Those Republican Spending Caps Are Costing Us Jobs

Isaiah J. Poole

The case for ending the federal budget spending caps known as the “sequester” has just gotten a whole lot stronger. It’s all about jobs.

At the request of Sen. Bernie Sanders, who is currently running as a Democratic presidential candidate, the Congressional Budget Office this week released a letter that said that if these spending caps were eliminated, the economy would be able to add as many as 1.4 million additional jobs in 2016 and 2017.

The budget caps, you will recall, were imposed as part of the 2011 Budget Control Act. The law imposes strict limits on the spending Congress can authorize through 2021. While the caps affect both domestic and defense spending, the effect is particularly harsh on so-called domestic “discretionary” spending – all of the federal government programs outside of services like Medicare, Medicaid, Social Security, nutrition assistance and the like.

What would having up to 1.4 million additional jobs mean to the economy? Some insight into the answer came Wednesday from the Labor Department’s latest Job Openings and Labor Turnover Survey – the “JOLTS” report in Washington-speak that many economic experts say Federal Reserve chair Janet Yellen considers more valuable than the Labor Department’s monthly jobs report. That report said that in June there were 5.2 million job openings, while June’s unemployment report indicated there were 8.3 million people looking for work. That’s roughly two jobs for every three job seekers.

While that is way down from the nearly seven job seekers for every job that was the case at the worst point of the recession in 2009, we’re still a good distance away from a truly healthy job market. According to Alyssa Davis at the Economic Policy Institute, “The job-seekers ratio is currently much higher than its low-point of 1.1 in 2000, indicating that there is still a lot of slack in the labor market. In a tighter labor market, this ratio would be closer to 1-to-1 or less, as there would be more job opportunities available for each job seeker.”

In other words, we really need those 1 million-plus jobs.

It’s a well-accepted fact outside of the fever swamp that is the Republican caucus in Congress that cuts in federal spending impose a drag on the economy. According to the CBO, lifting the sequestration budget caps would allow for an increase in federal appropriations of $90 billion in 2016 and $91 billion in 2017, and “the increase in federal spending would lead to more aggregate demand than under current law.” In 2016, the additional spending could add more than half a percentage point to economic growth.

But what about the deficit? Many Americans believe that federal spending continues to be “out of control”; that very phrase, “failing to address out-of-control federal spending,” was used as the headline for a commentary Rep. Bradley Byrne (R-Ala) published on a conservative web site.

Actually, another CBO report projects that the federal deficit by September 30, the end of the 2015 fiscal year, will be $425 billion, the lowest since 2007 and substantially down from the $483 billion deficit the government accumulated at the end of fiscal 2014. The reason is that as the economy grows, the revenue that the federal government is collecting from taxes is growing significantly faster than federal spending.

And that is with the economy growing at an annual rate of just over 2 percent a year. Imagine what would happen if the economy was growing even faster – let’s say something closer to a 4 percent annual rate.
More people working at good jobs with fair wages would mean less federal spending on support programs, and more tax revenue coming in from both workers and the businesses those workers would now be able to patronize. At least initially, federal spending would rise on programs that would help create jobs, such as the $1 trillion infrastructure spending plan that Sanders proposed earlier this year. But revenues would rise even faster, annual deficits would fall, and the federal deficit as a percentage of the size of the total economy – the really important number, not simply the total dollar number of the debt – would shrink.

Lifting the sequester caps and their constraints on the ability of the federal government to make common-sense spending decisions to support economic growth, create more jobs and lay a foundation for future prosperity should be a core campaign issue. The austerity that has been imposed on the country by congressional Republicans is a key reason the economic recovery of the past few years has been anemic and economic inequity has been so persistent. What we need is a full-employment economy, and Republican-imposed constraints on what the federal government can do are a barrier, not a solution. We’d expect Sanders, and for that matter other Democratic presidential candidates, to press that point in the weeks ahead.

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