard W. Johnson and Claire Xiaozhi Wang, “How Many Older Adults
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99
Valerie Strauss, “Advice from two experts on how Biden and Harris can
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100
Rasheed Malik, Katie Hamm, Leila Schochet, Cristina Novoa, Simon
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101
The Education Trust, “Young Learners, Missed Opportunities: Ensuring
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102
Child Care Aware of America, “The US and the High Price of Child Care
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103
Alicia Sasser Modestino, Jamie J. Ladge, Addie Swartz, and Alisa Lincoln,
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104
Rasheed Malik, “The Effects of Universal Preschool in Washington, D.C.,”
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96
64
Janelle Jones, “5 Facts About the State of the Gender Pay Gap,” U.S.
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106
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107
Arthur J. Rolnick and Rob Grunewald, “Early Education’s Big Dividends
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108
Lynn A. Karoly, “The Economic Returns to Early Childhood Education,”
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109
Nathaniel Hendren and Ben Sprung-Keyser, “A Unified Welfare Analysis
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110
Jorge Luis García, James J. Heckman, Duncan Ermini Leaf and María José
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111
Jason Furman and Lawrence Summers, “A Reconsideration of Fiscal
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112
Josh Bivens, “Public investment,” Economic Policy Institute, April 18,
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113
Mark Zandi and Bernard Yaros Jr., “Macroeconomic Consequences of the
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114
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116
Jerome H. Powell, “Monetary Policy in a Changing Economy,” Board of
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Jason Furman and Lawrence Summers, “A Reconsideration of Fiscal
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Josh Bivens, “Public Investment: the next ‘new thing’ for powering
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131
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135
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Versprille, “IRS Chief Asks Congress for Authority to Get Cryptocurrency
Data,” Bloomberg, June 8, 2021,
https://www.bgov.com/core/news/#!/articles/QUE3GPDWRGG4.
136
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf; U.S. Department of the Treasury, “Investing in the
IRS and Improving Tax Compliance,” April 28, 2021,
https://home.treasury.gov/news/press-releases/jy0150.
137
Timothy F. Geithner, Jacob J. Lew, Henry M. Paulson Jr., Robert E. Rubin
and Lawrence H. Summers, “We Ran the Treasury Department. This Is How
128
67
to Fix Tax Evasion,” The New York Times, June 9, 2021,
https://www.nytimes.com/2021/06/09/opinion/politics/irs-tax-evasiongeithner-lew-paulson-summers-rubin.html.
138
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf; Natasha Sarin and Larry Summers, “Shrinking the
Tax Gap: Approaches and Revenue Potential,” National Bureau of Economic
Research, Working Paper 26475, November 2019,
https://www.nber.org/papers/w26475; Natasha Sarin, “The I.R.S. Is
Outgunned,” The New York Times, October 2, 2020,
https://www.nytimes.com/2020/10/02/opinion/sunday/irs-tax-incomeinequality.html.
139
This estimate is for the gross tax gap. The IRS estimated that the net tax
gap, which accounts for enforcement efforts and late payments, was $381
billion for tax years 2011 to 2013. Internal Revenue Service, “Tax Gap
Estimates for Tax Years 2011-2013,” https://www.irs.gov/newsroom/the-taxgap; U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf.
140
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf.
141
This estimate is for the gross tax gap. The IRS estimated that the net tax
gap, which accounts for enforcement efforts and late payments, was $381
billion for tax years 2011 to 2013. Internal Revenue Service, “Tax Gap
Estimates for Tax Years 2011-2013,” https://www.irs.gov/newsroom/the-taxgap.
142
Tax Policy Center, “What is the tax gap?”
https://www.taxpolicycenter.org/briefing-book/what-taxgap#:~:text=Individual%20Taxes,What%20is%20the%20tax%20gap%3F,percent%20of%20total%20tax%20li
ability.
143
Charles O. Rossotti, Natasha Sarin and Lawrence H. Summers, “Shrinking
the Tax Gap: A Comprehensive Approach,” taxnotes, December 15, 2020,
https://www.taxnotes.com/featured-analysis/shrinking-tax-gapcomprehensive-approach/2020/11/25/2d7ht.
144
Natasha Sarin, Lawrence H. Summers and Joe Kupferberg, “Tax Reform
for Progressivity:
A Pragmatic Approach,” Hamilton Project,
https://www.hamiltonproject.org/assets/files/SarinSummers_LO_FINAL.pdf.
68
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf; U.S. Department of the Treasury, “Investing in the
IRS and Improving Tax Compliance,” April 28, 2021,
https://home.treasury.gov/news/press-releases/jy0150; Internal Revenue
Service, “Federal Tax Compliance Research: Tax Gap Estimates for Tax
Years 2011–2013,” Publication 1415 (Rev. 9-2019),
https://www.irs.gov/pub/irs-pdf/p1415.pdf; Galen Hendricks and Seth Hanlon,
“Better Tax Enforcement Can Advance Fairness and Raise More Than $1
Trillion of Revenue,” Center for American Progress, April 19, 2021,
https://www.americanprogress.org/issues/economy/reports/2021/04/19/49831
1/better-tax-enforcement-can-advance-fairness-raise-1-trillion-revenue/;
Richard Rubin, “Biden’s Big Agenda Relies on a Shrunken, Strained Agency:
The IRS,” The Wall Street Journal, April 20, 2021,
https://www.wsj.com/articles/biden-agenda-relies-on-shrunken-strained-irs11618928830.
146
After adjusting for inflation. U.S. Department of the Treasury, “Investing
in the IRS and Improving Tax Compliance,” April 28, 2021,
https://home.treasury.gov/news/press-releases/jy0150; Government
Accountability Office, “Actions Needed to Address Processing Delays and
Risks to the 2021 Filing Season,” Report to the Committee on Ways and
Means, House of Representatives, March 2021,
https://www.gao.gov/assets/gao-21-251.pdf; Congressional Budget Office,
“Trends in the Internal Revenue Service’s Funding and Enforcement,” July
2020,
https://www.cbo.gov/publication/56467#:~:text=The%20IRS's%20appropriati
ons%20have%20fallen,less%20to%20enforce%20tax%20laws; Emmanuel
Saez and Gabriel Zucman, The Triumph of Injustice: How the Rich Dodge
Taxes and How to Make Them Pay, W.W. Norton and Company, 2020.
147
Government Accountability Office, “Actions Needed to Address
Processing Delays and Risks to the 2021 Filing Season,” Report to the
Committee on Ways and Means, House of Representatives, March 2021,
https://www.gao.gov/assets/gao-21-251.pdf.
148
Emmanuel Saez and Gabriel Zucman, The Triumph of Injustice: How the
Rich Dodge Taxes and How to Make Them Pay, W.W. Norton and Company,
2020.
149
Percentages are in inflation-adjusted terms.
150
Chye-Ching Huang, “Depletion of IRS Enforcement Is Undermining the
Tax Code,” Testimony Before the House Ways and Means Committee,
February 11, 2020, https://www.cbpp.org/research/federal-tax/depletion-ofirs-enforcement-is-undermining-the-tax-code.
151
The filing deadline for 2019 tax returns was pushed back from April 15,
2020, to July 15, 2020. The filing deadline for 2020 tax returns was pushed
back from April 15, 2021, to May 17, 2021. The enhanced child tax credit
145
69
(CTC) included in the American Rescue Plan increases the maximum annual
benefit from $2,000 to $3,600 per child under the age of 6 and $3,000 per
child between 6 and 17 for 2021. The IRS began distributing the enhanced
CTC in July and will do so through December 2021. Heather Long and Tony
Romm, “The IRS is behind in processing nearly 7 million tax returns, slowing
refunds as it implements new stimulus,” The Washington Post, March 12,
2021, https://www.washingtonpost.com/business/2021/03/12/irs-tax-refunddelays/; Chuck Marr, Kris Cox, Stephanie Hingtgen, Katie Windham and
Arloc Sherman, “American Rescue Plan Act Includes Critical Expansions of
Child Tax Credit and EITC,” Center on Budget and Policy Priorities, March
12, 2021, https://www.cbpp.org/research/federal-tax/american-rescue-planact-includes-critical-expansions-of-child-tax-credit-and; Richard Rubin,
“Biden’s Big Agenda Relies on a Shrunken, Strained Agency: The IRS,” The
Wall Street Journal, April 20, 2021, https://www.wsj.com/articles/bidenagenda-relies-on-shrunken-strained-irs-11618928830.
152
Congressional Budget Office, “Trends in the Internal Revenue Service’s
Funding and Enforcement,” July 2020,
https://www.cbo.gov/publication/56467#:~:text=The%20IRS's%20appropriati
ons%20have%20fallen,less%20to%20enforce%20tax%20laws; Treasury
Inspector General for Tax Administration, “Trends in Compliance Activities
Through Fiscal Year 2019,” Report Number: 2021-30-011, March 12, 2021,
https://www.treasury.gov/tigta/auditreports/2021reports/202130011fr.pdf.
153
Chye-Ching Huang, “Depletion of IRS Enforcement Is Undermining the
Tax Code,” Testimony Before the House Ways and Means Committee,
February 11, 2020, https://www.cbpp.org/research/federal-tax/depletion-ofirs-enforcement-is-undermining-the-tax-code; U.S. Department of the
Treasury, “Investing in the IRS and Improving Tax Compliance,” April 28,
2021, https://home.treasury.gov/news/press-releases/jy0150.
154
Chuck Marr, Sam Washington, Samantha Jacoby and David Reich,
“Rebuilding IRS Would Reduce Tax Gap, Help Replenish Depleted Revenue
Base,” Center on Budget and Policy Priorities, April 13, 2021,
https://www.cbpp.org/research/federal-tax/rebuilding-irs-would-reduce-taxgap-help-replenish-depleted-revenue-base.
155
Christopher Ingraham, “The richest 1 percent dodge taxes on more than
one-fifth of their income, study shows,” The Washington Post, March 26,
2021, https://www.washingtonpost.com/business/2021/03/26/wealthy-taxevasion/.
156
Treasury Inspector General for Tax Administration, “High-Income
Nonfilers Owing Billions of Dollars Are Not Being Worked by the Internal
Revenue Service,” Reference Number: 2020-30-015, May 29, 2020,
https://www.treasury.gov/tigta/auditreports/2020reports/202030015fr.pdf.
157
Ibid.
158
Chye-Ching Huang, “Depletion of IRS Enforcement Is Undermining the
Tax Code,” Testimony Before the House Ways and Means Committee,
70
February 11, 2020, https://www.cbpp.org/research/federal-tax/depletion-ofirs-enforcement-is-undermining-the-tax-code.
159
Chye-Ching Huang, “How Biden Funds His Next Bill: Shrink the $7.5
Trillion Tax Gap,” The New York Times, March 10, 2021,
https://www.nytimes.com/2021/03/10/opinion/deficits-taxes-bideninfrastructure.html.
160
John Guyton, Patrick Langetieg, Daniel Reck, Max Risch and Gabriel
Zucman, “Tax Evasion at the Top of the Income Distribution: Theory and
Evidence,” National Bureau of Economic Research, Working Paper 28542,
https://www.nber.org/system/files/working_papers/w28542/w28542.pdf.
161
Ibid.
162
Natasha Sarin and Larry Summers, “Shrinking the Tax Gap: Approaches
and Revenue Potential,” National Bureau of Economic Research, Working
Paper 26475, November 2019, https://www.nber.org/papers/w26475.
163
Treasury Inspector General for Tax Administration, “High-Income
Nonfilers Owing Billions of Dollars Are Not Being Worked by the Internal
Revenue Service,” Reference Number: 2020-30-015, May 29, 2020,
https://www.treasury.gov/tigta/auditreports/2020reports/202030015fr.pdf.
164
Natasha Sarin and Larry Summers, “Shrinking the Tax Gap: Approaches
and Revenue Potential,” National Bureau of Economic Research, Working
Paper 26475, November 2019, https://www.nber.org/papers/w26475.
165
Ibid.
166
Ibid.
167
Natasha Sarin, “The I.R.S. Is Outgunned,” The New York Times, October 2,
2020, https://www.nytimes.com/2020/10/02/opinion/sunday/irs-tax-incomeinequality.html.
168
Natasha Sarin and Larry Summers, “Shrinking the Tax Gap: Approaches
and Revenue Potential,” National Bureau of Economic Research, Working
Paper 26475, November 2019, https://www.nber.org/papers/w26475.
169
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf; Natasha Sarin and Larry Summers, “Shrinking the
Tax Gap: Approaches and Revenue Potential,” National Bureau of Economic
Research, Working Paper 26475, November 2019,
https://www.nber.org/papers/w26475.
170
Government Accountability Office, “Information Technology: IRS Needs
to Take Additional Actions to Address Significant Risks to Tax Processing,”
GAO-18-298, June 28, 2018, https://www.gao.gov/products/gao-18-298; U.S.
Department of the Treasury, “The American Families Plan Tax Compliance
Agenda,” May 2021, https://home.treasury.gov/system/files/136/TheAmerican-Families-Plan-Tax-Compliance-Agenda.pdf.
71
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf.
172
Natasha Sarin and Larry Summers, “Shrinking the Tax Gap: Approaches
and Revenue Potential,” National Bureau of Economic Research, Working
Paper 26475, November 2019, https://www.nber.org/papers/w26475.
173
Daniel Reck, Max Risch and Gabriel Zucman, “Tax evasion at the top of
the U.S. income distribution and how to fight it,” Washington Center for
Equitable Growth, March 22, 2021, https://equitablegrowth.org/tax-evasionat-the-top-of-the-u-s-income-distribution-and-how-to-fight-it/.
174
Congressional Budget Office, “Trends in the Internal Revenue Service’s
Funding and Enforcement,” July 2020,
https://www.cbo.gov/publication/56467#:~:text=The%20IRS's%20appropriati
ons%20have%20fallen,less%20to%20enforce%20tax%20laws.
175
Natasha Sarin and Lawrence H. Summers, “Understanding the Revenue
Potential of Tax Compliance Investment,” National Bureau of Economic
Research, Working Paper 27571, July 2020,
https://www.nber.org/system/files/working_papers/w27571/w27571.pdf.
176
Congressional Budget Office, “Increase Appropriations for the Internal
Revenue Service’s Enforcement Initiatives,” December 13, 2018,
https://www.cbo.gov/budget-options/54826.
177
Congressional Budget Office, “Trends in the Internal Revenue Service’s
Funding and Enforcement,” July 2020,
https://www.cbo.gov/publication/56467#:~:text=The%20IRS's%20appropriati
ons%20have%20fallen,less%20to%20enforce%20tax%20laws.
178
Office of Management and Budget, The President’s Request for Fiscal
Year (FY) 2022 Discretionary Funding, April 9, 2021,
https://www.whitehouse.gov/wp-content/uploads/2021/04/FY2022Discretionary-Request.pdf; Allyson Versprille, “Biden Seeks 10% IRS
Funding Hike to Spur More Audits of Wealthy,” Bloomberg Tax, April 9,
2021, https://news.bloombergtax.com/daily-tax-report/biden-seeks-10-irsfunding-hike-to-spur-more-audits-of-wealthy.
179
Office of Management and Budget, The President’s Request for Fiscal
Year (FY) 2022 Discretionary Funding, April 9, 2021,
https://www.whitehouse.gov/wp-content/uploads/2021/04/FY2022Discretionary-Request.pdf.
180
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf.
181
The estimated $700 billion in additional tax revenue is net of the proposed
investments. U.S. Department of the Treasury, “The American Families Plan
Tax Compliance Agenda,” May 2021,
171
72
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf; U.S. Department of the Treasury, “Investing in the
IRS and Improving Tax Compliance,” April 28, 2021,
https://home.treasury.gov/news/press-releases/jy0150; Jim Tankersley, “Biden
Seeks $80 Billion to Beef Up I.R.S. Audits of High-Earners,” The New York
Times, April 27, 2021,
https://www.nytimes.com/2021/04/27/business/economy/biden-americanfamilies-plan.html; Chuck Marr, Samantha Jacoby, George Fenton and Sam
Washington, “Biden Proposals Would Reduce Large Tax Advantages for
Those at the Top, Address Tax Gap,” Center on Budget and Policy Priorities,
May 11, 2021, https://www.cbpp.org/research/federal-tax/biden-proposalswould-reduce-large-tax-advantages-for-those-at-the-top-address.
182
Natasha Sarin and Larry Summers, “Shrinking the Tax Gap: Approaches
and Revenue Potential,” National Bureau of Economic Research, Working
Paper 26475, November 2019, https://www.nber.org/papers/w26475; Charles
O. Rossotti, Natasha Sarin and Lawrence H. Summers, “Shrinking the Tax
Gap: A Comprehensive Approach,” taxnotes, December 15, 2020,
https://www.taxnotes.com/featured-analysis/shrinking-tax-gapcomprehensive-approach/2020/11/25/2d7ht.
183
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf.
184
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf; U.S. Department of the Treasury, “Investing in the
IRS and Improving Tax Compliance,” April 28, 2021,
https://home.treasury.gov/news/press-releases/jy0150.
185
The White House, “Fact Sheet: The American Families Plan,” April 28,
2021, https://www.whitehouse.gov/briefing-room/statementsreleases/2021/04/28/fact-sheet-the-american-families-plan/; U.S. Department
of the Treasury, “The American Families Plan Tax Compliance Agenda,”
May 2021, https://home.treasury.gov/system/files/136/The-AmericanFamilies-Plan-Tax-Compliance-Agenda.pdf.
186
Financial institutions already report their customers’ interest, dividend and
capital gains information to the IRS. They would be required to add the
overall amount of money flowing into and out of an account each year to
1099-INT forms that they already provide to many taxpayers with income
from financial accounts. Chuck Marr, Samantha Jacoby, George Fenton and
Sam Washington, “Biden Proposals Would Reduce Large Tax Advantages for
Those at the Top, Address Tax Gap,” Center on Budget and Policy Priorities,
May 11, 2021, https://www.cbpp.org/research/federal-tax/biden-proposalswould-reduce-large-tax-advantages-for-those-at-the-top-address.
73
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf; U.S. Department of the Treasury, “Investing in the
IRS and Improving Tax Compliance,” April 28, 2021,
https://home.treasury.gov/news/press-releases/jy0150.
188
Jim Tankersley, “Biden Seeks $80 Billion to Beef Up I.R.S. Audits of
High-Earners,” The New York Times, April 27, 2021,
https://www.nytimes.com/2021/04/27/business/economy/biden-americanfamilies-plan.html.
189
U.S. Department of the Treasury, “The American Families Plan Tax
Compliance Agenda,” May 2021,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-TaxCompliance-Agenda.pdf; Galen Hendricks and Seth Hanlon, “Better Tax
Enforcement Can Advance Fairness and Raise More Than $1 Trillion of
Revenue,” Center for American Progress, April 19, 2021,
https://www.americanprogress.org/issues/economy/reports/2021/04/19/49831
1/better-tax-enforcement-can-advance-fairness-raise-1-trillion-revenue/.
190
Ibid.
191
U.S. Government Accountability Office, “Strategic Human Capital
Management is Needed to Address Serious Risks to IRS’s Mission,” GAO-19176, March 2019, https://www.gao.gov/assets/gao-19-176.pdf.
192
IRS Commissioner Charles Rettig, “A Closer Look: Impacting the Tax
Gap,” Internal Revenue Service, https://www.irs.gov/pub/foia/ig/cl/tax-gapfor-web.pdf; “Not Enough Cops on the Beat: IRS Cuts Have Benefited
Wealthy Tax Cheats,” Center for American Progress, April 11, 2019,
https://www.americanprogress.org/issues/economy/news/2019/04/11/468594/
not-enough-cops-beat-irs-cuts-benefited-wealthy-tax-cheats/; Brittany De Lea,
“IRS says 31% of its workers to retire in five years,” Fox Business, February
5, 2020, https://www.foxbusiness.com/money/irs-dwindling-workforce-retire.
193
Internal Revenue Service, “IRS Modernization Plan provides plan to
improve services for taxpayers, tax community,” April 2019,
https://www.irs.gov/newsroom/irs-modernization-plan-provides-plan-toimprove-services-for-taxpayers-tax-community.
194
Chuck Marr, Sam Washington, Samantha Jacoby and David Reich,
“Rebuilding IRS Would Reduce Tax Gap, Help Replenish Depleted Revenue
Base,” Center on Budget and Policy Priorities, April 13, 2021,
https://www.cbpp.org/research/federal-tax/rebuilding-irs-would-reduce-taxgap-help-replenish-depleted-revenue-base; Chye-Ching Huang, “Depletion of
IRS Enforcement Is Undermining the Tax Code,” Testimony Before the
House Ways and Means Committee, February 11, 2020,
https://www.cbpp.org/research/federal-tax/depletion-of-irs-enforcement-isundermining-the-tax-code; Natasha Sarin and Larry Summers, “Shrinking the
Tax Gap: Approaches and Revenue Potential,” National Bureau of Economic
187
74
Research, Working Paper 26475, November 2019,
https://www.nber.org/papers/w26475; Charles O. Rossotti, Natasha Sarin and
Lawrence H. Summers, “Shrinking the Tax Gap: A Comprehensive
Approach,” taxnotes, December 15, 2020, https://www.taxnotes.com/featuredanalysis/shrinking-tax-gap-comprehensive-approach/2020/11/25/2d7ht.
195
Ibid.
196
White House Briefing Room, “Fact Sheet: The American Families Plan,”
April 28, 2021, https://www.whitehouse.gov/briefing-room/statementsreleases/2021/04/28/fact-sheet-the-american-families-plan/.
197
Alan Rappeport, “The Biden Administration seeks to raise $2.5 trillion
through corporate tax increases.” The New York Times, April 7, 2021,
https://www.nytimes.com/2021/04/07/business/biden-corporate-taxincreases.html.
198
U.S. Department of the Treasury, “The Made in America Tax Plan,” April
2021,
https://home.treasury.gov/system/files/136/MadeInAmericaTaxPlan_Report.p
df.
199
Organisation for Economic Co-operation and Development, “Tax on
corporate profits,” 2019, https://data.oecd.org/tax/tax-on-corporateprofits.htm.
200
U.S. Department of the Treasury, “The Made in America Tax Plan,” April
2021,
https://home.treasury.gov/system/files/136/MadeInAmericaTaxPlan_Report.p
df.
201
Silvia Amaro, Joanna Tan and Emma Newburger, "G-7 nations reach
historic deal on global tax reform,” CNBC, June 5, 2021,
https://www.cnbc.com/2021/06/05/g-7-nations-reach-historic-deal-on-globaltax-reform.html; Alan Rappeport, “Global Tax Overhaul Gains Steam as G20
Backs New Levies,” The New York Times, July 10, 2021,
https://www.nytimes.com/2021/07/10/us/politics/global-tax-overhaulg20.html.
202
Chris Giles and Delphine Strauss, “G7 tax deal is ‘starting point’ on road to
global reform,” Financial Times, June 6, 2021,
https://www.ft.com/content/95dd0c00-7081-4890-bcef-b9642312db4d.
203
Ibid.
204
David McHugh, “130 countries back deal on global minimum tax for
companies,” The Associated Press, July 2, 2021,
https://apnews.com/article/joe-biden-government-and-politics-businessc9c7e0cd24f9f2fc226fc0038f2c7245; Leigh Thomas, “130 countries back
global minimum corporate tax of 15%,” Reuters, July 1, 2021,
https://www.reuters.com/business/countries-backs-global-minimumcorporate-tax-least-15-2021-07-01/.
205
David J. Lynch, “130 countries sign on to global minimum tax plan,
creating momentum for Biden push,” The Washington Post, July 1, 2021,
75
https://www.washingtonpost.com/us-policy/2021/07/01/global-corporate-taxoecd/; U.S. Department of the Treasury, “Statement from Secretary of the
Treasury Janet L. Yellen on Today’s Agreement of 130 Countries to Support a
Global Minimum Tax for the World’s Largest Corporations,” July 1, 2021,
https://home.treasury.gov/news/press-releases/jy0255.
77
VIEWS OF RANKING MEMBER MIKE LEE
Like many annual publications, the Joint Economic Report is a
chance to look back and to look forward. We will reflect on the
difficult year of 2020, which blindsided a strong economy with an
unprecedented pandemic. But we will also look ahead to consider
ways that American life can be improved in 2021 and beyond, with
special attention to the key priorities of reconnecting Americans
to work and supporting families. Work and family are two pillars
of American life that I have tasked Joint Economic Committee
Republican staff with studying. It is important to understand what
policy choices might strengthen these institutions, especially after
an unprecedented, difficult year.
The year 2020 was one of the most tumultuous, stressful, and
challenging in recent memory. A prosperous economy, the product
of steady growth over a decade, was suddenly thrown into chaos
in early March with the arrival of COVID-19. Many aspects of
economic, social, and institutional life were inhibited or even
temporarily abandoned. Twenty-two million Americans lost their
jobs. Many more lost access to social support networks like
schools and churches. Hundreds of thousands lost their lives to
COVID-19 and many more lost their loved ones.
However, life began to return in the spring and summer as
Americans learned more about how to keep themselves, their
friends, and their families safe. The boundless creativity of
individuals and businesses was on full display as they made use of
technology and outdoor events to help keep up their social and
professional relationships, even in the face of the challenges
presented by COVID-19.
78
The greatest breakthroughs in returning to normal came towards
the end of the year, as several efforts to create a vaccine ultimately
succeeded. The American approach to solving problems through
competition and choice prevailed, giving Americans a means to
protect themselves and those around them. This would ultimately
dramatically curb the spread of COVID-19 and set the stage for
the recovery.
The first goal for the recovery is to reconnect Americans to work.
Work is not merely a source of income; it also creates social
connections and builds a sense of purpose and self-worth. It is
therefore critical that we return to a robust labor market similar to
that of early 2020, with more than eighty percent of working-age
Americans employed. A strong labor market creates opportunities
for those who have historically struggled to find work in weaker
economies, strengthens workers’ bargaining power, and increases
their wages.
In returning Americans to work, we should study the policies that
made the early part of 2020 so successful, but also aim to learn
from the pandemic itself: jobs can be made more flexible, and
impediments to working remotely or across state lines can be
removed to help get people back to work and keep a wide variety
of jobs available to them even after the recession is over.
The second goal for the recovery is to support families. Families
were harmed disproportionately by restrictions placed on
schooling and childcare during the pandemic. One of the best ways
to support them is through more choice, pluralism, and flexibility
in these important services. We can also make life more affordable
for families in many ways, for example, reforms to the child tax
credit that would offset their payroll tax burden.
The ideas contained in this report are just a start for policymakers.
But much of the hardest work in this recovery will come from the
79
American people themselves, who will reopen and rebuild the
small institutions that dot our social landscape: volunteer
organizations, community groups, and places of worship. I look
forward to seeing that growth in the year to come.
80
CHAPTER 1: THE YEAR IN REVIEW
The year 2020 was arguably the most eventful in U.S. economic
history. The economy was strong at the beginning of the year, led
by the tightest labor market in a generation. Then, in March, the
rapid spread of Coronavirus Disease 2019 (COVID-19) brought
economic activity to a virtual standstill, as Americans reduced
their level of physical contact with each other in an effort to slow
the spread. This created one of the largest shocks, and certainly the
most sudden shock, that the U.S. economy had ever experienced.
Over the late spring and summer, the economy began to reopen
and many Americans returned to work, often under new
precautionary measures. Finally, in the last months of the year, a
resurgence of the virus slowed the recovery, but promising vaccine
developments offered hope for a stronger return the following
year.
PRE-PANDEMIC: JANUARY AND FEBRUARY
At the beginning of 2020, the labor market was at its strongest in
decades. The Economic Report of the President (ERP, or Report)
touts an unemployment rate of just 3.5 percent at the end of 2019
and notes that this was the first time the measure had dipped below
4 percent since 2000. As an additional measure, it offers the U-6
unemployment rate, which includes those who are employed only
part-time for economic reasons; this measure stood at an all-time
low of 6.7 percent in December 2019. 1 There is one more measure,
unmentioned in the ERP’s summary but increasingly used by labor
market analysts for additional context: the share of working-age
Americans who hold a job was 80.5 percent, the highest since
2001.
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Figure 1-1
The ERP identifies this tight labor market as the primary source of
the economy’s strength. It further makes three main points about
the labor market. First, the strength of the economy allowed
income to be shared more broadly than it had been in the recent
past. Second, it was better than most forecasters expected was
possible. And finally, it was aided by specific policy choices. The
ERP is right on all three counts.
Robust labor markets are critical to broad prosperity. A strong
labor market not only extends job opportunities to workers who
would not have those opportunities under a weaker economy, but
also increases wages for workers in the aggregate as employers
compete to attract scarce talent by raising their pay.
This is especially important to workers with lower education
levels, Black workers, and Latino workers, who are more likely to
suffer from cyclical employment than more-educated workers or
White workers. They therefore have more employment to gain
from recoveries. While it may be difficult to determine the exact
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reasons for this empirical fact, it is relatively simple to observe.
The recovery that lasted from 2009 to the beginning of 2020, and
eliminated much of the cyclical unemployment of the 2007-2009
crash, serves as an example.
At the bottom of the post-financial crisis trough, there were
elevated unemployment rates for workers of all kinds. However,
unemployment rates were much higher for workers with lower
levels of education. The ensuing recovery improved employment
for workers of all education levels, and also closed much of the
gap between education levels. It removed about ten percentage
points from the unemployment rate for those with less than a high
school education. By contrast, it removed three percentage points
from the unemployment rate for those with a bachelor’s degree or
more. While everyone stands to benefit from a strong economy,
those with lower education benefit more in relative terms because
they are harmed more by a weak economy.
Figure 1-2
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The dynamics of cyclical employment by educational attainment
are echoed in the dynamics of cyclical employment by race. Over
the course of the recovery, the unemployment rates for Black and
Latino workers fell by more than twelve points and more than
eight points, respectively. In contrast, the unemployment rate for
White workers fell by six points. All groups did better under a
stronger economy, but Black and Latino workers had much more
room to benefit from a stronger economy.
Figure 1-3
The result of this stronger economy was that workers of all kinds
had more bargaining power than they had previously, and their
wages began to rise at a faster rate than they had previously.
There is a general economic relationship between employment and
wages; typically, the more employment, the faster the wage
growth. In theory, this relationship might exist because as
employment rises, firms may need to offer competitive wages to
attract workers employed at other firms. In contrast, if
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employment is relatively weak, firms may be able to hold wages
constant and simply offer jobs to previously-unemployed workers.
The relationship between employment and pay growth also holds
empirically under most circumstances. It is strongest using the
prime-age employment-population ratio as the measure of
employment, and the employment cost index as the measure of
pay.2
These theories concern nominal pay raises, and not necessarily
real ones. However, the final few years of the 2009-2020
expansion were marked by an extended period of accelerating real
wages, especially for lower-wage workers, who earned raises even
faster than the median worker did. The lower portion of the wage
distribution was compressed and inequality was reduced.
Graphed below is the inflation-adjusted growth in earnings
throughout the recovery for two kinds of workers: those at the
tenth percentile of the earnings distribution and those at the
median. The wages of an earner at the tenth percentile grew
consistently from 2015 onwards, and at a faster rate than those of
the median worker from the middle of 2017 onwards.
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Figure 1-4
The ERP discusses one other possible contribution to rising 10thpercentile wages: state and local minimum wage laws. Some
analysts suggest these changes contributed significantly to the
trend, while others noted that places without minimum wage
increases also saw lower-wage workers catching up with the
median.3
One further consideration is useful in evaluating the claim:
minimum wage laws may be endogenous with respect to the
overall health of the low-wage labor market. That is, jurisdictions
feel more emboldened to pass minimum wage laws when the labor
market for low-wage workers is strong and able to absorb those
increases.
Both the trend towards expanded employment and the trend
towards faster wage growth are beneficial in isolation. However,
they are especially good in tandem, because their desirable
qualities are multiplicative. Not only was wage growth
accelerating faster than before, but also, more jobs experienced
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accelerated wage growth than before. The result, as the ERP notes,
was a strong increase in real incomes for all households toward the
end of the expansion, but especially strong increases for Black and
Hispanic households: 7.9 and 7.1 percent, respectively, in 2019.4
Overall, as of early 2020, the strong labor market contributed to
an environment of rising incomes, especially at the lower end of
the income distribution.
The ERP makes a second point about the strong labor market of
early 2020: it was stronger than many forecasters thought possible.
This is largely a technical point, but it is an important one. Many
forecasters use predictions about long-run equilibrium
employment. The economy of 2019 and 2020 had far exceeded
typical forecasters’ predictions.
It did so on two fronts simultaneously. The first was labor force
participation: more people sought jobs than forecasters expected.
The second was unemployment: the people who did seek jobs
were more successful in doing so than forecasters expected.
Past Congressional Budget Office (CBO) economic projections,
which hew closely to professional consensus, show both of these
errors clearly. Their projections from the month of January 2017,
for example, predicted a decline in labor force participation
through the fourth quarter of 2019, from the then-current value of
62.9 percent to 62.6 percent.5 This was consistent with a belief that
labor force participation was already at its maximum, and would
only decline as the population grew older and accumulated more
retirees. Instead, labor force participation increased to 63.2 percent
over that time frame.6 That is, more people looked for jobs than
CBO expected.
The January 2017 projections also envisioned an unemployment
rate of 4.7 percent in Q4 of 2019.7 Instead, the unemployment rate
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trended down to 3.6 percent. That is, of the people who were
seeking jobs, more of them were successful than CBO anticipated.
CBO was not unusual in making these mistakes, and it is not
singled out here for critique. Rather, it is a non-partisan
organization that admirably makes falsifiable predictions on
difficult subjects. This is instructive, even when the predictions
turn out to be mistaken.
Furthermore, CBO reflected accurately the consensus of the time.
Even as early as 2015, respected labor economist Alan Krueger
was already making the argument that labor markets were tight,
and that lost labor force participation was mostly a continuation of
structural, not cyclical, trends.8 While at least one of these
structural trends—aging of the population—was clear-cut, the
cyclical portion was underestimated, and an improving economy
brought more people into the workforce for another four years.
One of the most important reasons for this mistake was a relatively
simple one. Some people who do not identify as seeking jobs
nonetheless end up taking jobs as the economy improves. They
may identify as students, or disabled, or retired, or as homemakers.
These are perfectly legitimate reasons not to have a job, and for
some people, those reasons are absolute. However, many others
who place themselves in these categories do so conditionally, and
only under poor economic conditions. If economists mistakenly
assume that those individuals are permanently out of the labor
force, rather than conditionally out of the labor force, they will
underestimate the labor force’s potential size.
This mistake ultimately matters because it informs policy. Policy
choices like the 2017 tax reform, which cut taxes on net, are
relatively better in economic environments where there is more
labor market slack, and relatively less effective in environments
where there is less labor market slack. Tax cuts allow more money
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to stay in the private sector for people to purchase goods and
services. If there were no more workers to be found—if everyone
was working as hard as they desired to be—then firms could not,
on net, respond to that increased demand with increased hiring.
They might instead have to raise prices, leading to inflation and an
“overheating” of the economy.
Many critiques of the 2017 tax law, from the Dallas Federal
Reserve President Robert Kaplan, to the International Monetary
Fund’s Christine LaGarde, focused specifically on this point.9,10
The critiques that took this angle were mistaken; there was enough
labor available in the economy to serve not only all of the baseline
demand, but also the demand enabled by greater after-tax income
in the private sector.
The tax law may also have expanded labor supply, as well as labor
demand. The tax law generally reduced marginal tax rates on
labor, increasing the after-tax wages for many individuals and
incentivizing them to work more. The Joint Committee on
Taxation (JCT) considered this effect, and projected that the law
would increase labor supply by 0.6 percent on average while those
provisions were in effect.11 This projection took into account both
the substitution effect, where people choose between work and
leisure based on after-tax wages, and the income effect, where
people may choose to work less if they are wealthier. The
substitution effect is the larger of the two.
While changes in labor supply explain some of the
outperformance of the labor market relative to 2017’s
expectations, it does not explain all of it. Between the greater-thananticipated labor force participation and the lower-thananticipated unemployment rate, the outperformance by early 2020
was too large to be explained by JCT’s labor supply effects of tax
reform alone.
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Instead, it is likely that there was some untapped potential labor
supply in 2017 that could have been brought into the economy by
any increase in labor demand, even if tax reform had not occurred.
However, to bring about this labor demand, policymakers would
need to explicitly ignore warnings about overheating and pursue
expansionary policy. This pursuit ultimately occurred, first
through the fiscal channel with tax cuts in 2017, and later, through
decreases in the federal funds rate in 2019.
The robust early 2020 labor market, therefore, was brought about
by specific policy choices, ones that others—those who
underestimated potential labor supply—might not have made. The
three points the ERP makes about the labor market are ultimately
part of a single chain of events: optimistic and expansionary
policy, defying the consensus of a tight labor market or
overheating economy, brought more workers into the fold than
forecasters thought possible. This then improved market wages,
especially at the low end.
The early 2020 labor market deserves considerable discussion for
a simple reason; it is a blueprint for the type of economy the United
States should attempt to return to—or perhaps, even surpass—
after the COVID-19 pandemic is over. The post-pandemic labor
force will not be a substantially different group of people than it
was at the beginning of 2020, and it should support roughly the
same level of employment. Early 2020 demonstrated that the
economy can support jobs for at least 81 percent of Americans age
25-54 without inflationary pressures, and this is a valuable
benchmark for assessing the coming recovery. Furthermore, it is
at least plausible that the economy could have supported even
higher levels of employment than that, had the expansion been
able to continue absent COVID-19.12
Whether the strongest possible labor market lies at early-2020
levels, or somewhat beyond, it will be important to reach those
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levels quickly. The previous recovery, beginning in 2009, took a
decade to reach that mark. The current recovery can and should do
so much faster, especially if lessons from the previous recovery
are well-learned. Joint Economic Committee Social Capital
Project research shows that a stable long-run path of nominal
income is a desirable property of monetary policy, and conducive
to strong labor markets.13 While it was not feasible or desirable to
maintain nominal gross domestic product under COVID-19
restrictions, it is desirable to return to a steady path over the
medium run.
POST-PANDEMIC: MARCH THROUGH DECEMBER, ECONOMIC
RESPONSE
The last ten months of 2020 were unfortunately quite different
from the first two. When COVID-19 reached the United States, it
struck first in Seattle and New York and soon spread to the rest of
the country. Economic activity fell dramatically, primarily from
reduced demand for in-person consumption that could risk
exposure to the virus, or from state-imposed closures.
The size and speed of this shock was completely unprecedented in
U.S. history, and perhaps best illustrated by initial unemployment
claims, which reached 6 million in a single week at the end of
March. Prior to the pandemic, the all-time largest number of
claims was just 695,000.
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Figure 1-5
Dealing with such an unprecedented shock took a swift
recalculation of policy. The Federal Reserve internalized the new
situation quickly and lowered the federal funds rate to zero by
March 16th. This accurately reflected the coming shift in market
dynamics: as many avenues for consumption were shut down,
people began saving more. Meanwhile, the pandemic conditions
would make it harder to find worthwhile investments that could
earn a return. Under such conditions, it would be natural for
interest rates to fall. By contrast, an unchanged interest rate would
have been an unintended intervention into capital markets,
keeping risk-free interest rates artificially high even as market
conditions dictated low returns on saving.
Congress also responded to the shock, later, through a series of
fiscal policy bills. The most significant of these was the
Coronavirus Aid, Relief, and Economic Security (CARES) Act,
signed into law on March 27th. The bill was very large and costly
overall. However, it did boost private-sector incomes in aggregate
through a combination of tax deferrals and transfers.
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One of the largest policies in CARES was an unprecedented
expansion of unemployment benefits. The initial expansion under
CARES was in fact so large that 69 percent of unemployed
workers were eligible for unemployment benefits that would
exceed total compensation lost.14 Exceeding 100 percent of lost
compensation was undesirable for two reasons. First, it used fiscal
space past even the goal of full insurance coverage; this use of
fiscal space would crowd out other, more productive uses or
potential uses of money. Second, it would later inhibit a return to
normalcy.
Figure 1-6
During the final three quarters of 2020, an unusual trend took hold:
GDP became decoupled from personal income. Under normal
circumstances, these two measures of economic performance are
very similar. Personal income is largely spent on consumption
goods (and, sometimes, investment goods), adding to GDP. In
turn, GDP creates personal income as people are paid for what
they produce. However, under the unusual circumstances of the
COVID-19 pandemic, personal income was sustained through
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fiscal policy even as people spent less, workers lost jobs, and
businesses lost revenues. In fact, for much of 2020, personal
income was above its pre-pandemic trends, in part due to the
overinsurance mentioned above.
One side effect of the circumstances and policy was that personal
saving rose to record highs: at peak, nearly $4.8 trillion of saving,
at an annualized pace, in the second quarter of 2020. Private sector
saving has a variety of benefits, and is more effective at sustaining
firms and investment than overengineered public bailouts for
businesses.
Figure 1-7
These savings provided for deep and borrower-friendly capital
markets. For businesses, they helped them borrow against future
cash flows, cover momentary disruptions, and even invest for the
future. In housing, they lowered mortgage rates, helped people
afford homes, and eventually brought new homes into
production.15
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The year 2020 included, counterintuitively, a large rally in the
S&P 500 index. Bonds also rallied (or, alternatively stated, yields
fell). This pattern of high valuations and low yields was generally
apparent across all asset classes.
Moody’s Seasoned Baa corporate bond yields, for example,
declined to a 50-year low towards the end of 2020. This
measurement is an average interest rate on many moderate-risk
corporate bonds. In other words, it is a realistic example of the sort
of rate at which a firm might be able to borrow. The rate fell
because so many Americans had savings from foregone
consumption, and offered more and more competitive terms to
borrowers.
Figure 1-8
These savings were a private-sector lifeline to firms. Many firms
took losses in the latter three quarters of the year. However, many
firms expected to be profitable again in the future once the
pandemic subsided. Firms with such a profile—firms that need
cash injections in the near term, but can pay for that injection by
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promising future cash flows—are well-served by a deep capital
market with many eager savers. Critically, private-sector investors
have the ability to consider the longer run and extend loans only
to businesses expected to be viable after the pandemic. By
contrast, a government-led approach to lending may have the
drawback of propping up firms that would not be viable even
absent the pandemic.
The low cost of capital for business also boosted business
investment, which actually picked up in 2020. That upswing in
capital investment was somewhat counterintuitive, as the
pandemic surely made many capital investments less profitable.
But it was actually the best plausible outcome for the situation, and
it was enabled by the reduced cost of capital.
Figure 1-9
The cost of capital in a market system of creative destruction is a
discipline mechanism for a small fraction of persistently
inefficient enterprises, forcing them to exit and free up resources
for more efficient enterprises. However, if a high cost of capital
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would cause many firms to fail, and many resources to go unused,
then it is not efficient or market-clearing. Instead, interest rates can
be allowed to fall until equilibrium is restored. Given the
difficulties of the COVID-19 pandemic, it was desirable for
interest rates to fall: even though capital goods spending likely
produced a worse rate of return than businesses had planned prepandemic, it was still the best use of resources at the time.
A similar trend took hold in housing. High savings drove bond
prices upward, and mortgage rates downward. The average 30year fixed mortgage in the United States dipped below 3 percent
for the first time.
Figure 1-10
This low mortgage rate allowed more Americans to borrow larger
sums even at the same monthly payment; therefore, they were
more able to pay for homes. In fact, they were able to pay the prepandemic market prices, or more, despite the pandemic’s
diminished opportunities for market income. Home prices
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ultimately steadily rose, at rates that somewhat exceeded prepandemic rates.
Figure 1-11
Rises in home prices are neither good nor bad in themselves. Any
increase in price harms the future buyer just as much as it helps
the future seller. However, they can serve as evidence of good or
bad trends in the economy. When high housing prices are caused
by people having higher ability to pay, that higher ability to pay is
a positive development. When high housing prices are caused by
limited supply, that limited supply is a negative development.
The rise in home prices during the pandemic was mostly driven by
higher ability to pay. In fact, it supported new home construction
throughout the pandemic, and home construction ultimately
reached new highs, responding to extremely strong consumer
demand. In fact, home construction may need to increase even
further in order to satisfy that demand.
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Figure 1-12
If mortgage rates had been higher, i.e. if Americans were less able
to pay for homes and housing prices fell, homebuilders would be
less able to pay their workers, and fewer houses would have been
constructed. Saving and low cost of capital for home buyers
therefore helped save some homebuilding jobs.
All told, through robust saving and lending, the private sector was
able to keep a variety of industries growing throughout the
pandemic. The saving created a seemingly-counterintuitive trend
in asset prices, which increased despite a troubled real economy.
However, the rise in asset prices should not necessarily be
understood as a boon to savers: they sacrificed in terms of future
returns or yields.
Ultimately, private-sector balance sheets were healthy going into
2021: that is, after reopening, households would have enough
money, in aggregate, to pay for as many goods and services as
before and allow people to return to work at the jobs they had prior
to the pandemic. However, the policy environment was no longer
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as work-friendly as that of 2020. Given a variety of new policies
impeding or disincentivizing work, there were challenges ahead
for 2021 as well; if spending returned and workers did not, there
would be an imbalance between the nominal economy and the real
economy, resulting in inflation.
MARCH THROUGH DECEMBER: CONSTRAINTS ON THE
ECONOMY
When Americans judged their conditions to be sufficiently safe,
and as economic restrictions were removed, they had the resources
to engage in economic activity. Unfortunately, the Government’s
health response had a mixed record. For example, critical time was
lost early on. In some areas, the health system—designed around
the goals like caution and privacy—proved sluggish in a fastchanging environment. For example, a researcher in Seattle in
early 2020 fortuitously had already collected nasal swabs for the
purpose of studying the flu. She was blocked by regulatory
agencies from repurposing those samples to screen for COVID-19
in the critical early weeks of Seattle’s outbreak, even as she found
a case among one of her samples.16 Furthermore, the FDA was
slow to approve privately-developed testing kits for the virus, even
as the CDC’s own test was flawed.17 18
The Government’s guidance on effective non-pharmaceutical
interventions (NPIs) early in the pandemic was poor. It
mischaracterized COVID-19 transmission mechanisms, which, in
turn, led people and organizations to prioritize relatively
ineffective avoidance behaviors over effective ones.
For example, it strongly emphasized the dangers of fomite
transmission: transmission through touching of infected surfaces.
However, experience with the virus quickly showed that it
transmitted much more through breath than initially expected, and
much less through touch than initially expected. Only in April
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2021 did the CDC finally acknowledge that the risk of infection
from touching a surface was low, a change that many scientists
considered long-overdue. This misleading guidance led
Americans to use their time and resources on surface cleaning,
resources that could have been deployed on more effective NPIs
like holding activities outdoors or filtering air.19
By contrast, the CDC failed to emphasize airborne transmission,
even as evidence for it mounted. In the summer, scientists
appealed to public health bodies to acknowledge airborne
transmission, through open letters and newspaper op-eds.20 In
other words, scientists as a whole did not misunderstand the
transmission mechanisms, but official public health guidance was
behind the state of knowledge in science journals and the popular
press. In fact, the CDC did not release guidance acknowledging
airborne transmission until October 5th, 2020, months after
hundreds of scientists had signed onto open letters begging them
to do so.21
Top-down executive orders focused on restricting economic
activity entirely were often heavy-handed and ineffective. For
example, some states attempted to ban the sale of nonessential
goods in large stores, even as essential goods were on sale in those
same stores. This would invariably require clarifications on which
goods were essential. 22 Overall such orders wasted time and did
little to minimize person-to-person contact. Bottom-up ideas to
reduce contagion implemented by individuals and businesses,
such as removing windows on spring days to improve ventilation,
were often more creative and effective.
While early stumbles were plentiful in the area of testing and NPIs,
the record on vaccines was quite good. Key to U.S. success in this
area was robust private healthcare innovation. The U.S. companies
Pfizer, Moderna, and Johnson & Johnson were all eventually able
to produce vaccines that were deployed in the United States. The
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Pfizer and Moderna vaccines were a new technology, never
implemented before, known as nucleoside-modified mRNA.
The development of these vaccines was dependent on the expertise
and competitive nature of the private sector. While the Federal
Government focused extra resources on incentivizing the
productions of these particular vaccines, through a program
known as Operation Warp Speed (OWS), it alone likely could not
have produced multiple vaccines and treatments for the American
people. OWS helped fund vaccine research and development
through a combination of grants and advance purchase guarantees.
Another successful initiative collapsed the timeline for vaccine
development from a typical multi-year timeline to under a year.
This was achieved by allowing steps usually done in sequence to
be done concurrently instead. This was an extremely important
choice: the ERP estimates that even just one month saved on
vaccine timelines could be worth a benefit of $155 billion.23 While
a precise estimate for such a complex question is impossible, the
ERP has the right order of magnitude. The expedited processes for
the COVID-19 vaccines likely saved many months, or even years,
relative to a typical timeline.
While the speed of the vaccine development process was
impressive overall, more could have been done. For example, a
more efficient process for approval would have used the “rolling
review” process employed by United Kingdom. The UK’s
Medicines and Healthcare products Regulatory Agency reviewed
data from vaccine makers as it became available rather than
waiting for a complete submission before beginning its
assessment. This allowed the UK to begin its vaccination
campaigns earlier than the U.S..
The first Pfizer vaccinations ultimately occurred on December
14th, and the first Moderna vaccinations followed soon after. With
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advanced purchases already complete and production
accelerating, an effective counter to COVID-19 was at last within
grasp. The year 2020 took a dark turn in March, but it ended with
a growing capacity to manufacture vaccines and healthy privatesector balance sheets.
The public balance sheet, however, was damaged significantly by
$4.2 trillion of added debt over the fiscal year 2020, and more in
ensuing months.24 Furthermore, the year closed with a variety of
federal and state laws on the books that would ultimately impede
the recovery: business closures, mandates, and unemployment
benefits so large that they frequently exceeded market wages.
Overall, the year ended with a mixed record on policy, and a
variety of restrictions to unwind, but also with considerable
technological innovations that would help safely reopen the
economy.
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CHAPTER 2: POLICIES FOR RECOVERY – CONNECTING
MORE PEOPLE TO WORK & SUPPORTING FAMILIES
The past year presented major economic and social challenges;
however, the American economic and social recovery is well
underway. Over more than two years, JEC Social Capital Project
(SCP) research has explored strategies to connect people to work,
encourage happy two-parent households, increase family
affordability, improve investment in America’s youth, and
strengthen the institutions of civil society. As Americans continue
to rebuild, connecting Americans to work, supporting families and
children through increasing family affordability, and improving
investment in youth are essential. This chapter outlines
recommendations that support these important goals.
CONNECTING PEOPLE TO WORK
Improving Healthcare Response and Vaccination Rates Come
First
An effective healthcare response and vaccine strategy is foremost
in returning more Americans to work. Several deregulatory
actions early in the pandemic laid the groundwork for a swifter
healthcare response, and emergency use authorizations spurred
record vaccine development. Now that several vaccines are
available to reduce transmission of COVID-19, Americans can
more readily return to normal economic and social activity.
The CEA argues that the unprecedented speed in vaccine
development during the pandemic offers insight into “the
development of new medical breakthroughs and the key role that
deregulation can play in such efforts… As with COVID-19 testing
and treatment, other new drugs have the potential to save lives and
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substantially improve well-being, which creates high opportunity
costs for a long approval process.”25
Tests were also an effective tool for fighting COVID-19
transmission, providing value not just in diagnostics but also in
transmission surveillance. An accelerated regulatory approval
process for tests ultimately yielded a more effective pandemic
response. Many testing-related regulations, while intended to
protect the public, prevented timely medical innovations that
could have saved lives during the pandemic.26 For example, the
Centers for Disease Control and Prevention’s (CDC) and the Food
and Drug Administration’s (FDA) regulations prohibiting private
testing kits were an early barrier to disease control, and the lengthy
approval process for new drugs continues to stand in the way of
medical innovations coming to market.27 Fortunately, the FDA
approved 20 different diagnostic COVID-19 tests by the end of the
first quarter in 2020, which proved critical to monitoring the
severity of the pandemic.28
The pandemic was also an opportunity to reconsider other laws
that routinely impede access to doctors and medicine. A number
of regulations initially impeded a more effective pandemic
response, including Federal rules preventing hospital flexibility in
virus hot spots; state and Federal restrictions on telemedicine;
constraints on virus testing; certificate of need rules for hospital
capacity and equipment; barriers to expedited and cross-state
licensing of new and retired medical professionals; state rules
governing workflow and registration for health care facilities; and
rules for online education.29
The CEA points to four critical deregulatory efforts that proved
invaluable in the fight against the pandemic, including allowing
telemedicine on platforms that otherwise fail to meet HIPAA
regulations, relaxing Federal licensing restrictions for health care
professionals, enabling Medicare telehealth across state lines, and
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expanding the list of services that could be performed via
telehealth.30
Given the benefits of these actions in an emergency, the CEA
postulates: “…if the absence of many regulations has improved
social welfare, a natural question is why these regulations need to
be reimposed when the pandemic subsides. Indeed, the CEA finds
substantial benefits from extending many of the existing
deregulatory efforts.”31 Though some of these regulations have
been temporarily relaxed, it is worth considering their permanent
removal following the crisis.32
Reducing Regulatory Barriers Is Important in Order to Clear the
Path for Recovery
Regulations are often intended to correct perceived market failures
and systemic problems, but they typically involve a de facto trade
off: they create higher costs and barriers to production, effectively
reducing access and affordability of goods and services. A costbenefit analysis, which is a prerequisite for economically
significant regulations at the Federal level, can help show whether
the regulations are ultimately worth the associated costs. However,
not every regulation is deemed “economically significant,”33 and
not every regulation is subject to this scrutiny.
Furthermore, the distributional effects of regulations are not
always considered. The CEA argues in the 2021 ERP that
regulations are indeed regressive, affecting low-income workers
and the families they support. As the CEA points out, regulations
that most negatively affect lower income households tend to do so
by raising the prices of goods and services on which this income
group spends higher shares of their income, including groceries,
utilities, and health care—incidentally, goods and services “that
are produced by heavily regulated sectors of the economy.”34
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The CEA estimates that gains from deregulatory actions taken by
the Trump Administration in these areas “amount to 3.7 percent of
the average income of the poorest fifth of households, compared
with only 0.8 percent of the richest fifth, suggesting that they
benefited the poorest households four times as much as the richest
ones.”35 Counted among these improvements for households, the
CEA points to 20 deregulatory actions that will continue to deliver
benefits for Americans both as consumers and producers, with a
select number listed in Table 6-1 including removal of the
Affordable Care Act’s individual mandate and restoring internet
freedom.36 Additionally, prior to the pandemic, Executive Order
13771, “Reducing Regulation and Controlling Regulatory Costs,”
introduced a regulatory budget with a regulations cap and
eliminated an estimated $50.9 billion in regulatory costs over three
years, preemptively increasing the American economy’s
dynamism and resilience.37 Altogether, these actions laid the
groundwork for a stronger economic rebound in the aftermath of
the pandemic.
Deregulatory initiatives both prior to and during the pandemic
helped reduce costs not only for consumers but also for employers.
Regulatory reform is especially helpful for small businesses and
entrepreneurs that would like to grow, expand, and hire additional
workers but face high regulatory costs that they are ill equipped to
absorb and that prevent them from doing so.
The benefits of deregulatory initiatives could also be enjoyed after
the pandemic. As the CEA observes, “regulatory reform may help
position the United States for a robust economic recovery and be
a powerful tool to help lift up middle- and low-income Americans
as the economy recovers from the COVID-19 pandemic.”38
Considering the rising importance of telework, workplace
flexibility, and home-based businesses, there are several key areas
in which deregulatory actions, at all levels of government, could
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help workers, including addressing occupational licensing regimes
and curbing the overuse of non-compete clauses, as was
mentioned in last year’s Response.
Telework and Workplace Flexibility
COVID-19 rapidly changed the way Americans work. Seemingly
overnight, the fraction of employees working from home grew
from one-fifth of the workforce to over 50 percent,39 and estimates
suggest that these workers may now account for more than twothirds of U.S. economic activity.40 This change was initially a
shock, requiring a rapid adjustment for which many employers and
workers were ill-prepared. As the year progressed, however, the
successes of telework highlighted the value of flexibility in the
workplace.
Before the pandemic, remote work was gradually rising.
According to a November 2019 survey, employers were expecting
to increase the share of fully or partly remote workers from 33
percent to 46 percent over the next five years, a 45 percent
increase.41 After COVID-19, businesses now anticipate 58 percent
of their workers will be remote in some form, representing a 77
percent increase.42 In another survey, U.S. businesses indicate that
they expect the share of total working days from home to triple
after the pandemic is over compared to 2019.43 Similarly,
researchers from the National Bureau of Economic Research
estimate that “20 percent of full work days will be supplied from
home after the pandemic ends, compared with just 5 percent
before.”44
Initially, some workers reported that telework decreased their
efficiency due to insufficient access to distraction-free
workspaces, poor internet connectivity, and separation from their
colleagues.45 Yet, subsequent surveys reveal that teleworking may
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have actually increased productivity. For instance, one third of
managers surveyed in April 2020 reported that their workers’
productivity increased as a result of telework, and 91 percent felt
that the shift to remote work had gone as well or better than
expected.46
Pre-pandemic research also provides evidence that telework and
geographic flexibility can increase worker productivity. A 2012
study of workers in the U.S. Patent and Trademark Office found
that productivity increased for employees who started working
from home. Productivity increases were even greater among
workers who took advantage of the “work from anywhere”
program, which allowed them to live more than 50 miles away
from the office.47 Studies of German, Portuguese, and Chinese
firms have all observed similar findings.48
The rise of telework this past year has also revealed benefits
beyond productivity. For instance, Gallup reported that the percent
of Americans highly engaged in their work and committed to their
job reached its highest level on record in May of 38 percent.49
Additional surveys have found that employees benefit from the
time saved not commuting and the money saved on work-related
expenses, while employers benefit from the option to downsize or
eliminate their physical offices.50 Moving forward, 76 percent of
workers want to work from home at least one day per week,
compared to just 31 percent before the pandemic began –
suggesting that COVID-19’s effect on work has inspired a longterm desire for flexibility among workers.
After the pandemic ends, employers should continue enabling and
expanding workplace flexibility options, recognizing the potential
benefits for employees’ work-life balances, job satisfaction, and
productivity.
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Home-Based Business Regulation
In addition to the increasing share of workers that worked from
home at least some of the time pre-pandemic, home-based
businesses comprise half of all firms, a share that has remained
remarkably constant over the years preceding the pandemic and
kept pace with the rising number of businesses.51
As mentioned in last year’s Response, the pandemic magnified the
negative effects of local zoning restrictions on home-based
businesses.52 Many of these regulations were written prior to the
digital age—which makes remote work possible for a broad
number of occupations—creating unnecessary barriers to
entrepreneurship, particularly for many business owners who for
various reasons could not otherwise participate in the traditional
labor market.53
With the dual headwinds of job loss and stay-at-home orders
brought on by the pandemic, many more workers have seized the
opportunity to start a home-based business as a way to make ends
meet. Applications for new businesses filed by likely employers,
including many home-based businesses, rebounded dramatically
from June into the third quarter of 2020 after a particularly muted
first half of the year due to the pandemic.54
Amid the growth in new businesses, there is pressing need for
regulatory relief. Anecdotal evidence of unnecessary home-based
business regulation abounds. City and local ordinances are used to
shut down otherwise legal home-based operations with “no
impact” on their neighborhood’s character. In essence, these
examples fail to meet the typical criteria for enforcing home-based
business regulations—the generation of noise, unwanted traffic,
noxious odors or unsightly conditions.55
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The Arizona Home-Based Business Fairness Act, mentioned in
last year’s Response, would have permitted “no impact” homebased businesses that otherwise would be prohibited under
existing regulations. Despite its failure to pass in 2018, several
states and cities have since introduced similar bills and reforms to
address regulatory harm on home-based businesses.56 As working
from home increases in prevalence—a trend that was already
rising prior to the pandemic—it is in the best interest of states and
their localities to review and reform their regulatory frameworks
to enable more home-based businesses to thrive.
Occupational Licensing Reform
Occupational licensing continues to be one of the largest barriers
to work and is particularly burdensome on military veterans,
dislocated workers, immigrants, and those with a criminal
record.57 As the CEA notes, “efforts to combat the inefficiencies
of individual state licensing have been ongoing for decades.”58
The 2020 ERP and subsequent Response also highlighted state
level occupational licensing regimes as a significant barrier to
work, and despite the temporary relaxation of these rules for
healthcare workers delivering care across state lines during the
pandemic and previous emergencies, more permanent reforms
must take place. Some states are leading the way, like Arizona,
which in 2019 implemented a universal license recognition for
those relocating to Arizona. At least three other states have since
followed suit, and several more are in the process of doing so.59
Though occupational licensing largely occurs at the state level,
several federal-level reforms can serve as a model for improving
state licensure. The CEA highlights several Federal actions taken
to reduce licensing barriers, including by the Department of
Veterans Affairs, which enabled its licensed physicians to practice
in any state. Awarding Federal grants for state cooperation has led
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to several interstate licensing compacts, particularly for health
care workers. The benefits of deregulatory actions and mutual
license recognition extend to consumers as well. The CEA argues
that cost savings from “expanding occupational licensing
deregulation for nurse practitioners nationwide could result in $62
billion in cost savings annually.”60
Furthermore, the Administration took important and appropriate
measures to suspend a variety of unnecessary Federal regulations
that pre-dated the crisis and served as barriers to an effective
response. As the CEA mentioned in the ERP, these efforts
included decisions by the Department of Health and Human
Services to allow doctors to practice medicine across state lines as
well as Administration decisions to allow doctors to provide
telehealth services for Medicare patients.61 Recognition of these
critical authorizations dates back to at least the Obama
Administration, which highlighted in its occupational licensing
framework a 2009 report from the Department of Health and
Human Services recommending the expansion of “telehealth
networks and reducing legal barriers, based on the effectiveness of
telehealth in responding to public health emergencies and
disasters.”62 Finally, two of Senator Lee’s bills seek to reform
occupational licensing regimes. First, the Restoring Board
Immunity (RBI) Act would enable states to establish a process
either for active supervision of licensing boards or meaningful
judicial review of board actions to reduce over-reliance on
licensing and clarify the necessary steps to establish anti-trust
immunity to state boards. Second, the Military Spouse Licensing
Relief Act would make professional licenses of members of the
uniformed services and their spouses portable.63
Apart from Federal reforms, states can undertake additional
actions. For instance, states can continue to expand reciprocity for
professions likely to remain regulated and licensed, such as those
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in health care. For a number of other occupations where licensure
is not universal across states, reciprocity may not be as helpful, as
not everyone has a license. In many of these cases licenses may
not be necessary at all. To that end, state-level review of the
necessity of licensure for each regulated occupation will help
determine whether the current licensing regime meets the goal of
consumer safety or primarily insulates current license holders
from competition.
Non-Compete Reform
Non-compete agreements prevent employees from subsequently
working at firms in competition with their current employer.
However, many workers are asked to sign a non-compete only
after accepting a job offer; this condition often goes unstated until
the worker has invested significant time and energy into securing
the job. However, non-compete clauses can benefit workers by
creating an environment where costly non-job specific employee
training, such as general career skill building, can be internalized
through the employment contract.64 Where non-compete clauses
are used to protect trade-secrets they can be an important
protection for innovation and research. Policymakers at all levels
should study the effects of non-compete agreements more closely
to determine their relative costs and benefits and potential reforms.
Potential reforms could improve transparency regarding the
existence of a non-compete before job acceptance to help to reduce
misuse of these agreements. Alternatively, similar to Oregon and
New Hampshire, non-competes could be voided if they are not
included in “the original terms of employment.”65 Additionally,
research from the Economic Innovation Group (EIG) focuses on
several state reforms currently in use or under consideration,
including: requiring transparency regarding the existence of a noncompete well in advance of a potential worker accepting a job;
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“garden leave” provisions that compensate a worker for abiding
by the non-compete; refusing re-write and subsequent
enforcement of vague non-competes; bans on non-competes for
low wage workers and specific high-skill jobs; and outright noncompete and no-poach bans.66
In a separate report, EIG highlights state reforms in 2019 and 2020
that narrowed the application of non-competes to certain jobs and
imposed transparency mandates, aimed at improving mobility
among the one-fifth of American workers affected by noncompetes.67 Furthermore, the Congressional Budget Office
suggests restricting the use of non-compete agreements to reduce
barriers to entry for new firms and increase entrepreneurship.68
Removing Additional Barriers
While changes to occupational licensing and non-compete
agreements are mostly state-initiated reforms, the Federal
Government can also take proactive steps to enable a faster
economic recovery as the pandemic wanes. For example,
Congress could remove restrictive employment regulations that
make it harder for individuals to obtain employment and harder
for businesses to access talent. These reforms include
implementing the Working Families Flexibility Act to allow
private employers to extend the option of overtime pay or paid
time off to their employees who work overtime.69 As the CEA
notes in the ERP: “A persistent focus on regulatory reform will
play a critical role in the U.S. economy’s return to the levels of
economic prosperity it achieved before the COVID-19
pandemic.”70
Preparing a Skilled Workforce Remains an Imperative
In addition to regulatory reform, making skill acquisition easier
can help recently unemployed workers connect with new
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employers and enable workers with relatively fewer skills to
improve their job prospects and potentially increase their
standards of living. In particular, improvements to workforce
training programs and higher education reforms can help workers
acquire new skills.
As the ERP states, “Federal program requirements could also
encourage, rather than limit, partnerships between higher
education providers and employers. Employers are most aware of
the skills needed to succeed in the workplace.”71 Federal
policymakers should streamline the administration of workforce
training programs without sacrificing program diversity and
improve collaboration between public and private participants. To
that end, the Department of Labor developed industry-recognized
apprenticeship programs (IRAPs) that expand employment
opportunities for participants by granting industry-recognized
credentials in a variety of programs including paid work, workbased learning, and mentorship programs. Standard Recognition
Entities, which include trade associations, employer groups,
educational institutions, state and local governments, non-profit
organizations, and labor unions, develop the curricula for IRAPs.72
Though the Biden Administration ended IRAPs in February 2021,
they serve as an example of a flexible approach to accreditation
and administration that could serve as a model and improve
community college and other educational partner integration.73
There is even room for improvement in the Federal workforce
development programs already in existence. Since its 1937
inception, the industry concentration of federally registered
apprenticeships has hardly changed, remaining largely in goodsproducing industries even though the service sectors comprise the
vast majority of current employment and projected job growth.74
When it comes to higher education, the CEA notes that the system
as a whole is out of sync with the skills acquisition necessary to
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fill today’s skilled jobs: “The Federal Government could also
improve outcomes for students by better aligning education with
the needs of today’s workforce. The higher education system has
been slow to adapt to the changing nature of work. In recent years,
millions of jobs have remained unfilled, in part due to a lack of
Americans with appropriate skills.”75 The ERP details that
traditional post-secondary institutions do not typically bear
financial risk when it comes to the outcomes of post-graduates,
and argues for reforms that “could better hold institutions
accountable for the economic return that they provide to students,
as well as assist students and families to make more informed
decisions regarding their educational options.”76 Indeed, schools
seem to bear very little or no risk: Schools accept students,
students pay however they decide to, students graduate or do not,
and universities move on relatively unaffected by any specific
student outcome. Such a set-up does not provide schools with the
right incentives to accept promising students, guide them towards
graduation, and give them the best education possible to prepare
them to succeed in the job market. Policy can have a role in
reducing some of the inefficiencies that currently exist in higher
education as outlined below. However, such a policy need not
overreach its potential for impact by micromanaging universities
and students or increasing subsidies, which could reduce
accessibility for the very people that stand to gain the most from
higher education.
Federal policy could also address the way it funds higher
education and related programs. In particular, the prospect of
assuming student debt is not financially viable for many
Americans seeking occupational training—particularly in the case
of a mid- or late-stage career change. One suggestion the ERP
offers involves one of many reforms to the Pell Grants program:
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…to include high-quality, short-term programs
that provide students with a credential,
certification, or license in a high-demand field and
that demonstrate strong employment and earnings
outcomes. Pell Grants are typically used to support
students in traditional two- or four-year degree
programs. Though some certificate programs are
eligible for Pell Grants, programs must cover at
least 15 weeks of instruction. Expanding support to
shorter-term programs designed to teach skills
specific to well-paying jobs could better meet the
needs of students with near-term employment
goals.77
Additionally, income-share agreements (ISA) offer a higher
education funding tool for students by enabling them to pay some
portion of their income post-graduation for a specific period.78
Both online academies with massive open online courses and
major universities such as Purdue and Clarkson have adopted ISA
models.79 By making revenue contingent on student outcomes,
ISAs improve educational institutions’ financial incentives while
mitigating risk of default for students.80 To improve the model’s
credibility, appeal and sustainability, Federal policymakers should
clarify the legality and enforceability of ISAs to reduce investor
uncertainty.81
Federal accreditation reform could support workforce
development and re-skilling efforts as well. Despite the inability
to assess the effectiveness of unaccredited programs, nearly a third
of the American working class has a license or certificate from a
non-degree or work-experience program.82 Furthermore,
unaccredited programs cannot receive Federal aid.83 Federal
policymakers should consider new models of Federal funding that
pair financial aid with quality-assurance measures, as some states
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have done with their programs, including Virginia’s FastForward
program.84 Other reforms would improve the accreditation system,
as mentioned in last year’s Response, such as Senator Lee’s
Higher Education Reform Opportunity (HERO) Act, which—in
addition to streamlining Federal aid, realigning education
providers’ incentives, and providing greater transparency into
student success—enables states to accredit any post-secondary
institution.85
As the ERP states:
Improving the four-year degree to generate greater
skill increases for students, as well as providing
alternative paths for human capital accumulation,
can avoid a one-size-fits-all approach that leaves
individuals and groups behind. Apprenticeships,
training programs, and four-year degrees are all
paths to a more productive workforce and a higher
quality of life for millions of Americans.86
The labor market challenges posed by a rapidly evolving
economy, particularly in light of the dramatic changes brought on
by the pandemic, present an opportunity to further invest in human
capital. Recent innovations within workforce development shows
signs of promise, and Federal policy reforms can make room for
even greater innovations that equip workers with the skills in high
demand from area employers.
SUPPORTING FAMILIES
In addition to reconnecting workers to the labor force, postpandemic policy should also prioritize increasing family
affordability and improving investments in youth, which will in
turn result in a better equipped future workforce. Policy reforms
can aid families facing hardship resulting from unemployment and
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children facing learning losses from a year of online schooling,
and examples of relevant reforms are outlined below.
Improving Family Affordability through the Tax Code
The COVID-19 pandemic hit many American families hard and
created ripple effects across the economy. Unemployment rates
skyrocketed in the spring of 2020, businesses were forced to close
(some permanently), and school closings made it difficult for
parents to work, which disproportionately affected mothers who—
at least temporarily—dropped out of the labor force to care for
their children.87 The Social Capital Project (SCP), a multi-year
research effort of JEC Republican staff led by Senator Lee, has
studied factors that affect family affordability. While many of
these issues pre-date the pandemic, they are amplified by the
detrimental effects of COVID-19 on the economy. Thus,
addressing challenges to family affordability is paramount to
helping American families through these difficult times.
Inequities in the tax code that unfairly reduce family income are
an example of one important issue that affects family affordability.
Chapter 11 of the Report highlights two ways in which the tax
code penalizes certain types of families. First, the second-earner
penalty imposes higher marginal tax rates on secondary earners
who file jointly. In other words, joint filing combines the incomes
of a dual-earner household and effectively penalizes the second
earner for the earnings of the primary earner by taxing the
secondary earnings at a higher marginal tax rate. This penalty is
exacerbated for people with children. Thus, there is a bias in the
tax code toward single-earner families, which may discourage
dual-earner households and depress household earnings,
particularly for households with married adults who may have
children or want to have children.
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Second, Chapter 11 of the Report points out that under the current
tax code, low-wage workers face some of the highest marginal tax
rates, after taking into account both explicit taxation and the
implicit taxation of means testing.88 In other words, because of the
way in which income taxes at the Federal and State level are
levied, and the structure of benefits programs, a low-income
household earning an additional $1 may lose more than that in
income lost to taxes and reduced benefits. The Report illustrates
this using a hypothetical case of a mother with two children who
loses benefits as her income rises so that when she earns $44,000
annually, she is as well off in terms of net resources as she was
when she earned $11,000 annually. This creates a cycle of poverty
by creating disincentives to earnings growth, and greatly reduces
household income for families.
The SCP has explored other ways in which the tax code favors
some households while hurting others.89 For example, embedded
in the current tax code is a stay-at-home parent penalty. The tax
code subsidizes the costs of having children in formal childcare
arrangements because the Child and Dependent Care Tax Credit
(CDCTC)—as well as childcare flexible spending accounts–
offsets the costs for families who use formal childcare. Thus,
families that don’t require formal childcare arrangements (e.g.,
families with a stay-at-home parent) do not accrue any of these
benefits and are put at a disadvantage. This penalty is problematic
for at least two reasons: First, the stay-at-home parent penalty
signals to American families that some family arrangements are
better than others and more deserving of tax benefits. Second, the
penalty unnecessarily reduces household income for some
families with children and hurts family affordability. This is
especially unfair in the COVID-19 era where families may have a
parent at home and may not be using formal childcare
arrangements.
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In addition, Senator Lee has drawn attention to the parent penalty
implicit in the current tax code.90 Two families, one with children
and one without, that have the same income will pay the same
amount in payroll taxes over 18 years. However, the family that
has children will also spend hundreds of thousands of dollars to
raise those children who will later pay into Social Security and
Medicare for their parents and for seniors who did not have any
children of their own. Thus, the family with children contributes
more than the family without children. The tax code may want to
recognize this imbalance and further offset some of the costs of
sustaining our entitlement system.91
Senators Lee and Rubio have proposed ways to mitigate the stayat-home parent and parent penalties. Their work succeeded in
expanding the CTC in the 2017 Tax Cuts and Jobs Act (TCJA),
benefiting millions of American families.92 The Senators have
continued to call for a further expansion of the Child Tax Credit
(CTC) and increasing its refundability, in addition to replacing the
CDCTC with a Young Child Enhancement that eliminates part of
the stay-at-home parent penalty and expands access of the credit
to more families.93
Their bill would accomplish two things. First, it would fix the
refundability of the CTC so that parents could receive the full
credit up to their total tax liability – income and payroll. This
would put more money in the hands of families with children,
offsetting some of the financial burden of raising children, and
mitigating the imbalance that families with children face. Second,
it would eliminate the stay-at-home parent penalty by repurposing
the CDCTC and creating an expanded CTC of $3,500 with a
$1,000 enhancement for families with children aged 5 and under
(i.e., a total Young Child Credit of $4,500).94
Replacing the CDCTC with an expanded CTC would allow more
families to keep more of their hard-earned money and use it for
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child rearing expenses other than formal childcare, creating a winwin for dual-earner and single-earner families alike.
In addition to the penalties faced by some types of households that
are embedded in the tax code, research by the JEC Republicans
suggests that the tax code may also drive up the cost of living in
metropolitan areas, making it harder for families to afford living
accommodations.95 In other words, rising housing prices may be
due in part to the deductibility of residential property taxes and
mortgage interest. This creates a problem for family affordability
because housing is one of the most expensive inputs into starting
a family. The JEC Republicans discussed this issue at length in the
2020 Joint Economic Report (Response).96 While the TCJA
included limits on itemized deductions for mortgage interest and
state and local taxes, these should be extended or made permanent
in exchange for more broad-based tax relief.
Increasing Family Flexibility
In addition to improving family affordability, measures that
provide working parents with greater flexibility would be
beneficial for families. As JEC Republicans explained in the 2020
Joint Economic Report, reasonable policies that mitigate
difficulties in work-life balance may have positive effects on
family formation and family affordability.97 Furthermore, the
difficulties in work-life balance brought on by the pandemic, as
described in Chapter 11 of the Report, could be mitigated by
greater flexibility at work.98
Senator Lee has introduced two pieces of legislation that could
ease difficulties in work-life balance which are more important
than ever given the effects of COVID-19 on working parents.99 As
written in the JEC’s 2020 Joint Economic Report and briefly
mentioned earlier in the chapter:
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The Working Families Flexibility Act proposes
reforming federal labor laws that restrict the use of
comp time in the private sector. This legislation
would help workers improve work-life balance by
allowing private-sector employers to offer all
employees working overtime the choice between
monetary compensation or time off. Policies like
these that make reasonable but helpful changes to
reduce work-life challenges may be instrumental in
the longer term in enabling parents to be successful
both at work and at home. Such policies can reduce
the long-term costs of childbearing and childrearing, ease family affordability, and may enable
parents to reach their fertility goals.100
In addition, last year’s Joint Economic Report also highlighted
Senator Lee’s Child Rearing and Development Leave
Empowerment (CRADLE) Act, which would allow new parents to
borrow up to three months of paid parental leave, alleviating the
upfront costs of having children and enabling parents to bond with
their babies, while delaying retirement for up to six months.101
Increasing Childcare Access and Affordability
Access to childcare was severely disrupted over the last year as
childcare centers shut down to stop the spread of COVID-19.
According to a survey from the Bipartisan Policy Center (BPC),
60 percent of childcare programs were fully closed in April and 46
percent of parents were concerned that their childcare providers
would not reopen.102 By December, childcare availability
improved moderately, but 42 percent of parents with formal care
arrangements still did not have access to their childcare
providers.103
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Additionally, some childcare providers were forced to increase
their prices to cover the cost of new safety protocols, worsening
the pre-existing trend of rising childcare costs.104 These barriers to
childcare access and affordability pose major challenges for
working parents as well as parents seeking to enter the labor force.
Disruptions to childcare availability required some parents,
especially mothers, to work less or stop working entirely in order
to care for their children. One study found that the drop in
employment during 2020 disproportionately affected women,
whose falling labor force participation was driven in part by
increased childcare needs.105 Additionally, the Bipartisan Policy
Center’s April survey found that 21 percent of parents had to
reduce their work hours and 11 percent needed to take unpaid
leave to care for their children.106
Even after employment returns to pre-pandemic levels, many
parents worry that they will not be able to afford childcare.107 The
uncertainty about post-COVID affordability is exacerbated by
rising childcare prices prior to the pandemic. While there is
disagreement about the magnitude, most observers agree that
childcare costs have been increasing for decades.108
Childcare unaffordability is a major burden for many families.
According to Child Care Aware of America’s 2019 report, “in all
regions in the United States, average child care prices for an infant
in a child care center exceed the average amount that families
spend on food and transportation combined.”109 For families with
two children, annual childcare prices are higher than median rent
payments in every state, and higher than mortgage payments in 40
states and DC.110
For parents that cannot afford formal childcare, their only choice
may be to stop working and provide care themselves. In chapter
11 of the ERP, CEA presents research showing that “as of 2016,
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the high cost of childcare was preventing up to 3.8 million parents
from joining the labor force.”111
One likely driver of childcare unaffordability is the growing
number of regulations affecting childcare providers. The 2020
Joint Economic Report cited several of these regulations,
including staff-to-child ratios and education requirements for
caregivers, which impose burdensome compliance costs and drive
up the cost of care.112
For instance, Diana Thomas and Devon Gorry of the Mercatus
Center estimate that increasing child-staff ratio requirements by
one infant would reduce the annual cost of childcare by $850 to
$2,890 per child.113 Furthermore, they estimate that education
requirements for caregivers increase the cost of care by up to 46
percent.114 Similarly, after a comprehensive review, researchers at
the American Institute for Economic Research conclude “the
preponderance of the statistical evidence indicates a link between
tougher government regulations and higher prices faced by
families for child care.”115
Additional research suggests that burdensome regulations also
decrease the availability of childcare. One study estimates that
“tightening the staff-to-child ratios by one child reduces the
number of childcare centers in an average area by 10 percent with
no apparent impact on quality.”116 Loosening these requirements,
in turn, would increase childcare availability, enabling more
parents to join the labor force.
For example, Senator Lee’s Childcare Worker Opportunity Act
would reverse Washington, D.C.’s new regulation that requires
childcare workers to possess two to four years of college
education.117
Research
finds
that
these
mandates
disproportionately harm low-income childcare employees who
cannot afford college tuition.118 Furthermore, they also increase
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costs for childcare providers, leading to price increases and
making childcare unaffordable for many low- and middle-income
families in Washington, D.C.119
Improving the Quality of K-12 Education
For any family with children, K-12 schooling is a vital part of
everyday life. Chapter 7 of the Report describes the value of
nontraditional educational models, explaining that they lead to
higher quality education by increasing competition between
schools. Research surveyed in the ERP shows that, by encouraging
creativity and innovation in schooling, school choice programs
can improve parental satisfaction, increase students’ educational
achievement, and increase long run educational attainment.
As the ERP explains:
For students participating in these programs,
achievement results as measured by test scores are
mixed, although several studies find large positive
results for minority and low-income students. We
explain that some positive outcomes of school
choice emerge later in a child’s development
through higher educational attainment, and studies
of these longer-term outcomes are generally more
positive.120
The ERP also presents evidence that school choice programs
benefit society. For instance, voucher programs and charter
schools have been linked to lower rates of criminal activity,
incarcerations, and teenage pregnancies.121 The Report also
demonstrates that school choice programs disproportionately
serve low-income and minority communities, reducing the
education opportunity gap.122
126
According to SCP research, the vast majority of students (over 90
percent) attend public school, yet confidence in public education
has been steadily falling—from 62 percent of parents expressing
confidence in 1975 to under 30 percent in 2019. At the same time,
enrollment in private school choice programs is climbing. SCP
found that “from 2000 to 2018, the number of students
participating in a private school choice program increased 16
times over, while participation in public charter programs
increased nearly seven-fold.”123 Similarly, the number of children
in homeschooling has doubled over the past 20 years.124 These
trends are visualized in Figure 2-1, below.
127
Figure 2-1
Students Participating in Choice Programs or
Homeschooling, 1999-2018
The SCP has conducted extensive research into the benefits of
educational pluralism, a concept closely related to school choice.
Educational pluralism encourages a diversity of school models and
learning cultures, allowing parents autonomy over their children’s
schooling and the values and traditions children are exposed to. In
“Multiple Choice: Increasing Pluralism in the American
Education System,” the SCP finds that alternative schooling like
charter schools can lead to better educational outcomes, with the
best results occurring in communities that emphasize school
accountability. 125 They also find that community-based schooling,
like Catholic schools, create societal benefits by emphasizing
strong relationships between parents, teachers, and students, and
embedding behavioral norms into the institution of schools.126
128
Over the past year, COVID-19 has exposed the drawbacks of a
traditional one-size-fits-all education system and highlighted
families’ demands for innovative educational alternatives.127 SCP
research demonstrates that widespread school closures in 2020
harmed
children
developmentally,
academically,
and
psychologically—challenges that could have been mitigated with
greater diversity in educational opportunities.128
Extensive evidence exists showing that children suffer from
school closures. The largest developmental effects are
concentrated among the youngest students: those in the midst of
learning foundational skills like reading and writing and beginning
to develop social skills. Older students also suffered from the
transition to remote learning, with teachers reporting that students
returned to the fall semester significantly less prepared than in
years prior.
These learning losses will likely translate to economic losses later
in life, reducing students’ future earnings. Low-income students
will be disproportionately affected, as research shows they face
greater setbacks from remote learning. On a macroeconomic scale,
the U.S. economy as a whole will suffer from the future labor
force’s reduced skill level. One estimate suggests that, by 2040,
the 2020 school closures will shrink annual GDP by as much as
$271 billion per year.129
Parents’ new responsibilities connected to their children’s
schooling, especially for parents with young children, have
additional negative ramifications for worker productivity. Surveys
suggest that over 70 percent of parents struggle with
simultaneously working and schooling their children. The
potential effect on overall productivity is significant, as nearly one
third of U.S. workers have school-age children.130
129
In response, many parents embraced alternative models of
education. For instance, reports suggest that parents turned to
private schools in search of in-person instruction while public
schools continued to practice remote learning.131 Furthermore,
roughly 40 percent of parents report that COVID-19 made them
more likely to consider homeschooling, and school closures
spurred new “learning pods” where students received group
instruction from parents or tutors.
The American experience in 2020, combined with the already
growing popularity of public and private choice programs before
the pandemic, suggest that policymakers should aid families
seeking education outside of the traditional public school system.
As argued by the SCP, “a more individualist approach would have
education funding follow the child—parents would receive the
value of their children’s public education dollars to use at the
school of their choice.”132
One example discussed in the ERP is the Empowerment
Scholarship Accounts program in Arizona, which allows students
to receive 90 to 100 percent of state per-pupil education funding,
depending on their families’ income levels.133 These funds can be
used for a variety of education-related expenses, including private
school tuition, tutoring, and expenses related to homeschooling—
making it a truly flexible program that enables families to pursue
what is best for them and their children.
The TCJA also expanded the scope of 529 education savings
plans, which now allow families to save money in tax advantaged
accounts for K-12 education—including private and religious
schools—in addition to college. The Children Have Opportunities
in Classrooms Everywhere (CHOICE) Act, introduced by Senator
Lee, would further expand 529 savings accounts to qualifying
expenses related to virtual learning, tutoring, books,
homeschooling, and educational services for students with
130
disabilities.134 It would also empower low-income families to
apply for Federal education funds that can be used in a variety of
ways, enabling them to choose the best educational options for
their children.135
Policymakers should also explore options to break the link
between home value and school quality. SCP research, referenced
in the ERP, finds that median home prices are four times higher in
ZIP codes with the highest quality public elementary schools than
in those with the lowest quality public elementary schools.136
School choice programs help to close this gap by empowering
parents to send their children to any school, regardless of location.
However, states and localities could also take a more proactive
approach by reforming residential zoning regulations and thereby
increasing housing choice across school boundaries. There are
other policy reforms that could be tried, as well. Indiana, for
example, uses sales taxes to fund grants for schools in poorer
districts in an effort to equalize per-pupil spending across district
lines.137
131
CONCLUSION
The economic and emotional fallout from the pandemic took an
unprecedented toll on Americans, causing many to struggle with
the loss of employment, schooling, and childcare. As the United
States enters recovery, policymakers should give Americans the
tools to succeed now and in the future by removing current barriers
to work, increasing the affordability of having and caring for a
family, and empowering children and adults to build their skills
with a diverse array of educational opportunities.
Recommendations
Connecting People to Work
Pass the Working Families Flexibility Act to allow private
employers to extend the option of overtime pay or paid
time off to their employees who work overtime.
Pass the RBI Act in order to reduce over-reliance on
occupational licensing and pass the Military Spouse
Licensing Relief Act to create portability for military
spouses’ licenses.
State regulatory reforms should support the continued
growth of home-based businesses, and continue to remove
burdensome occupational licensing regimes and noncompete agreements in order to enhance worker economic
and geographic mobility.
Support workforce development and re-skilling efforts
with Federal accreditation reform, and pass the HERO Act
in order to streamline Federal aid, realign education
providers’ incentives, improve transparency in student
outcomes and enable states to accredit any post-secondary
institution.
132
Supporting Families
Replace the Child and Dependent Care Tax Credit with an
expanded Child Tax Credit and a Young Child
Enhancement credit for families with children age 5 and
younger to eliminate the stay-at-home parent penalty and
enable more families to utilize it.
Make permanent the limits in the TCJA on itemized
deductions for mortgage interest and state and local taxes.
Pass the CRADLE Act, which would allow new parents to
borrow up to three months of paid parental leave, thereby
alleviating some of the initial costs of childbearing and
allowing new mothers and fathers to spend more time
bonding with their infants.
Pass the Childcare Worker Opportunity Act, which would
remove newly imposed regulations increasing the cost of
childcare in Washington, D.C.
States should encourage flexible schooling by removing
barriers to nontraditional schooling and empowering
families to pursue the education models and cultures that
are best for them.
Pass the CHOICE Act, which would allow low-income
families to utilize Federal education funds in a way that
best fits their needs and further expand 529 savings
accounts to allow greater flexibility for families to save
tax-free for education expenses.
133
ENDNOTES
1
Economic Report of the President, January 2021, p.39
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Ozimek, Adam, Explaining the Wage Growth Mystery, June 1, 2018,
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3
ERP, p. 41-42
4
ERP, p. 42
5
Congressional Budget Office, The Budget and Economic Outlook: 2017 to
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6
Bureau of Labor Statistics, Civilian Labor Force Participation Rate,
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7
Congressional Budget Office, The Budget and Economic Outlook: 2017 to
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Alan Krueger, How Tight is the Labor Market?, The NBER Reporter 2015
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Lisa Maria Garza, “Tax cuts mean Fed must be vigilant on ‘overheating’:
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10
David Lawder, “IMF chief sees growth, overheating, debt risks from U.S.
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11
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12
Jerome H. Powell, “Getting Back to a Strong Labor Market,” February 10,
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https://www.federalreserve.gov/newsevents/speech/powell20210210a.htm
13
Alan Cole, Joint Economic Committee Social Capital Project, Stable
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14
Peter Ganong, Pascal Noel, and Joseph Vavra, U.S. Unemployment
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16
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17
Michael Shear, Abby Goodnough, Sheila Kaplan, Sheri Fink, Katie
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ERP, p. 119
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135
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31
ERP, p. 118.
32
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33
Defined as $100 million in economic impact, see more: Executive Order
12866, Federal Register Vol. 58, No. 190, October 4, 1993,
https://www.archives.gov/files/federal-register/executiveorders/pdf/12866.pdf
34
ERP, p. 176.
35
ERP, p. 174.
36
ERP, p. 195.
37
“Regulatory Reform under Executive Order 13771: Final Accounting for
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Totals may not add due to rounding.
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“Frequently Asked Questions About Small Business,” Office of Advocacy,
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53
Nolan Gray and Olivia Gonzalez, “Home-Based Businesses Are Coming,”
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55
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ERP, p. 354.
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60
ERP, p. 115.
61
ERP, p. 354.
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White House, Obama, “Occupational Licensing: A Framework for
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U.S. Senate, "S.2039 - TEAM Act," 117th Congress, June 14, 2021,
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64
Because workers can easily leave their job, employers have a diminished
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66
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ERP, p. 174-175.
71
ERP, p. 392.
72
U.S. Department of Labor, “U.S. Department of Labor Make Major
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73
Jorge Klor de Alva, Jorge Klor and Mark Schneider, “Apprenticeships and
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74
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75
ERP, p. 392.
76
ERP, p. 386-387.
77
ERP, p. 392.
78
James, Kevin, “9 Things to Know About Income-Share Agreements,” U.S.
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79
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80
Akers, Beth, “How Income Share Agreements Could Play a Role in Higher
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81
CCAP, “Income Share Agreements, and Their Role in Making Higher
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82
“Working class” defined as adults 25-64 with a high school diploma, no
bachelor’s degree, and reported annual income between $20,000 and $40,000.
See: Columbus, Rooney, Columbus, “Nondegree Credentials, Work-Based
Learning, and the American Working Class,” American Enterprise Institute,
69
139
https://www.aei.org/research-products/report/nondegree-credentials-workbased-learning-and-the-american-working-class/.
83
Butler, Stuart, “Tottering Ivory Towers,” The American Interest, August 12,
2014, https://www.brookings.edu/articles/tottering-ivory-towers/.
84
Maag, Taylor, “What States Can Learn from Virginia’s FastForward into
the Future of Work,” JFF, June 18, 2018, https://www.jff.org/points-ofview/what-states-can-learn-virginias-fastforward-future-work/.
85
Response, p. 14. See also: “The Higher Education Reform and Opportunity
Act,” https://www.lee.senate.gov/public/index.cfm/higher-education-reformand-college-opportunity.
86
ERP, p. 392.
87
Cole, Alan, “COVID-19 Joblessness, Gender, and Family Structure,” Social
Capital Project, JEC Republicans, May 20, 2021,
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88
ERP, p. 328.
89
Brown, Patrick, “Expanding Child Care Choices: Reforming the Child and
Dependent Care Tax Credit to Improve Family Affordability," Social Capital
Project, JEC Republicans, Feb 3, 2021,
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A4E-15A1-4EAA-A97E-9F649A53DF84
90
Senator Mike Lee, “Sen. Lee’s Breakdown of the Lee-Rubio Child Tax
Credit Plan,” Press Release, February 24, 2021
https://www.lee.senate.gov/public/index.cfm/press-releases?ID=1386D1FF9FF1-4BF5-A4F4-C94D2417B0F9
91
Senator Mike Lee, “Expanding the Child Tax Credit”, Feb 25. 2021,
https://www.lee.senate.gov/public/_cache/files/bb47a713-f59c-41bb-b55c23d22cb7a957/expanding-the-child-tax-credit.pdf
92
Senator Marco Rubio, “2018 Tax Data Proves Expanded Child Tax Credit
Benefitted Millions of American Families,” Press Release, July 11, 2019,
https://www.rubio.senate.gov/public/index.cfm/2019/7/rubio-lee-2018-taxdata-proves-expanded-child-tax-credit-benefitted-millions-of-americanfamilies
93
Senator Mike Lee, “Expanding the Child Tax Credit”, February 25, 2021,
https://www.lee.senate.gov/public/_cache/files/bb47a713-f59c-41bb-b55c23d22cb7a957/expanding-the-child-tax-credit.pdf
94
Ibid.
95
Cole, Alan, “Priced Out: Why Federal Tax Deductions Miss the Mark on
Family Affordability,” Social Capital Project, JEC Republicans, May 18,
2020,
https://www.jec.senate.gov/public/index.cfm/republicans/analysis?ID=7931E4
9F-C1D8-4A3C-A823-2A40A6D3004F
140
96
2020 Joint Economic Report,
https://www.jec.senate.gov/public/_cache/files/8705d697-03c6-495b-ac263f3557d2fa3a/crpt-116srpt335-1-.pdf
97
2020 Joint Economic Report.
98
ERP, p. 335.
99
Senator Mike Lee, “Working Family Flexibility,”
https://www.lee.senate.gov/public/index.cfm/working-family-flexibility
100
2020 Joint Economic Report, p. 62.
101
Ibid.
102
“Nationwide Survey: Child Care in the Time of Coronavirus,” Bipartisan
Policy Center, April 10, 2020, https://bipartisanpolicy.org/blog/nationwidesurvey-child-care-in-the-time-of-coronavirus/
103
“Parent Child Care Preferences: Are They Changing?” Bipartisan Policy
Center, January 22, 2021, https://bipartisanpolicy.org/wpcontent/uploads/2021/01/January-2021-Parent-Survey-Webinar.FinalSlides.pdf
104
Stefania Albanesi and Jiyeon Kim, “The Gendered Impact of the COVID19 Recession on the US Labor Market,” NBER, February 2021,
https://www.nber.org/papers/w28505
105
Ibid.
106
“Nationwide Survey: Child Care in the Time of Coronavirus,” Bipartisan
Policy Center, April 10, 2020, https://bipartisanpolicy.org/blog/nationwidesurvey-child-care-in-the-time-of-coronavirus/
107
Ibid.
108
Brown, Patrick, “Expanding Child Care Choices: Reforming the Child and
Dependent Care Tax Credit to Improve Family Affordability," Social Capital
Project, JEC Republicans, Feb 3, 2021,
https://www.jec.senate.gov/public/index.cfm/republicans/analysis?ID=0A45E
A4E-15A1-4EAA-A97E-9F649A53DF84
109
“The U.S. and the High Price of Child Care: An Examination of a Broken
System,” Child Care of America, 2019,
https://cdn2.hubspot.net/hubfs/3957809/2019%20Price%20of%20Care%20St
ate%20Sheets/Final-TheUSandtheHighPriceofChildCareAnExaminationofaBrokenSystem.pdf
110
Ibid.
111
ERP, p. 342
112
2020 Joint Economic Report, p. 55.
113
Diana Thomas and Devon Gorry, “Regulation and the Cost of Child Care,”
Mercatus Center, August 17, 2015,
https://www.mercatus.org/publications/regulation/regulation-and-cost-childcare
114
Ibid.
141
Max Gulker and Cam Hudson, “The High Cost of Regulating Child Care,”
American Institute for Economic Research, February 22, 2019,
https://www.aier.org/article/the-high-cost-of-regulating-child-care/
116
Veronique de Rugy, “Occupational Licensing on Childcare,” Mercatus
Center, February 6, 2020, https://www.mercatus.org/system/files/de_rugy__testimony__occupational_licensing_and_childcare_testimony_for_house_small_business
_committee_-_v1.pdf
117
Senator Mike Lee, “Sen. Lee Introduces Childcare Worker Opportunity
Act,” Press Release, March 2, 2021,
https://www.lee.senate.gov/public/index.cfm/press-releases?ID=6F26AE3D2A89-4F64-8924-38CC9B884547
118
C. Jarrett Dieterle and Shoshana Weissmann, “Comment Regarding the
Office of the State Superintendent of Education’s Notice of Proposed
Rulemaking amended 5-A DCMR Chapter 1 to extend the deadline for staff
members to comply with specific credential requirements,” R Street,
https://www.rstreet.org/wp-content/uploads/2018/04/R-Street-InstituteComment-on-DC-Daycare-College-Requirement-2-1.pdf
119
Ibid.
120
ERP, p. 203
121
ERP, p. 220
122
ERP, p. 219
123
Brown, Patrick, “Multiple Choice: Increasing Pluralism in the American
Education System,” Social Capital Project, JEC Republicans, December 10,
2019,
https://www.jec.senate.gov/public/index.cfm/republicans/2019/12/multiplechoice
124
Ibid.
125
Ibid.
126
Ibid.
127
Jacqueline Varas, Vijay Menon and Robert Bellafiore, “What’s Next for
Schools: Balancing the Costs of School Closures Against COVID-19 Health
Risks,” Social Capital Project, JEC Republicans, February 2, 2021,
https://www.jec.senate.gov/public/index.cfm/republicans/2021/2/what-s-nextfor-schools-balancing-the-costs-of-school-closures-against-covid-19-healthrisks
128
Ibid.
129
Dorn, Emma et al. “COVID-19 and student learning in the United States:
The hurt could last a lifetime,” McKinsey & Company, June 1, 2020,
https://www.mckinsey.com/industries/public-and-social-sector/ourinsights/covid-19-and-student-learning-in-the-united-states-the-hurt-couldlast-a-lifetime
115
142
Jacqueline Varas, Vijay Menon and Robert Bellafiore, “What’s Next for
Schools: Balancing the Costs of School Closures Against COVID-19 Health
Risks,” Social Capital Project, JEC Republicans, February 2, 2021,
https://www.jec.senate.gov/public/index.cfm/republicans/2021/2/what-s-nextfor-schools-balancing-the-costs-of-school-closures-against-covid-19-healthrisks
131
Ibid; See also: Jessica Dickler, “Families jump to private schools as
coronavirus drags on,” CNBC, November 8, 2020,
https://www.cnbc.com/2020/11/08/coronavirus-why-families-are-jumping-toprivate-schools.html; Helen Lyons, “As Plans For Reopening D.C. Region
Schools Remain Uncertain, Some Families Are Looking At Private
Education,” WAMU, July 28, 2020, https://wamu.org/story/20/07/28/as-plansfor-reopening-d-c-region-public-schools-remain-uncertain-some-families-arelooking-at-private-education/
132
Brown, Patrick, “Multiple Choice: Increasing Pluralism in the American
Education System,” Social Capital Project JEC Republicans, December 10,
2019,
https://www.jec.senate.gov/public/index.cfm/republicans/2019/12/multiplechoice
133
ERP, p. 205
134
Senator Mike Lee, “Children Have Opportunities in Classrooms
Everywhere Act,” https://www.lee.senate.gov/public/_cache/files/bbd97cf42514-4cba-8da9-b801bcaf70d2/choice-act-introduced-text.pdf
135
Ibid.
136
Calder, Vanessa Brown, “Zoned Out: How School and Residential Zoning
Limit Educational Opportunity,” Social Capital Project, JEC Republicans,
November 12, 2019,
https://www.jec.senate.gov/public/index.cfm/republicans/2019/11/zoned-outhow-school-and-residential-zoning-limit-educational-opportunity
137
Brown, Patrick, “Multiple Choice: Increasing Pluralism in the American
Education System,” Social Capital Project, JEC Republicans, December 10,
2019,
https://www.jec.senate.gov/public/index.cfm/republicans/2019/12/multiplechoice#_ednref96
130
