Setting the Framework: Economic Growth, Investment and

Deficit ReductionTamara Draut, Demos

Lawrence Mishel, Economic Policy Institute

The Employment and Income Landscape

Family income growth by income group, 1989-2007

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

200790

110

130

150

170

190

210

230

250

270

290

Inde

x (1

989

= 10

0)

Source: Piketty and Saez (2007).

Top 0.1%

Top 1%

95-99%

Bottom 90%7%

38%

108%

162%

High unemployment ahead

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

2

4

6

8

10

12

Une

mpl

oym

ent r

ate

(per

cent

)

Source: Bureau of Labor Statistics and Moody’s Economy.com

Projected

2012: 8.3%

2013: 6.5%

Underemployment, 2000-2010

Jan-00

Jul-0

0Jan

-01Ju

l-01Jan

-02Ju

l-02Jan

-03Ju

l-03Jan

-04Ju

l-04Jan

-05Ju

l-05Jan

-06Ju

l-06Jan

-07Ju

l-07Jan

-08Ju

l-08Jan

-09Ju

l-09Jan

-10Ju

l-10

0

5

10

15

20

25

30

24.5

23.6

16.7

Und

erem

ploy

men

t rat

e (p

erce

nt)

Source: Economytrack.org

Black

Hispanic

All

Setting Priorities

What is an Emergency?

‘Emergency’ spending in 2010

Assistance to the Unemployed* War Funding**$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$59

$161

Billi

ons

of D

olla

rs

Source: EPI Analysis of CBO Estimates *Includes EUC, EB, FAC, and COBRA. ** CBO Estimate of the Administration's Request

Setting Priorities

Ensuring Retirement Security

Income composition for the elderly, 2008

First Second Middle Fourth Top 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

83.2%

81.8%

64.4%

43.6%

17.9%

Income fifths

Income from assets

Soci

al S

ecur

ity

Pensions

Earnings

Other

Source: Social Security Administration (2010)

Participation in employer-sponsored retirement plans in 2008*, by race

White, non-Hispanic Black, non-Hispanic Hispanic0%

10%

20%

30%

40%

50%

60%

70%

56.6%

45.6%

30.3%

Parti

cipa

tion

* Full-time, private-sector workers (age 25-64)Source: Purcell, Congressional Research Service (2009)

Male life expectancy at 65

Bottom half earnings distribution Top half earnings distribution0

5

10

15

20

25

15.016.516.1

21.5

Year

s

Source: Waldron (2007)

1986

2006

1986

2006

The long-term budget challenge

Controlling escalating health care costs

The Long-term Budget Outlook: One view

20102012

20142016

20182020

20222024

20262028

20302032

20342036

20382040

20422044

0

5

10

15

20

25

30

35

40

45

Shar

e of

GD

P

Discretionary Spending

Source: EPI Analysis of CBO Long-Term Budget Outlook and Budget and Economic Update

Other Mandatory

Medicare & Medicaid

RevenueSocial Security

Net Interest

The Long-term Budget Outlook: Another view

20102012

20142016

20182020

20222024

20262028

20302032

20342036

20382040

20422044

0

5

10

15

20

25

30

35

40

45

Shar

e o

f GD

P

Discretionary Spending

Source: EPI Analysis of CBO Long-Term Budget Outlook and Budget and Economic Update

Other Mandatory

Medicare & Medicaid

Revenue

Social Security

Net Interest

What Drives Health Care Costs

20072010

20132016

20192022

20252028

20312034

20372040

20432046

20492052

20552058

0

2

4

6

8

10

12

14

16

Sahr

eof G

DP

Effect of Excess Cost Growth

Effect of Ag-ing

Other factors

Source: Congressional Budget Office (2007)

Health Care Costs in the Private Sector

20072009

20112013

20152017

20192021

20232025

20272029

20312033

2035-2%

0%

2%

4%

6%

8%

10%

12%

Shar

e of

GD

P

Source: EPI analysis based on Center for Medicare and Medicaid Services projections and Congressional Budget Office estimates

8.5%

11.7%

The long-term budget challenge

Rebuilding our revenue base

Revenue as a Share of the Economy Hits a 60-Year Low

19451948

19511954

19571960

19631966

19691972

19751978

19811984

19871990

19931996

19992002

20052008

20112014

-15

-10

-5

0

5

10

15

20

25

Shar

e of

GD

P

Sources: OMB Historical Tables 2.1 (1945-2009), CBO Analysis of the FY2011 Budget (Projections 2010-2020)

Revenue

Deficit

The Bush-Era Tax Cuts Account for Half of the Deficit After the Economy Recovers

20092010

20112012

20132014

20152016

20172018

2019

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Defi

cit (

$Bill

ions

)

Source: Center on Budget and Policy Priorities Analysis of CBO Estimates

Bush-era Tax CutsWar costs

Economic Downturn

TARP Economic Recovery Measures

Other

The long-term budget challenge

Investing in growth

With the Exception of Temporary Spending Related to the Recession, Discretionary Spending

will be at Historically Low Levels

0

1

2

3

4

5

6

3.4% in 1962 3.3% projected

for 2015

*Includes Departments of Veterans Affairs, Homeland Security, and StateSource: OMB Historical Tables

Domestic discretionary spending

Projected

The Physical Infrastructure Deficit (in billions)

$146$109

Drinking Water and Wastewater

$45

$30

Energy

$381

$550

Roads and Bridges

$125

$35

Schools

Estimated SpendingProjected Shortfall(Based on 5-year spending needs)

Public Spending on Childcare and Preschool, 2005

Icel

and

Denm

ark

Fran

ceSw

eden

Finl

and

Belg

ium

Norw

ayBu

lgar

iaHu

ngar

yNe

w Z

eala

ndRo

man

iaLa

tvia

Italy

Mal

taLit

huan

iaM

exico UK

Czec

h Re

publ

icSl

oven

iaNe

ther

land

sSp

ain

Slov

ak R

epub

licPo

rtug

alLu

xem

bour

gAu

stra

liaEs

toni

aGe

rman

y USCy

prus

1,2

Japa

nAu

stria

Pola

ndIre

land

Switz

erla

ndKo

rea

Cana

daGr

eece

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4Childcare spending as a % of GDP Preschool spending as a % of GDP

Shar

e of

GD

P

U.S.

0.4%

Source: OECD (2010)

Percentage of Public University Revenue from State Appropriations and Tuition

1980 20080%

10%

20%

30%

40%

50%

60%

44%

25%

13%

18%

State Appropriations Tuition and FeesSource: U.S. Department of Education

Our Fiscal Security

The Responsible Path toward Recovery and Long-Term Growth