Blog Post by: Andrew Fieldhouse , on March 19, 2013
House Budget Committee Ranking Member Chris Van Hollen (D-MD) has introduced the House Democratic FY2014 budget alternative, which would lessen the near-term economic drags left in place by the lame-duck budget deal. While understandably less ambitious in terms of job creation than the Congressional Progressive Caucus’s “Back to Work” budget, the Van Hollen budget deserves credit both for financing some renewed fiscal expansion to boost growth and for fully averting the macroeconomic drags posed by sequestration.
The Van Hollen budget adopts job creation proposals from the president’s jobs package (in his fiscal 2013 budget request), financing $174 billion in stimulus spending over fiscal 2013–2015.1 These stimulus provisions include $55 billion for rehiring teachers and modernizing K–12 schools, $37 billion in infrastructure investments, and $19 billion for a targeted tax credit for businesses that increase payroll, among other policies. Relative to current budget policy (which assumes the sequester is repealed), the Van Hollen budget would increase government spending in fiscal 2013 and 2014, as well as cut taxes in 2013.2
On net, we estimate that the Van Hollen budget would boost GDP growth by 0.4 percent and increase employment by roughly 450,000 jobs in 2013, relative to current policy. A smaller economic boost of 0.1 percent of GDP and roughly 110,000 jobs would be expected in 2014. Note that CBO’s baseline forecast shows employment rising by 1.5 million jobs between the fourth quarter of 2013 and the fourth quarter of 2014; these estimates do not suggest that 340,000 jobs would be lost between 2013 and 2014, simply that employment would rise faster and higher than otherwise projected over the next two years.
The Van Hollen budget also replaces sequestration, whereas the current policy baseline presupposes the repeal of sequestration—in keeping with budgetary scorekeeping conventions of the past two years—but which is by no means certain. We previously estimated that sequestration would reduce growth by 0.6 percent and employment by 660,000 jobs in 2013, with the drag growing to 0.8 percent and 910,000 fewer jobs in 2014. So relative to a world in which sequestration remains in effect, the Van Hollen budget would boost employment by more than 1.1 million jobs in 2013 and just over 1.0 million jobs in 2014.
Indeed, the economic drag from sequestration comprises a substantial share of the near-term job losses projected under the Ryan budget. We previously estimated that the Ryan budget would decrease employment by 750,000 jobs in 2013—the combination of sequestration and additional fiscal year 2014 spending cuts, some of which would take effect in the fourth quarter of 2013. As the drag from sequestration increased and more austerity was layered on top of sequestration, the drag was projected to rise above 2.0 million jobs lost in 2014.
Consequently, we estimate the Van Hollen budget would boost GDP by 1.0 percent and increase employment by 1.2 million jobs in 2013 relative to the Ryan budget. And by 2014, the Van Hollen budget would boost GDP by 1.8 percent and increase employment by more than 2.1 million jobs relative to the Ryan budget.
The Van Hollen budget would be a net positive for the labor market over the next two years, relative to current budget policy, current law, or the Ryan budget. It’s encouraging to see a mainstream budget proposal grounded in the evidence-based outlook that near-term austerity—including sequestration—should be avoided while the U.S. economy remains depressed, and near-term deficits should instead be increased to boost employment. Sizeable renewed fiscal expansion seems unlikely to materialize given House Republicans’ demands for more austerity coupled with repeated obstruction of faster recovery, so it could be tempting to ignore the economic need for stimulus and instead focus solely on ten-year deficit reduction targets. Commendably, the House Democratic budget takes a more principled, economically grounded position on the need for accelerating job creation and actually budgets for some additional fiscal support instead of just offering platitudes and austerity for the unemployed.
1 The Van Hollen budget proposes the remaining job creation provisions that were not acted upon by the 112th Congress, meaning that it does not include the enacted continuation of the payroll tax cut and emergency unemployment compensation program for 2012. With the exception of proposed increased SNAP funding, the remaining job creation measures proposed have been delayed one year from in the president’s fiscal 2013 budget request.
2 As in our analysis of the Ryan budget and the CPC budget alternative, the Van Hollen budget has been adjusted to exclude funding levels for overseas contingency operations (OCO). The current policy baseline used is CBO’s alternative fiscal scenarios baseline adjusted to exclude both OCO funding and the inflation-adjusted continuation of emergency disaster relief for Hurricane Sandy appropriated for fiscal 2013 (which is continued in both CBO’s current law and AFS baselines).