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New Ryan Plan Is Austerity on Steroids

Proposed Budget Cuts Will Boost Unemployment

SOURCE: AP/ Rick Bowmer

Job seekers stand line during the Career Expo job fair on March 7, 2012 in Portland, Oregon. Rep. Paul Ryan's (R-WI) does little to remedy the woes of the country's unemployed, instead imposing a set of austerity measures that place the burden of deficit reduction on the poor and middle class, while continuing tax breaks for the rich.

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The latest House Republican budget plan asks low-income and middle-class Americans to shoulder the entire burden of deficit reduction while simultaneously delivering massive tax breaks to the richest 1 percent and preserving huge giveaways to Big Oil. It’s a recipe for repeating the mistakes of the Bush administration, during which middle-class incomes stagnated and only the privileged few enjoyed enormous gains.

Each component of the new House Republican budget threatens the middle class while doing nothing to add jobs or grow our economy. It ends the guarantee of decent insurance for senior citizens, breaking Medicare’s bedrock promise. It slashes investments in education, infrastructure, and basic research, all of which are key drivers of economic growth and mobility. And it cuts taxes for those at the top, asking the middle class to pick up the tab. It’s a budget designed to benefit the top 1 percent at everyone else’s expense.

Even as we’re seeing more job creation, ramping it up further remains the single-most important task for the nation’s economic policymakers. Yet instead of focusing on getting the economy back to full employment, the new budget plan from House Budget Committee Chairman Paul Ryan (R-WI) takes a path that would actually add to our nation’s unemployment woes.

The Ryan budget would reduce spending and cut taxes for the wealthy, refocusing the nation’s budget away from measures that would strengthen our economy. His House budget undermines the kinds of programs we need to empower the middle class to contribute to economic growth. This would torpedo new job creation, which has averaged 245,000 jobs added over the past three months and has added nearly 3.5 million jobs since February 2010.

Rep. Ryan apparently is unconcerned that the monthly rate of job growth is not yet strong enough to get the nearly 13 million people who remain out of work in the wake of the Great Recession of 2007 to 2009 and into stable, quality jobs. Undeterred, Rep. Ryan argues that the most important goal is to reduce the federal budget deficit. But he is wrong that deficit reduction and putting the economy on a stronger footing are opposing goals. The federal deficit cannot be closed while our economy remains so far below full employment. Sustained high unemployment has caused revenues to fall sharply over the past two years, even as expenditures have become more necessary.

Just like families cannot solve their household budget woes while a breadwinner is unemployed, our nation cannot solve our problems with sustained high unemployment. With nearly 1 in 10 out of work and the so-called Federal Funds rate—the rate that the Federal Reserve uses to influence overall interest rates in the economy—already hovering at zero for years now, austerity will not only exacerbate unemployment but will likely worsen the budget situation.

All it takes is a quick glance across the Atlantic to see how well austerity works. The British government, for example, has been implementing austerity equal to 2 percent of GDP per capita, yet the nation’s growth rate has yet to improve. And Ireland, which implemented an austerity package in 2011 equal to 3.8 percent of GDP per capita, has seen growth plummet. When an economy is suffering from a shock that has sharply reduced demand below the level necessary to get back to full employment, austerity only makes the economic problems worse, not better.

Further, let’s remember that much of the deficit problem was apparent before the Great Recession, as tax cuts for the wealthy and two unfunded wars drained our federal coffers. If Congress is serious about deficit reduction then allowing the Bush-era tax cuts for high-income earners to expire should be on the table.

Rep. Ryan is proposing precisely the opposite. He would not only extend all of the fiscally disastrous Bush tax cuts for the rich—he would lower their tax bills even more. At the same time his tax plan would actually raise taxes on middle-class families, in effect turbocharging the rising income inequality that has plagued our economy.

There is an important role for Congress in supporting the economic recovery and that is to not implement austerity and instead focus on the successful programs of the past few years that have been effective in spurring job creation. The American Recovery and Reinvestment Act of 2009 helped bring unemployment down from its peak of 10 percent in October 2009. Those gains would have been much stronger, however, had conservatives not blocked efforts to invest in much-needed infrastructure repair and other job-creating measures. This should be Congress’s focus for the rest of the year.

Congress should help ensure that government stops adding to the unemployment problem and focuses on putting teachers back in schools and cops back on the beat. Since early 2009 governments at all levels have shed nearly 700,000 jobs, most of them at the state and local level. Budget-driven cutbacks by state and local governments have led to the loss of 647,000 workers since August 2008. Much of the public-sector layoffs have especially hurt female workers, as women have lost 416,000 state and local government jobs.

Because of the decline in government employment, employment growth is 0.6 percent lower in this recovery than in the recovery of the 2000s. Economist Paul Krugman estimated that if all government spending during the current economic recovery (since June 2009) had followed the same rate of growth as spending during the same time period for the economy recovery in the early 1980s—following the 1981–82 recession during the presidency of Ronald Reagan—then spending would be almost 15 percent higher than it currently is and we might not be facing debilitating layoffs of school teachers, police officers, and other public employees.

Government spending is also important because it helps shore up demand. The National Federation of Independent Businesses, an organization for employers with 40 or fewer workers, continues to report that sales are the most important concern for their members, as has been the case since July 2008. Poor sales closely track the unemployment rate.

This is exactly the problem addressed by the Recovery Act in 2009 and in the proposed American Jobs Act, which President Barack Obama put on the table in September 2011 but which Congress has mostly ignored due to stubborn resistance by House leaders. Now comes the new House budget plan, proposing to take us in the opposite direction—the unemployed be damned.

Heather Boushey is Senior Economist at the Center for American Progress.

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