Executive summaryThe Congressional Progressive Caucus (CPC) has unveiled its fiscal year 2014 (FY2014) budget, titled Back to Work. It builds on recent CPC budget alternatives in prioritizing near-term job creation, financing public investments, strengthening the middle class, raising adequate revenue to meet budgetary needs while restoring fairness to the tax code, protecting social insurance programs, and ensuring fiscal sustainability.
Refer to the PDF of this paper for Figures A-E, visualizing The Back to Work budget’s impacts on deficits, debt, and nondefense discretionary funding; Tables 1 and 2 detailing the policy changes within the budget; and summary tables 1 through 6 depicting budget totals as well as comparisons with current law and current policy baselines.The Back to Work budget is focused on ending the ongoing jobs crisis, and it provides substantial upfront economic stimulus for that purpose. This paper details the budget baseline assumptions, policy changes, and budgetary modeling used in developing and scoring the Back to Work budget, and it analyzes the budget’s cumulative fiscal and economic impacts, notably its near-term impacts on economic recovery and employment.1
We find that the Back to Work budget would have significant, positive impacts in the following areas:
- Promoting job creation and economic recovery. The Back to Work budget would sharply accelerate economic and employment growth; it would boost gross domestic product (GDP) by 5.7 percent and employment by 6.9 million jobs at its peak level of effectiveness (within one year of implementation), while ensuring that fiscal support lasts long enough to avoid future fiscal cliffs that could throw recovery into reverse.2
- Targeting a full-employment economy. The budget would rapidly restore the unemployment rate near to pre-recession levels of 5 percent. The unemployment rate would be expected to range between 5.0 and 5.6 percent by 2014, in line with what the Congressional Budget Office (CBO) regards as full employment.
- Restoring full economic health. U.S. economic output is currently $985 billion (5.9 percent) below potential, and the economy is projected to remain 6 percent below potential in 2013 under current law. The budget would effectively use fiscal stimulus to restore actual GDP to potential GDP—the key barometer for restoring full employment in the economy.
- Financing job creation and public investments. The budget finances roughly $700 billion in job creation and public investment measures in 2013 alone and $2.1 trillion over 2013–2015.3 This fiscal expansion is consistent with Economic Policy Institute estimates of the fiscal support needed to rapidly restore the economy to full health (Bivens, Fieldhouse, and Shierholz 2013).
- Strengthening social insurance. The Back to Work budget strengthens the social safety net and proposes no benefit reductions to social insurance programs—in other words, it does not rely on simple cost-shifting to reduce the budgetary strain of health programs. Instead, it uses government purchasing power to lower health care costs (health care costs are the largest threat to long-term fiscal sustainability) and builds upon efficiency savings from the Affordable Care Act. The budget also expands and extends emergency unemployment benefits and increases funding for education, training, employment, and social services as well as income security programs in the discretionary budget.4
- Making targeted spending cuts. The budget focuses on modern security needs by returning Defense Department spending to 2006 levels. It ends emergency overseas contingency operation spending in FY2015 and beyond, and cuts non-emergency Defense Department spending by $897 billion over 10 years.
- Raising revenue progressively. The budget restores adequate revenue and pushes back against income inequality by adding higher marginal tax rates for millionaires and billionaires, equalizing the tax treatment of capital income and labor income, restoring a more progressive estate tax, eliminating inefficient corporate tax loopholes, and enacting a financial transactions tax, among other tax policies.
- Reducing the deficit in the medium term. The budget increases near-term deficits to boost job creation, but reduces the deficit in FY2015 and beyond relative to CBO’s alternative fiscal scenario (AFS) current policy baseline. The budget would achieve primary budget balance (excluding net interest) and sustainable budget deficits below 2 percent of GDP in FY2016 and beyond. The deficit would gradually fall to 1.2 percent of GDP by FY2023.
- Targeting a sustainable debt level. After increasing near-term borrowing to restore full employment, the budget gradually reduces the debt ratio to a fully sustainable 68.7 percent of GDP by FY2023. Relative to CBO’s AFS, the budget would reduce public debt by $4.4 trillion (equal to 16.9 percent of GDP). Relative to current law, the budget would reduce public debt by $2.1 trillion (8.3 percent of GDP).5