Senate Budget Committee Chairman Patty Murray (D-WA) introduced, and the Senate passed, a Senate Democratic FY2014 budget resolution, which would purportedly place the public debt ratio on a more-than-sustainable trajectory down to 70.4 percent of GDP by fiscal 2023. The Murray budget deserves credit for mitigating the macroeconomic drags posed by sequestration, modestly increasing infrastructure investment and proposing substantial revenue increases. But in the end, the budget’s fixation with ten-year deficit reduction targets would result in premature near-term austerity.
The Murray budget proposes to raise an additional $923 billion in revenue over the next decade relative to current law. It also assumes that temporary tax provisions that would cost $954 billion to continue over the decade will either expire or be paid for—so against a current policy baseline in which these “tax extenders” are continued, the budget would raise $1.9 trillion.1 Revenue increases exert an economic drag, particularly while the economy remains weak, but are much less damaging per dollar than spending cuts. The Murray budget would use these revenue increases to partially replace the front-loaded, poorly designed sequester; in that context, the tax increases would help avert near-term austerity that is much more damaging. The budget would also slightly increase government spending in 2013 and 2014 relative to current policy—which assumes the sequester is repealed—and raise tax revenues in 2014.2
On net, the Murray budget would boost GDP growth by 0.1 percent and increase employment by roughly 100,000 jobs in 2013 relative to current policy, largely on account of its replacement of the sequester and its up-front infrastructure investment. But the economic impact would flip to a net drag of 0.2 percent of GDP in 2014 and roughly 250,000 job losses would be expected relative to current policy. The Congressional Budget Office (CBO) forecasts employment rising by 1.5 million jobs in 2014, so these estimates suggest that employment would rise faster in 2013 and slower in 2014 than otherwise projected over the next two years.
Critically, the Murray budget repeals sequestration, which is presupposed in the current policy baseline, but which is by no means certain. We previously estimated that sequestration would reduce growth by 0.6 percentage points 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 Murray budget would boost employment by roughly 760,000 jobs in 2013 and over 660,000 jobs in 2014.
Unsurprisingly, the Murray budget stacks up even better against the Ryan budget’s deep spending cuts. We previously estimated that the Ryan budget would decrease employment by 750,000 jobs in 2013, which is largely a consequence of Ryan’s refusal to avoid the sequestration spending cuts. As the drag from sequestration increased and more austerity was layered on top of sequestration, the drag from the Ryan budget was projected to rise above 2.0 million jobs lost in 2014. Consequently, the Murray budget would boost GDP growth by 0.7 percentage points and increase employment by 840,000 jobs in 2013 relative to the Ryan budget. In 2014, the Murray budget would boost growth by 1.5 percentage points and increase employment by nearly 1.8 million jobs relative to the Ryan budget.
There are undoubtedly positive aspects to the Murray budget, notably its replacement of sequestration with more sensible, less economically damaging policies and its reliance on tax revenue for a substantial share of its total deficit reduction. But the Murray budget would pursue additional austerity—on top of drags from the payroll tax cut’s expiration, the BCA caps, and prior discretionary spending cuts—well before the relatively optimistic projections from the CBO show the U.S. economy returning to full health. This underscores one of the main risks posed by fixation with ten-year deficit reduction targets: prudent timing of deficit reduction measures will likely take a back seat to hitting the target.
1 Note that the Center on Budget and Policy Priorities’ analysis of the Murray budget is measured relative to a baseline that assumes that recent expansions of the EITC, CTC, and AOTC will be continued beyond 2017 (without being paid for) but any other continuations of the “tax extenders” will be paid for. Like CBO’s alternative fiscal scenario (AFS) current policy baseline, EPI’s current policy baseline assumes that the tax extenders are continued without being paid for.
2 As in our analysis of the Ryan budget, Van Hollen budget, and CPC budget alternative, the Murray budget has been adjusted to exclude funding levels for overseas contingency operations (OCO). The current policy baseline used is CBO’s AFS baseline adjusted to exclude both OCO funding and the inflation-adjusted continuation of emergency disaster relief for Hurricane Sandy appropriated for fiscal 2013. Macroeconomic impacts from policy changes exclude associated net interest effects, and spending changes are measured in outlays as opposed to budget authority.