No Time to Hang Up Your Hats

Blog Post
Wednesday, September 09, 2020

On the latest Facing the Future, I was joined by Jon Lieber, managing director at the Eurasia Group, Concord Coalition Executive Director, Bob Bixby and Concord's Policy Director, Tori Gorman. We discussed the Congressional Budget Office’s recently updated budget baseline, its impact on post-pandemic tax and spending policies, COVID-19 relief legislation, the latest U.S. jobs report and more. 

[Note: Portions of this week's Facing the Future can be seen in the video clips posted below.]

Lieber shared his concerns with some trends shown in CBO’s budget baseline update.

“The really wild thing about the CBO baseline is that it’s probably too optimistic,” Lieber said. “The baseline accounts for current law, not current policy.” 

He explained that provisions of the 2017 tax code overhaul are set to expire in 2025, which would result in a tax increase on 80-90 percent of households if Congress fails to extend them. Lieber added that Congress is unlikely to let that tax increase occur, but it will likely be a huge issue during the 2024 presidential election. 

“We’re likely to see an adjustment upward in tax rates for wealthy Americans and corporations … but a huge chunk of the Trump tax cuts are very likely to become permanent,” he said. “What that means for the deficit is that it only gets worse in the second half of the 10-year budget window.” 

And the timing of those large and growing budget deficits would fall right around the same time trust funds for Social Security and Medicare are expected to be depleted. 

“So these are really, really incredible budget pressures that have really never been tried in a country of this size and this importance, that has a global reserve currency and all the other kind of advantages that the U.S. has,” Lieber said. “I think the whole thing is really worrisome; we just don’t know which way this is going to go.” 

On COVID-19 relief packages being weighed by Congress, he had some pointed advice for policymakers from an economics perspective. 

“Spend as much as you need to now,” Liber said. “You’ve got millions of Americans that can’t go to work and can’t earn income; the government is borrowing at half-a-percent over ten years, and you’ve got a responsibility to shift that borrowing power from government to households.” 

“I think the government has acted very responsibly so far this year,” he said. “The market is sending the signal right now that the U.S. government can borrow as much as it wants with no consequences, and to not take advantage of that to help people and help the economy right now, I think is an abdication of responsibility right now.” 

He added that until the market sends signals, like higher interest rates and increased inflation, his economic policy advice would be to continue injecting much needed funds. 

 

Gorman joined the program to provide an update on the latest U.S. jobs report, including analysis of key trends and their potentially negative implications. That analysis shared a similar sentiment with Lieber’s assessment of relief legislation. 

“Congress passed the CARES Act in March of this year, and that was a big bill that contained a lot of assistance for a lot of people, and a lot of that aid expired at the end of July,” Gorman said. “If you take a look at the jobs trends and the expiration of that aid, you can see a little bit of a dovetail in August, a deceleration in the economic recovery.” 

She summarized figures in the August U.S. jobs report: the topline unemployment rate dropped almost two points to 8.4 percent, the underemployment rate dropped, the labor force participation rate increased and there were broad job gains in industries hit hard by the pandemic. But Gorman’s remarks carried a distinct tone, as if the other shoe was about to drop. And then it did.

Gorman explained that the data in the August report should not send a signal to lawmakers that they have done everything that needs to be done and it is OK to walk away from the table.

“The Bureau of Labor Statistics is still having some problems with misclassification of whether people are unemployed or employed,” she added. “If you were to accommodate for that misclassification error, the real unemployment rate was actually … 9.1 percent.” 

“The job gains were almost entirely from those who were rehired after being temporarily laid off due to COVID … about 93 percent of those job gains were actually rehires; they’re not creating any brand new jobs,” Gorman said. 

She added that although the unemployment trend is improving, the economy is not even close to being whole yet. Payroll employment is still 11.5 million jobs below pre-COVID levels, the number of permanent job losses has increased and seasonal adjustment factors are likely having an effect on employment figures. 

“While the economic snapshot from August is a good one, I don’t think it’s a good reason for lawmakers to hang up their hats and go home and wait for the November election before they decide to do anything else,” Gorman said. 

 

Bixby said that is exactly what Congress did during the August recess and their hats are still hanging in the closet. Despite some contact between the White House and Congress, there has not been any progress on a COVID-19 relief deal. 

“The difficulty is that the huge fiscal response that they had to the pandemic back in the spring had enormous bipartisan support, but it was really premised on only needing a robust response for a few months,” Bixby said. “I’m sure there’s going to be some sort of new relief package, but I’m not sure when it’s going to happen; it may happen before the election, but it might not.” 

Hear more on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Play Music or with an RSS feed. Follow Facing the Future on Facebook and watch videos from past episodes on The Concord Coalition YouTube channel.