A new bill introduced today by Senator Tom Harkin and Rep. George Miller would raise the federal minimum wage to $10.10 per hour, and more importantly, peg it to inflation so that it would automatically adjust. The proposed wage hike is higher than the $9 per hour proposed by President Obama and is closer to what the minimum wage would be now if it had kept up with the rate of inflation. The bill also increases the tipped wage, which has not risen in twenty years.
President Obama gambled that the threat of the automatic sequester of $85 billion in domestic and defense cuts would force the Republicans to accept major tax increases, and so far he is losing the wager. The Republican leadership, which was badly divided over the New Years deal that delayed the fiscal cliff, is now re-united around the proposition that Republicans will accept no further tax increases.
When global leaders met in Davos, Switzerland this past January for the annual World Economic Forum, it was not just an opportunity to chatter about the state of the global economy, but also a moment for a collective sigh of relief. The fiscal cliff in the United States had just been avoided, Barack Obama was even able to raise some revenue by letting some of the Bush-era tax rates expire, and the currency crisis in Europe appeared to be on the mend. What a difference a month makes. As another battle over deficits and spending looms in Washington and threatens to pull the U.S. economy back into recession, a far greater worry is the ever-present crack-up of the euro, which would be an economic tsunami to the spring shower of sequestration.
As we approach sequestration today the dominant narrative continues to be that the huge run-up in the deficit since the Great Recession has been our greatest political—perhaps even a moral—failure. But it isn’t a failure. This is exactly how the system was designed to work if the economy ever saw a downturn on the scale of the 2008 financial crisis. The deficit is collapsing through the same planned process. As the economy recovers, it is falling quickly, down to 7 percent in 2012, and an estimated 5.3 percent in 2013.
The latest fiscal showdown concerns the “sequester”—across the board cuts to (almost entirely) discretionary spending that will total just over $1 trillion in the next decade, and which are set to take effect on March 1. What should those who have better things to do with their life than follow fiscal policy debates know about the sequester?
President Obama has miscalculated both the tactical politics of the sequester and the depressive economic impact of budget cuts on the rest of his presidency. The sequester will cut economic growth in half this year. But it’s now clear, one way or another, that we will get cuts in the $85 billion range that the sequester mandates this fiscal year. All that remains are the details.
The last several years have been bleak for state governments. Most had to tap, if not drain, rainy-day funds—money set aside for emergencies. But that usually wasn’t enough to bridge shortfalls. Some raised taxes and other revenue, but for the most part, states relied on cuts. Since 2007, states have slashed nearly $300 billion from their budgets, with health care and education being hardest hit; according to the Center on Budget and Policy Priorities (CBPP), a progressive think tank, over the last five years 23 states have made deep cuts to pre-K and public school spending, while 20 have made major cuts to health care.
The White House apparently believes the best way to strengthen its hand in the upcoming “sequester” showdown with Republicans is to tell Americans how awful the spending cuts will be and blame Republicans for them.
It won’t work. These tactical messages are getting in the way of the larger truth, which the president must hammer home: The Republicans’ austerity and trickle-down economics are dangerous, bald-faced lies.
Yes, the pending spending cuts will hurt. But even if some Americans begin to feel the pain when the cuts go into effect Friday, most won’t feel it for weeks or months, if ever.
At this point, odds are low for a deal to avert the sequester. Republicans want an agreement to replace the planned across-the-board spending cuts—which include cuts to defense spending—with ones that target social spending and entitlements. President Obama is willing to compromise on spending cuts, but insists on new revenues. "Balanced" deficit reduction—a key part of his reelection platform—is still a priority for the administration, and it commands wide support from the public.
It’s hard to be happy about the prospect of the sequester—the huge, automatics cuts to domestic spending set to take place if lawmakers can't reach a long-term budget deal—going into effect at the end of the week. Not only will it will mean substantial cuts to important programs; it will be a further drag on an already weak economy, shaving 0.6 percentage points off our growth rate. The end of the payroll tax cut, which expired on January 1, has already pushed it down to around 2.0, but the sequester cuts will depress it below the rate needed to keep pace with those entering the labor market. As a result, we are likely to see a modest increase in unemployment over the course of the year if the cuts are left in place.
In February 1913, exactly a century ago, the Sixteenth Amendment gave Congress a constitutional green light to levy a federal tax on income. Later that same year, lawmakers made good on that opportunity. An income tax has been part of the federal tax code ever since.
Today has seen several columns from frustrated pundits who want President Obama to "lead" Republicans to a deal on the automatic spending cuts scheduled for next month (i.e. "the sequester). The cuts, if implemented, will cause a huge slowdown in economic growth, and throw the federal government into disarray.
A key part of the GOP's strategy on the sequester is to blame President Obama for the fact it exists at all. One good example is House Speaker John Boehner's op-ed in today's Wall Street Journal:
With the debt limit set to be hit in a matter of hours, Republicans and Democrats in Congress reluctantly accepted the president's demand for the sequester, and a revised version of the Budget Control Act was passed on a bipartisan basis.
