Lately, our congressman, Rep. Tom Reed has taken to citing figures from reports by the nonpartisan Congressional Budget Office to bolster his Tea Party positions. He’s referred to a CBO projection that interest on the national debt will amount $880 billion in 2024, or 18 per cent of government revenues. He has erroneously claimed that the CBO had predicted 2.5 million job losses because of the Affordable Care Act, although the agency did estimate that the Act would reduce the size of the workforce by such a number.
The carefully researched reports of the Congressional Budget Office have to be given considerable weight, but Floyd Norris, chief financial correspondent of the New York Times, points out that the CBO has been wrong in the past. Most notably, it determined in 2001 that the unusually high levels of tax receipts seen in the 1990s would continue, allowing the federal debt to be paid off by 2006. The agency failed to notice that the high tax receipts resulted from tech entrepreneurs cashing in their stock options during the technology stock bubble and paying income taxes on their profits. When the bubble burst, these tax receipts disappeared. Unfortunately, the CBO error had already given President George W. Bush the ammunition he needed to push through historic tax cuts that continue to hobble our government today.
So how about that cripplingly high interest payment in 2024 cited by Rep. Reed? Norris notes that the CBO report including this estimate makes two assumptions: (1) that the economy will remain sluggish, limiting tax revenues, and (2) that interest rates will return to historic levels, forcing the government to pay more for the money it borrows. Can both of these assumptions be true at the same time? If the economy remains sluggish, there is no reason to expect interest rates to rise, particularly with Federal Reserve Chair Janet Yellin promising to keep interest rates near zero as long as unemployment remains above 6.5 per cent. If the economy begins to grow more robustly, interest rates will rise, but so will the amount the government takes in as tax revenues. In that case, the size of the interest payment in relation to income will be much less significant.
How about the projected reduction in the workforce due to the Affordable Care Act? Is it reasonable to believe the workforce will shrink because Obamacare will free some workers to leave jobs that provided them with health insurance? It would seem just as reasonable to believe that new workers will be hired to fill the vacated slots, or that existing workers will be promoted into these slots, opening jobs to new hires at lower levels. Moreover, some of those who leave their jobs will be starting new businesses or free-lancing from home, giving a boost to the economy and potentially creating new jobs.
The same reasoning could be applied to the latest CBO projection being cited by the right — that raising the minimum wage to $10.10 could result in the loss of 500,000 jobs. Critics who focus on this figure don’t mention that the same report predicted that raising the minimum wage would mean higher pay for 16.5 million workers and lift 900,000 out of poverty. Other economists, outside the CBO, argue that an economic boost on this scale could create jobs rather than costing jobs. After all, workers who have been stuck in low-wage jobs would suddenly have money to spend on food, clothing, cars, and apartments, which could only be good for the economy. Higher wages could also mean lower worker turnover and greater employee satisfaction, which might even boost corporate profits.
Let’s give the CBO its due for doing serious work in a highly-charged political environment, but let’s also recognize that its findings need to be subjected to careful analysis and honest debate. And most important — let’s not be stampeded into damaging workers or undermining the hard-won gains of Obamacare by Tea Party activists who cherry pick figures from CBO reports for partisan purposes.