issue: Economy

How Trump’s BBB is Shaping Up to Be an Even Bigger Mess Than Biden’s

Posted on by Alyssa Brown

Donald Trump was elected in 2024 on a promise to “End Inflation and Make America Affordable Again.” He criticized “Joe Biden’s reckless spending spree, which is more reckless than anybody’s ever done or had in the history of our country.” And he complained that the incumbent Democrat was guilty of “weak, ineffective, and virtually nonexistent leadership.” In survey after survey, voters made clear they largely agreed with Trump’s assessment. 

Perhaps no episode of Biden’s presidency better displayed the traits that fueled these criticisms than his failed effort to pass a sprawling “Build Back Better” domestic spending bill through the filibuster-proof reconciliation process in 2021. But as Congressional Republicans begin crafting a “big beautiful bill” to enact the bulk of Trump’s economic agenda through that process, there are early signs that they’re making all the same mistakes — or perhaps even more.

Although very different in their origins and ideological goals, these two BBBs have far more in common than just their initials. Both Biden’s BBB and Trump’s BBB seem crafted more to fulfill a lengthy wishlist for the president’s ideological allies than address a pressing national need. Both parties struggled to find a way to pay for these wishlists in large part because of shortsighted tax pledges their presidential nominee made during the previous campaign. Rather than right-sizing their ambitions, Republicans today are seeking to ram through their BBB using legislative tactics eerily reminiscent of those that backfired on Democrats in 2021. And both parties pursued their BBB with a cavalier disregard for their contributions to inflation, provoking voters’ ire on their top economic concern.

But there are many ways in which the 2025 Republican BBB is likely to be even more damaging — both economically and politically — by piling on debt and exacerbating inflation at a time when the country can least afford it. If Republicans continue going down this path, they risk betraying their electoral mandate to cut the cost of living and giving Democrats a perfect opportunity to regain something that’s long eluded them: public confidence on handling the economy.

BUDGET-BUSTING BILLS BACKFIRE WHEN THEY IGNITE INFLATION

After voters rewarded their parties with narrow but decisive victories in 2020 and 2024, respectively, both Biden and Trump believed they had a mandate to pass sweeping policies in partisan megabills through reconciliation. At the time of its passage, 63% of voters supported Biden’s first reconciliation bill — the $1.9 trillion American Rescue Plan, which was intended to support the economy through the final stage of the COVID-19 pandemic. But the inflationary effect of this bill drowned out the popularity of the individual policies contained within it and the subsequent legislation Biden sought to pass.

In an incisive post-mortem of the failures of Biden’s economic policy, Jason Furman — the former Chairman of President Obama’s Council of Economic Advisors — explains how excessive government spending during the Biden Administration helped push inflation to heights not seen in decades. Moreover, this inflation effectively reversed the policy accomplishments Democrats thought Biden had achieved, such as by canceling out the spending increase from the bipartisan infrastructure law passed in 2021 or causing real wages to fall below their pre-pandemic level.

Inflation reversed not only the economic benefits of Biden’s policies but also their political benefits. Polling of working-class voters conducted later in the Biden administration by PPI found that 69% of respondents said the rising cost of living was the greatest economic challenge facing the United States, with 55% of those voters believing the primary cause was government overspending. No matter how popular Biden’s programs may have been in the abstract, voters didn’t support them at the expense of keeping the cost of living down. 

Democrats suffered both because the unpopularity of inflation outweighed the popularity of their policies, and because their programs were perceived as worsening it. That experience should be a warning for Republicans as they pursue their own party-line reconciliation bill. In isolation, any one of Trump’s proposed tax cuts may poll well. But if they worsen inflation and further increase the cost of living, Republicans are unlikely to reap any political benefits.

TWO FAILURES OF LEADERSHIP

Over the first 100 days of his second term, Donald Trump has repeated many of the missteps that Biden took toward developing budget-busting bills that worsened inflation and his party’s political prospects — starting with an inability to effectively lead. 

From the very beginning, Joe Biden’s economic agenda was undermined by the fact that neither he nor Congressional Democrats were willing to define top priorities and make trade-offs. When crafting the American Rescue Plan, they opted to pursue a $1.9 trillion price tag that several experts (including myself) warned was too big and likely to invite inflation. Subsequent reporting has revealed that Biden agreed to this figure not because he believed it was the was the right level of spending to meet the country’s macroeconomic needs, but because it was the amount Senate Majority Leader Chuck Schumer needed to fund a running list of requests from his members — and neither of them was willing to tell anyone “No.”

When it came time to craft a second reconciliation bill to implement their longer-term “Build Back Better” priorities, Democrats again struggled to prioritize. Previously successful party-line reconciliation bills focused on addressing a specific national goal, such as Barack Obama’s Affordable Care Act (health-care reform) or Donald Trump’s Tax Cuts and Jobs Act (tax reform). In contrast, Biden’s BBB was a grab bag of policies from the wishlists of left-leaning interest groups and their Congressional champions. Voters had a hard time making sense of this mishmash of health care, energy, child care, infrastructure, education, elder care, tax policy, and more. 

Although polls found solid majorities in support of the constituent policies in Biden’s BBB, only about 40% of voters supported the package as a whole at the time it collapsed. Many Democrats still believe this disconnect — and the party’s generally low approval rating on economic issues throughout the Biden era — simply amount to a “messaging problem.” But the real explanation is that there is far more support for individual spending proposals in isolation than for doing all of them together, especially when voters were already blaming a lack of fiscal discipline for inflation. In the abstract, who doesn’t want to expand access to life-saving health care or reduce the financial burdens of raising children on hard-working parents? But budgeting is about trade-offs and voters did not believe Democratic leaders were capable of making them.

Donald Trump has thus far shown himself even more incapable of setting clear priorities. The 119th Congress began amid internal Republican debates over how to advance Trump’s energy and security spending priorities while also extending and expanding upon the expiring provisions of the Tax Cuts and Jobs Act passed in his first term. Senate Republicans preferred to pass the spending priorities in one reconciliation bill followed by a second reconciliation bill with the tax priorities, while the House preferred to do it all at once. Trump waffled for months, leaving both chambers to go down divergent procedural routes before settling on his demand for “one big beautiful bill.”

Even now, the president continues to give Congressional Republicans conflicting guidance about the composition of his BBB and how he intends to pay for it. He has told House Republicans he supports cutting more than $1 trillion from mandatory spending while telling Senate Republicans he does not support cutting the programs that would be necessary to achieve those savings. The poorly targeted cuts identified by Trump’s “Department of Government Efficiency” are on track to save just a few billion dollars, while the deeper cuts to discretionary spending proposed in the administration’s “skinny budget” last week were immediately criticized as unworkable by their own Congressional allies. The few tax loopholes Trump has expressed willingness to close — such as for carried interest and sports stadiums — also wouldn’t raise a significant amount of revenue.

By far, the biggest “offsets” Trump has proposed are his sweeping tariffs, which the president is imposing through executive actions but his advisors are clearly linking to the BBB reconciliation bill. Trump aide Peter Navarro claimed the tariffs enacted on “Liberation Day” would raise $6 trillion over 10 years to help pay for tax cuts. But that faulty calculation does not account for falling revenues as the economy slows down or the tens of billions of taxpayer dollars Trump is planning to spend compensating farmers for destroying their export markets. Still, even critics of the policy agree Trump’s tariffs could raise roughly $2 trillion over 10 years if left in place. 

But the reality is that nobody knows if that’s the plan — least of all Trump. Some Trump advisors, such as Navarro, believe tariffs should be the permanent foundation of our tax system. Most others have suggested the purpose of tariffs is to give him leverage to negotiate better trade deals and foreign policy concessions. If the latter is true, then these tariffs are temporary and won’t even come close to paying for a fraction of the reconciliation bill Republicans are pursuing. This chaos is further evidence that Trump is at least as bad, and likely even worse, at setting priorities as his predecessor was.

TWO PRESIDENTS BOUND BY SHORTSIGHTED TAX PLEDGES

Both Biden and Trump struggled to cover the costs of their BBB in large part because of shortsighted tax pledges they made during the heat of a presidential campaign.

During the 2020 presidential election, Biden pledged not to raise taxes on any household with an annual income under $400,000. That pledge was undoubtedly smart short-term politics: taxes on the ultra-rich are the only ones that poll well. But as a previous report of mine documented, it also made raising revenue extremely difficult by limiting potential tax increases to less than 2% of American taxpayers. 

Even taxing all income not protected by the pledge at revenue-maximizing rates would not be enough to sustainably finance spending at the levels Biden proposed. Yet the tax increases Biden actually proposed were smaller than that, and a Democratic Congress still couldn’t pass them. If Democrats don’t believe they can convince voters that proposed programs are worth personally paying something for, it further suggests those programs aren’t as popular as Democrats wish they were.

Trump now faces a similar challenge of his own making. It would have been difficult enough to find the $4.2 trillion of savings needed over 10 years to offset the cost of making the tax cuts he passed in 2017 permanent. But during the 2024 presidential campaign, Trump made a cacophony of promises to eliminate taxes on tip income, overtime pay, Social Security benefits, auto interest loans, electric generators, and more.

Altogether, the Peter G. Peterson Foundation estimates that these policies could bring the 10-year cost of just the tax provisions in Trump’s BBB to roughly $9 trillion. To put into context how expensive that is: Republicans could completely eliminate Medicaid — the third-largest federal spending program — and still just barely break even.

TWO CONGRESSES USING PROCESS TO PUNT HARD DECISIONS

Knowing that they couldn’t possibly pay for everything their party’s president promised to do in their BBB, Biden’s Democrats and Trump’s Republicans both fell back on legislative shortcuts to mask or avoid difficult tradeoffs.

If enacted permanently, the full suite of BBB spending proposals Congressional Democrats sought to enact would have increased spending by nearly $5 trillion over the 10-year window used for official scorekeeping. But Sen. Joe Manchin — the most resolute deficit hawk in the Senate Democratic caucus — refused to support more than $1.5 trillion of new spending and insisted it all be fully offset. Sen. Schumer convinced Manchin to support a budget resolution with reconciliation instructions that would permit up to $3.5 trillion of new spending so that Congressional committees could begin drafting legislative language. But the two men privately agreed that Manchin’s red line remained unchanged, meaning Democratic leaders merely punted their disagreements rather than resolving them.

Because nobody in either the White House or Congressional leadership was willing to tell activist groups that their priorities had to get cut, they instead tried to circumvent Manchin’s demands using budget gimmicks. The House-passed BBB included tax increases that were permanent and thus effective for the full 10-year window, but spending programs had delayed starts or arbitrary expiration dates. In the official 10-year score, this gimmick made the bill appear roughly deficit-neutral. But in practice, spending programs would be adding to deficits every year they were in place if the law were passed and become increasingly expensive if they were later extended as many Democrats hoped.

Manchin steadfastly refused to engage with these shenanigans and prevented his party from passing a BBB that was deficit-increasing under any measurement. But the “fiscal conscience” of today’s Congressional Republicans is far weaker. While every iteration of BBB legislation Congress considered in 2021 was roughly paid for under traditional scoring methods, no Congressional Republicans are even trying to meet this standard today. 

In February, House Republicans — including the most anti-deficit hardliners — voted to pass a budget resolution that would enable a reconciliation bill to increase deficits by up to $2.8 trillion. Senate Republicans, who balked at the trillions in spending cuts the House required to partially finance GOP tax priorities, passed an even more fiscally irresponsible budget resolution that allowed up to $5.8 trillion in bigger deficits. 

Now Trump’s Republicans are trying to bridge the gap using tactics similar to those that backfired on Biden’s Democrats. First, House leaders — like Manchin did in 2021 — agreed to support the Senate’s budget resolution to keep the process moving forward, even though they would never agree to a BBB consistent with its instructions. Then, Republicans decided they would only seek to enact the new tax cuts Trump proposed during the 2024 election for four years — the same gimmick Democrats tried in 2021 to make their spending programs artificially appear cheaper. 

But Senate Republicans are simultaneously trying to employ a dangerous new gimmick that undermines not just the credibility of the previous one but also the foundation of the Congressional budget process: claiming that extending any policy currently scheduled to expire should be scored as costless. As I and a bipartisan group of budget experts recently warned in a letter to Congress, this approach would enable future Congress to enact a massive policy for one year, then proceed to make it permanent in the second year while pretending it’s completely free. If Republicans rely upon this unprecedented maneuver to pass their BBB, they will be responsible not only for trillions of dollars the legislation itself adds to the debt, but also the tens of trillions they’ve invited future Congresses to pile on.

A PROBLEM OF ATTITUDE MORE THAN MAGNITUDE

Defenders of Biden’s economic management will argue that most of the inflation that materialized during his presidency was due to COVID-related supply chain disruptions and other factors outside Democrats’ control. Indeed, several analyses have concluded that Democrats’ fiscal policies added up to 3 percentage points to inflation in 2021 — that’s a significant contribution, but ultimately, not even a majority of the inflation experienced that year.

The biggest problem for Democrats wasn’t that they got the policy wrong. Rather, it was that they repeatedly demonstrated disinterest in even trying to get it right — a mistake the Trump administration is now replicating to a tee.

Anyone who argued that no economic data justified the need for a $1.9 trillion package in early 2021 was met not with a substantive rebuttal but with a dismissive statement along the lines of “the cost of doing too little is much higher than the cost of doing something big.” It was very reasonable to believe that an overshoot was preferable to an undershoot of equal magnitude, considering that insufficient stimulus likely slowed the recovery following the 2008 financial crisis. But surely a package that was 2% too small would have been preferable to one that was 200% too large.

One might reasonably argue that it was sensible not to adjust policies to prevent significant inflation when decades had passed since that was last an issue in the United States. But when their assumptions proved wrong and inflation did materialize, most Democrats refused to accept that their policies could be responsible and needed to change. The Biden administration first argued that inflation would merely be “transitory.” Then, when that proved untenable, they sought to pass the buck by blaming “corporate greed” for inflation (as if corporations suddenly got greedier in 2021). 

Meanwhile, Democratic leaders did everything in their power to compound their mistakes. The version of BBB they passed through the House would have increased the federal budget deficit by roughly $200 billion in the first year alone. Biden later pursued costly executive actions such as trying to have taxpayers foot the bill for canceling as much student debt as possible, without any regard to the need or cost of such policies, and without doing anything to address the problems that created this debt in the first place. Progressives such as Sen. Elizabeth Warren even went so far as to pressure Federal Reserve Chairman Jerome Powell — who was responsible for curtailing inflation by raising interest rates — to keep interest rates low. 

Donald Trump was elected in large part because of a backlash against this cavalier attitude. Yet as economists and business leaders have been sounding the alarm for months that their tax and trade policies will raise prices on American consumers, the Trump administration has responded almost exactly like Biden and his progressive allies did: Treasury Secretary Scott Bessent said inflation will be transitory. Federal Trade Commission Chairman Andrew Ferguson threatened to investigate companies for raising prices. President Trump himself said the economic pain his policies cause are “worth the price that must be paid.” And now, he is pressuring Chairman Powell to cut interest rates. It is no wonder that Republicans’ approval ratings on the economy — which consistently outpaced those of their Democratic rivals throughout Trump’s first term and the 2024 election — now trail them.

WHY THIS TIME IS WORSE

When Biden’s Democrats increased budget deficits, they did so after a decade filled with warnings about the consequences of rising debt that never seemed to manifest even as the debt steadily grew higher and higher. But over the past four years, it’s become clear that those consequences are finally starting to materialize at great expense to the American people. Trump’s Republicans are thus inexcusably seeking to blow up budget deficits at a time when everyone understands that doing so is increasingly costly.

The combination of increased debt to finance borrowing under Biden and higher interest rates on that debt has pushed the federal government’s annual spending on interest to nearly $1 trillion. As a result, the federal government now spends more money paying interest on the national debt than it does on national defense or Medicaid. Measured as a percent of gross domestic product, annual interest costs are higher than at any other time in American history. And if Republicans enact Trump’s BBB, those costs are likely to more than double over the next 30 years.

As was the case under Biden, consumers will also bear the burden of this runaway borrowing. A recent analysis from Yale Budget Lab estimates that a permanent increase in deficits on the scale of what it would take just to make the expiring tax cuts from 2017 permanent would reduce real wealth by up to $36,000 per household over the next 30 years. This is effectively a tax on young Americans that cancels out most of the benefit they would receive from the GOP’s BBB itself.

Importantly, all these estimates are predicated on current economic assumptions that could swiftly change. Bond markets — which determine the interest rate at which the federal government can borrow money — have been increasingly volatile as investors express growing concern about the Trump administration’s economic agenda and its implications for the long-term health of the U.S. economy. If Congress simply adds the cost of extending the expiring tax cuts to the national credit card and interest rates are just one percentage point higher than currently estimated, the Congressional Budget Office projects that debt would rise so high that its model can no longer function. Put another way: passing Trump’s BBB could be the tipping point for not just higher inflation but an unprecedented economic disaster.

Voters made clear in their rejection of Democrats in 2024 that they prioritize controlling the cost of living above all else. If Republicans betray their electoral mandate by continuing to pursue a BBB that’s as bad or worse than the one pursued by their predecessors, they will hand Democrats a perfect chance to seize the political opportunity they’ve squandered. But to achieve a win more durable than a typical midterm backlash, Democrats will have to chart a new course that convinces voters they can be trusted not to repeat the fiscally irresponsible and inflationary policy mistakes that shaped the BBBs of both Biden and Trump.

Trump’s “Liberation Day” Comes at Great Cost to Taxpayers

Posted on by Alex Terr

From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.

This week, Donald Trump unilaterally enacted a sweeping array of policies to radically reshape our nation’s tariff system on what he called “Liberation Day.” In addition to his protectionist ideological motivations, Trump explicitly stated that one goal of these tariffs was to raise revenue for his costly fiscal agenda. Trump claimed that these tariffs would bring in “trillions and trillions” of dollars, while his Trade advisor Peter Navarro promised they would raise an additional $600 billion annually, or $6 trillion over ten years. But in reality, these tariffs will only raise a fraction of that amount while inflicting large economic costs along the way. 

The sheer scope of Trump’s latest actions is staggering. A 10% tariff will be applied on all goods, with roughly 60 nations facing substantially higher rates, including many of the United States’ biggest trading partners such as the European Union (20%), Japan (24%), and China (54%). The new tariffs will raise the average tariff rate nearly ten-fold, from 2.5% to 22% — a level not seen since 1910. If these tariffs remain in place, the consequences for our economy will be severe: Industries reliant on exports will face much higher costs for products and materials, which they will pass onto consumers through higher prices. Meanwhile, export-reliant industries will face steep retaliatory measures from other countries. Hundreds of thousands of jobs will be lost. Households will be forced to spend more and more on everyday goods from groceries to clothes. Our economy will almost certainly shrink.

The White House’s shoddy revenue methodology completely ignores these economic consequences. To arrive at their $6 trillion estimate, the administration seems to have applied a roughly 20% rate — consistent with the size of the average tariff increase — to the $3.3 trillion in goods imported last year. But in reality, every dollar of tariff revenue collected will come with roughly 50 cents in lost economic value, which partially offsets any gains. This “deadweight loss,” as it is referred to in economic terms, represents the lost value in the economy when tariffs artificially inflate prices past their market value and is primarily borne by consumers via higher prices. As the price of imports rises, consumers will lower or shift their consumption, reducing the volume of total imports, shrinking the broader economy, and ultimately lowering not just tariff revenue but income and payroll receipts as well.

Omitting these dynamics results in a massively inflated estimate. For example, one alternative estimate for all of Trump’s tariff actions — without including their broader economic impacts —  only projects an additional $3.1 trillion in revenue over 10 years. After adding in the impact on the broader economy through job and income losses, this falls to just $2.6 trillion. And this will continue to fall further once other countries begin to implement retaliatory measures that damage the economy. Moreover, neither estimate includes the cost of “compensating” certain constituencies for the economic pain caused by the tariffs. During his first term, Trump offered farmers a $23 billion bailout to offset the harm of his trade policies, something he plans to do again this term with an even bigger price tag — which immediately will cannibalize any revenue the tariffs generate.  

Ultimately, Trump’s trade policy takes money out of working Americans’ pockets while offering them little to no benefit. The revenue generated from these tariffs will not be enough to offset his proposed tax cuts for the rich, let alone the rest of his costly legislative agenda. Rather, these aimless trade measures only serve to impose broad, sweeping trade barriers without any clear strategic goal or consistency, leaving American consumers and businesses to pay the price. 

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Fiscal Fact

​According to a Congressional Budget Office report released last week, the U.S. Treasury will reach the “X-date” — the point at which it can no longer meet its financial obligations without breaching the debt limit — by August or September 2025.

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The AI Investment Surge and Manufacturing

Posted on by Alyssa Brown

President Trump’s tariffs aim to boost capital investment in the United States, but one sector is already making massive domestic investments without the need for tariffs. According to PPI’s analysis, the five big tech companies — Amazon, Alphabet, Apple, Meta, and Microsoft — are projected to invest $240 billion in U.S. capital expenditures in 2025, primarily in AI-related structures and equipment. This represents more than double their combined $110 billion U.S. capital spending in 2023 (from PPI’s most recent Investment Heroes report).

This tech investment surge dramatically overshadows domestic investment from major manufacturing industries. By comparison, in 2023, the motor vehicle industry invested just $29 billion in U.S. structures and equipment, while the primary metals industry, including steel and aluminum, invested only $15 billion.

If the U.S. wants to meaningfully increase domestic production, it should leverage our AI leadership rather than attempt a tariff-driven recreation of manufacturing’s past. Trump’s nostalgia for the old manufacturing empire isn’t the future Americans want or need.  

The substantial AI investments being made now point toward a future of flexible digital manufacturing distributed across the country, creating productive capacity that can be easily shifted to meet changing consumer, business, and national security needs, and generating new jobs that will require both digital and physical skills. This vision is impeded, not accelerated, by Trump’s trade war. 

It’s always easier to push on an open door. U.S companies lead in artificial intelligence, and they are showing themselves willing to put their money into this country. Democrats should champion this vision of the future. 

*Note: We developed this projection using our Investment Heroes methodology, which analyzes 10K financial data to estimate U.S. capital spending as a share of global capital expenditures. For this analysis, we applied publicly available 2025 capital spending forecasts and recent earnings reports to our most recently published company estimates of domestic capital spending.

 

IRS Layoffs Threaten to Inject Chaos Into Tax Filing Season and Cost Taxpayers Billions

Posted on by Alyssa Brown

From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.

The Trump administration is laying off thousands of employees at the Internal Revenue Service (IRS), just as tax season gets underway. These cuts will worsen customer service for millions of hardworking taxpayers as they try to comply with the law. And while the cuts make it harder for Americans to follow the law, it will empower those who break it, allowing tax cheats to continue avoiding paying their fair share.

Many of the 6,700 IRS staffers laid off were recent hires tasked with improving the agency’s poor responsiveness by answering phone calls, processing tax refunds, and assisting with filing. Cutting this staff at the beginning of tax season will reverse recent improvements at a time when households need the most tax help. And with even larger layoffs planned after tax season, the administration will set the stage for even more chaos in future tax seasons.             

The administration claims to be making these cuts in the name of improving government efficiency and reducing waste. However, it is actually more likely to increase budget deficits by undermining efforts to close the “tax gap” — the difference between what taxpayers owe and what the IRS actually collects.

There are two main causes of the tax gap: well-intentioned taxpayers misunderstanding their obligations, and malicious tax cheats actively working to evade their obligations. The Inflation Reduction Act included additional funding for customer service to assist the former and enforcement to crack down on the latter, which the nonpartisan Congressional Budget Office originally estimated would generate $180 billion in additional revenue over the next decade. These expected savings have already declined somewhat due to funding recissions, and laying off newly-hired auditors and customer support staff will go even further, potentially preventing the agency from realizing any savings at all. 

Like any large agency, there is clearly room for the IRS to improve, including by modernizing its outdated technology or simplifying a complex tax filing process. But rather than work to truly make the IRS more efficient to save taxpayers money, Trump’s layoffs instead cost the Treasury billions in foregone revenue and taxpayers millions of hours in compliance headaches. While this is great news for tax cheats seeking to evade their responsibilities, it will hurt the law-abiding American businesses and households who will be left to pick up the tab.  

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Fiscal Fact

The current U.S. Tariff schedule, which specifies the goods subject to tariffs and the rates they face, already has roughly 11,000 lines. Trump’s proposal to move to a reciprocal tariff system, where every imported good faces a tariff equal to the rate that the same American good would face if exported to its country of origin, would require an exponential expansion to at least 3.1 million lines. 

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Child Opportunity Accounts Would Expand Opportunity and Financial Capability for American Children

Posted on by Alex Terr

Economic policy debates in recent years have increasingly focused on how to better support children and families. One of the central proposals in these discussions is expanding the Child Tax Credit (CTC), which will be a key feature in the current debate over the Tax Cuts and Jobs Act. This tax benefit helps working parents by providing them with additional resources to cover everyday costs, which can significantly improve the lives of disadvantaged children by meeting their basic needs.

However, while the CTC provides important short-term assistance to parents, it does less to ensure children can access opportunities for long-term success. Many children from low-income families face barriers to building wealth, such as limited income or job opportunities. Additionally, a lack of financial literacy often makes it even harder for these children to make informed decisions about managing money, impeding their ability to effectively plan for the future or continue building wealth over time. Together, this combination of limited opportunity and financial capability can trap many Americans into lower economic positions, regardless of their talent or potential.

In a recent report, “Building Opportunity and Financial Capability with Child Opportunity Accounts,” PPI proposed to help increase financial resources and financial capability for children from all backgrounds by establishing universal Child Opportunity Accounts (COAs). COAs would automatically be opened at birth with a $700 contribution from the government, with the government making supplemental contributions depending on household income each year on the child’s birthday up to age 16. This progressive approach ensures that children from families struggling to make ends meet get the most help, while still offering modest support to children born in more well-off households. In addition to the contributions from the government, families are also encouraged to participate by contributing to their child’s COA.

Account balances would be automatically invested in diversified portfolios, growing over time to give each child a financial cushion when they enter adulthood. By the time they reach 18, a child from a low-income family could have tens of thousands of dollars in their account to use for wealth-building activities — including education, housing, or starting a business — and guardrails in place to ensure that the money does not go to waste.

 These accounts do not just provide resources for children but also foster the skills they need to grow those resources over time. Financial education resources would be embedded into the accounts and beneficiaries would have to pass an assessment to access their account’s funds before age 25. As children grow, they would learn to manage their own finances and gain more control over their financial future.

To ensure that the burden of rising public debt doesn’t negate the benefit of COAs for young Americans, PPI has offered a comprehensive fiscal blueprint with several policy options to fully offset the program’s cost. One particularly fitting offset included in the blueprint and further detailed in another recent PPI report would be reforming the taxation of inheritances. Taxing the birthrights of the richest 1% to give every child an equal starting point would help create a more inclusive society where everyone, regardless of their background, has access to the resources and opportunities necessary for success. But PPI’s blueprint also offers several dozen potential alternatives if this offset proves politically challenging for one reason or another.

America’s economic future depends on its ability to foster talent, not just in its wealthiest citizens, but across the socioeconomic spectrum. Providing for a child’s basic needs, while important, does little to set them up for success in adulthood. Investing in Child Opportunity Accounts would ensure that every child, regardless of background, has the financial foundation and knowledge they need to pursue their full potential. This isn’t just an investment in individual families, but in our country’s future prosperity.

Republicans Reckon with the Costs of Their Tax Cuts

Posted on by Alex Terr

From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.

Congressional Republicans last week took a major step in advancing their legislative priorities last week when the House Budget Committee passed a budget resolution that enables them to make deep reductions in both taxes and spending within one filibuster-proof reconciliation bill. But despite winning Trump’s endorsement over a competing Senate alternative, division has already emerged over the severity of the resolution’s spending cuts. This debate has revealed an uncomfortable truth for Republicans: that tax cuts come with a cost, whether or not they are transparent about those costs.

The House budget resolution originally specified $1.5 trillion in cuts to mandatory spending that the relevant Congressional committees would be required to put in a subsequent reconciliation bill. But to win support from right-wing hardliners in their caucus, House Republican leadership added an amendment to their resolution that set a $2 trillion target for mandatory spending cuts without specifying from where the additional cuts would come. In addition, if Republicans fail to reach this new target, the $4.5 trillion allowance they gave the Ways and Means Committee to pass deficit-financed tax cuts would now be reduced by the same amount by which they missed the new target. In other words, if Republicans want to proceed with their plans to pass a massive tax cut, they’ll need to at least partially pay for it through additional spending cuts.

Many Republicans are simply not comfortable with what it takes to cut $2 trillion from mandatory spending. President Trump has removed many of the biggest mandatory spending programs — including Medicare, Social Security, and veterans’ benefits — from consideration, leaving less than one third of all mandatory spending available for Republicans to target. As a result, nearly all the $1.5 trillion in cuts that the budget resolution identifies are likely to come from vital safety net programs that benefit millions of Americans. Roughly 60% of the cuts specified in the budget resolution could come from Medicaid, a popular program that offers health insurance to roughly a fifth of the nation. Another 22% could come from federal nutrition programs, such as the Supplemental Nutrition Assistance Program, which provides food assistance to 42 million low-income Americans.

And even these cuts — which are $500 billion short of the target — have already run into political difficulties. Several “moderate” Republicans whose districts rely heavily on Medicaid have so far declined to support the resolution out of concerns that the cuts would hit their constituents. With the GOP’s slim House majority, even a few defections could prove fatal for the budget resolution’s chances.

But while they squabble over these spending cuts, neither moderate nor right-wing Republicans are truly willing to confront the deeper tradeoffs needed to reconcile their bill with fiscal realities. Although the resolution now targets $2 trillion in spending cuts, it still adds a whopping $4.8 trillion in new obligations — split between $4.5 trillion in tax cuts and $300 billion in new spending. Whether Republicans are willing to admit it, America will eventually have to pay for the costs of these budget-busting proposals in their entirety.

Enacting huge deficit-financed tax cuts means there is simply less revenue available to sustain the same level of government spending. To correct this deficit, future Americans will be forced to choose between raising their taxes or making even deeper cuts to critical programs. If they opted against raising taxes, the resulting cuts would go far beyond the cuts currently being debated. For example, the current budget resolution contains up to $880 billion in potential Medicaid cuts, which would be a roughly 11% decrease in spending over ten years compared to baseline funding. But to make up for the full cost of what their budget resolution would add to the deficit, Republicans would need to cut Medicaid by 45% instead — nearly half the program’s spending.

That Republicans don’t specify today what Americans will have to forego to pay for tax cuts doesn’t make those trade-offs any less real. Ultimately, the fight about offsets playing out between different factions of the GOP in Congress is not about how much spending must be cut to make their priorities work with fiscal reality. Rather, it’s simply a fight over how much of those cuts to be honest about.

Deeper Dive

Fiscal Fact

Programs including Social Security, Medicare, Medicaid, and SNAP that are able to distribute funding without being subject to the annual appropriations process are considered “mandatory spending.” In 2024, mandatory spending totaled roughly $4.1 trillion, or about 60% of all federal spending.

Further Reading

Other Fiscal News
More from PPI & The Center for Funding America’s Future

Republican Budget Resolutions Would Massively Increase Deficits

Posted on by Alex Terr

From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.

Republicans have spent the last four years decrying deficits during the presidency of Joe Biden and pledged to start bringing those deficits down when they took control of Congress. But those promises proved hollow when the House and Senate Budget Committees both advanced competing budget resolutions this week. Although they differed greatly in their details, both were designed to pave the way for Republicans to pass budget-busting policies on a party-line basis, the biggest of which would be an extension and possible expansion of the Tax Cuts and Jobs Act (TCJA) they passed in 2017.

The budget resolution passed by the House Budget Committee on Thursday would give the Ways & Means Committee the ability to spend $4.5 trillion on tax cuts over 10 years in a filibuster-proof reconciliation bill. It would also give other committees the ability to increase spending by another $300 billion. But the resolution only calls on other committees to identify $2 trillion of offsetting spending cuts, meaning the Republican reconciliation bill is likely to add more than $3 trillion to the national debt over the next decade after including the cost of interest. If passed, this reconciliation bill would add more to deficits than any other bill passed through the filibuster-proof reconciliation process in history.

Supporters of the House budget resolution tried to deflect from their fiscal hypocrisy by claiming that economic growth stemming from tax cuts would generate up to $3 trillion in additional revenue. House Budget Chair Jodey Arrington even went so far as to claim that these savings made their resolution effectively a “balanced budget” in yesterday’s markup. But these figures are farcical: even the most ideologically sympathetic groups find that less than one-seventh of TCJA’s cost could be offset by economic growth. In fact, the official scorekeepers at the nonpartisan Congressional Budget Office estimate that extending TCJA’s non-business tax cuts would actually reduce economic growth and lose additional revenue.

The Senate GOP’s budget resolution was seemingly more measured, calling for “only” $342 billion in new spending on defense, immigration enforcement, and energy. However, while Senate Republicans claim that this spending will be fully paid for, the resolution is light on details and does not specify from which committee(s) offsets will come. Moreover, Republican senators have made clear that, should their budget be adopted, it would only be the first of two. A second resolution would be used to clear a path for a separate tax cut bill, which is likely to be even more fiscally irresponsible than the one proposed by House Republicans.

With federal deficits already hovering near $2 trillion for several years in a row, it is fiscally irresponsible to continue piling on debt for unpaid-for tax cuts. As we saw during the Biden administration, unchecked deficits can exacerbate inflation and raise costs for American households. It was this very bout of inflation that helped propel Republicans to victory this past November. If they successfully implement either the House’s or the Senate’s reconciliation instructions, Republicans will be solely responsible for any price increases it might cause, and would completely abdicate any pretense of being the party of fiscal responsibility.

Deeper Dive

Fiscal Fact

U.S. inflation rose 0.5% in January — the fastest monthly increase since August 2023 — and was driven by higher costs in groceries, gasoline, and housing. Several components of Trump’s economic agenda, including tariffs and deficit-increasing tax cuts, are likely to put further upward pressure on inflation over the coming months.

Further Reading

Other Fiscal News
More from PPI & The Center for Funding America’s Future

New PPI Report Analyzes the “Wageless Boom,” Immigration, and the 2024 Election

Posted on by Alex Terr

WASHINGTON — Real wages were well below historical trends going into the 2024 election, despite strong economic growth. At the same time, the latest job release from the Bureau of Labor Statistics shows that foreign-born workers now account for more than 19% of U.S. employment, up sharply in recent years.   

A new report from the Progressive Policy Institute (PPI), titled “Real Wages, Immigration, and the Election,” explores how the combination of weak real wages and the historic jump in immigration in 2023 and 2024 became a major factor in the 2024 election outcome. Authored by Dr. Michael Mandel and Andrew Fung, the report argues that voters were not misinformed about the economy, as some political analysts suggested. Instead, they accurately recognized that their real wages had fallen behind pre-pandemic trends.

“Our research shows that real wages were far weaker than expected,” said Michael Mandel, PPI Vice President and Chief Economist. “That reality shaped voter attitudes in 2024, and Democrats were unprepared for the backlash.”

Key findings include:

  • Real wages fell during the post-pandemic inflationary surge, but unexpectedly did not fully recover when inflation abated, leading to what the report calls a “wageless economic boom.”
  • Legal immigration is a clear positive for the country in the long run. But foreign-born workers accounted for nearly 90% of total employment growth from 2019 to 2024, suggesting a short-term connection between stagnant real wages and the jump in immigration. 
  • Democrats misread the political landscape by touting indicators such as job creation and GDP while failing to address voters’ economic discontent about wage growth.

“Real wages need to be at the center of economic policymaking and political strategy,” said Andrew Fung, PPI Policy Analyst. “If voters feel they’re falling behind financially, no amount of strong GDP numbers or job gains will change their minds.”

With the 2024 election serving as a wake-up call, Democrats must recalibrate their economic message — focusing on real wage growth and cost-of-living improvements — to regain trust among working-class voters.

Read and download the report here.

Founded in 1989, PPI is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org. Find an expert at PPI and follow us on X.

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Media Contact: Ian O’Keefe – iokeefe@ppionline.org

Real Wages, Immigration, and the Election

Posted on by Alex Terr

INTRODUCTION

In retrospect, the Biden Administration ran an unprecedented political economy experiment: What happens when a massive jolt of investment spending runs into historic levels of immigration? The outcome turned out to be an odd and confusing mixture of good news and bad news that no one expected. Gross domestic product and employment both soared well above pre-pandemic forecasts. These strong headline macroeconomic indicators gave many Democrats a false sense of security going into the 2024 election.

But despite the unanticipated strength of hiring, real wage growth slowed to a crawl. In its August 2019 economic outlook, the Congressional Budget Office had forecast that private sector wages and salaries, adjusted for inflation, would rise by about five percentage points over the next five years. In fact, by this measure, real wages did not rise at all from 2019 to 2024 — a “wageless economic boom” that soured many voters on Democratic candidates.

Real wages surged during the early days of the pandemic, fell during the inflationary period, and then started to climb again. But, surprisingly, the gap between the projected real wage and the actual real wage did not narrow in 2023 and 2024.

What happened? The obvious answer is inflation. Rising prices for food, energy, housing, and other essentials created a cost-of-living crisis, which eroded real wages. As PPI has written, the surge in inflation was at least partly due to high levels of government spending, including Biden’s hallmark investment legislation.

But government spending alone doesn’t explain the inability of wages to keep up with rising prices, which had such an impact on the election. All other factors being equal, after the initial inflationary shock, strong job growth and lots of job openings should have allowed workers to negotiate higher wages with employers. Instead, wages showed a weak response to inflationary pressures.

So why did real wages not rebound faster in 2023 and 2024? The Federal Reserve’s attack on inflation by raising interest rates is likely part of the cause. But GDP growth stayed strong, and the economy never came close to recession.

Given the timing, one important potential contributor to the real wage slowdown is the historic surge of immigration in 2022, 2023, and 2024, which added millions of new workers to the labor market in a short period of time. New estimates from the Census Bureau, released in December 2024, confirm that foreign-born immigration soared to over 2.5 million in 2023 and over 3 million in 2024.

BLS data shows that foreign-born workers accounted for 89% of employment growth from 2019 to 2024. And a May 2024 paper from the Federal Reserve of Kansas City draws a link
between immigration and wages, at least for the post-pandemic period:

….Industries and states that experienced larger increases of immigrant workers tended to see more deceleration in mean hourly earnings growth rates between 2021 and 2023.

Let’s be very clear. PPI believes that, in the long run, increased legal immigration represents a clear positive for the country in both the economic and social sense. We strongly support expanding pathways for legal immigration to help meet America’s future demographic, workforce, and innovation aspirations, while taking sustained action to minimize illegal immigration in a manner consistent with our values. This balance is necessary for keeping America the vibrant, resilient, and robust culture and nation it is today.

However, it’s increasingly clear that Democrats made a huge political mistake in the 2024 election by not acknowledging the short-term economic impacts of historic levels of immigration. This policy brief will draw connections between the time path of real wages, the unexpected immigration surge of 2023 and 2024, and the outcome of the 2024 elections. We will not be discussing here whether the Biden Administration should have followed different investment spending or immigration policies. These are complicated questions that require weighing a variety of short-term and long-term benefits and costs.

Rather, our goal is to offer a possible explanation of the divergence between the rosy headline macroeconomic indicators in 2024 and the consistent negativity of voters about their economic prospects. This negative real wage shock amplified voter concerns about issues such as immigration, trade, technology, and housing. Immigration is especially important for understanding the election.

We can’t say for certain that the weakness in wage growth in recent years was caused by the latest surge in foreign immigration. Whether or not immigration was responsible for slow wage growth during this period, voters do not think like economists. As such, it is not surprising that many made a connection between the immigration surge and the weakness in real wages, given what they see in their daily lives.

This analysis has several political implications. First, voters were not suffering from misinformation when they blamed Biden for the economy. People knew that their real wages and real incomes were below pre-pandemic trends, and they resented the Democrats telling them how well they were doing.

Second, Democrats likely were held accountable not simply for the 2021-22 inflationary surge but for the inability of real wages to recover back to trend in 2023 and 2024. Third, this analysis offers insight into what could have been done better and how Democrats can avoid the same pitfalls moving forward. In particular, Democrats need to use real wages to help set a political context for policy goals. This time, the issues were government spending, inflation, and immigration. In the next election, the key issues may be different. But taking changes in real wages seriously will help align Democrats with the concerns of working Americans.

Read the full report.

PPI Unveils Child Opportunity Account Proposal to Promote Financial Capability And Boost Upward Mobility for Working Families

Posted on by Alex Terr

WASHINGTON — Despite America’s long-standing reputation as the land of opportunity, social mobility in the United States has declined in recent decades, leaving millions of children from low-income families unable to climb the economic ladder. Many young Americans face a combination of limited access to resources and low levels of financial literacy, preventing them from fully realizing their potential. These structural barriers not only perpetuate inequality but also stifle economic growth by leaving untapped talent behind.

To address these challenges, the Progressive Policy Institute’s Center for Funding America’s Future today released a new report, “Building Opportunity and Financial Capability with Child Opportunity Accounts,” outlining an innovative new proposal for Child Opportunity Accounts (COAs) that would help young Americans build both the financial resources and knowledge that they need for long-term success. The report, authored by Ben Ritz and Alex Kilander, emphasizes how this program can complement existing anti-poverty initiatives while fostering self-sufficiency and economic opportunity.

“Other proposals to promote childhood savings don’t equip young Americans with the financial education needed to properly leverage and continue growing those savings,” said Ben Ritz, PPI’s Vice President of Policy Development and Director of the Center for Funding America’s Future. “PPI’s proposed Child Opportunity Accounts are a fiscally responsible, forward-thinking solution to give children from working families access to the same financial resources and skills-building opportunities enjoyed by their wealthier peers.”

Key Features of Child Opportunity Accounts:

  • Universal Accounts: Every child receives an account with a $700 initial balance at birth, managed by a private partner institution and invested in a diversified portfolio to generate strong real returns. This universality bypasses the administrative burdens of determining a child’s eligibility and builds political durability by ensuring that every family can benefit from a COA. 
  • Progressive Government Contributions: Annual deposit of up to $700 for children in households earning less than 400% of the federal poverty line, giving the greatest support to those least likely to benefit from intergenerational wealth.
  • Integrated Financial and Civic Education: Integrated financial literacy resources, skills assessments, and use restrictions for young adults encourage beneficiaries to responsibly manage and grow their wealth. Additional accountability measures strengthen the civic compact by reinforcing young Americans’ responsibility to positively give back to the nation.
  • Fiscally Responsible: PPI’s COA proposal would cost less than half as much as other “baby bonds” proposals, doesn’t rely on expensive budget gimmicks or regressive tax incentives, and includes suggested offsets to ensure the wealth created by these accounts is not canceled out by a higher national debt.

“This isn’t just about providing financial assistance,” said Alex Kilander, policy analyst at PPI’s Center for Funding America’s Future. “By tying the program to financial education, we’re empowering young Americans to take charge of their futures.”

Read and download the report here.

Launched in 2018, the Progressive Policy Institute’s Center for Funding America’s Future works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. To that end, the Center develops fiscally responsible policy proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, transform our tax code to reward work over wealth, and put the national debt on a downward trajectory.

Founded in 1989, PPI is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Find an expert and learn more about PPI by visiting progressivepolicy.org. Follow us @PPI. 

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Media Contact: Ian O’Keefe – iokeefe@ppionline.org

Building Opportunity and Financial Capability with Child Opportunity Accounts

Posted on by Alex Terr

America has long had a reputation as the land of upward mobility and equal opportunity. In recent decades, however, the United States has scored lower on measures of social mobility than many other economically advanced countries. This decline in upward mobility is driven by a stark inequality of opportunity early in Americans’ lives.

Regardless of their merit, many Americans often don’t have access to the opportunities they need to succeed, or must pay a heavy price for the same opportunities that their wealthy peers often get at no cost. Young adults from disadvantaged backgrounds might lack assistance paying for education without relying on burdensome debt or generous scholarships, struggle to secure well-paying job opportunities and professional connections, or be unable to rely on family help to cover emergency costs.

Compounding the problem is a low level of financial capability, also known as financial literacy. According to a survey by the Global Financial Literacy Excellence Center, respondents could give correct answers to a set of basic financial questions about saving and investing only 48% of the time. Financial literacy is especially low among the young, who have little experience with financial decision- making. This makes them particularly prone to making poor financial decisions early in life, which can set them back for years. Put together, unequal access to opportunity combined with low levels of financial literacy limit social mobility for children in low-income families.

As a result, many Americans remain stuck on the lower rungs of the economic ladder through no fault of their own. Remedying this inequality is not merely a moral problem, but an economic one. Talent is more evenly distributed than opportunity. Amongst the millions of Americans who lack promising opportunities or financial stability could be the founder of the next great American company or a scientist behind the next medical breakthrough. All young Americans should have the opportunity and habits to build a successful and financially stable future for themselves.

Child Development Accounts (CDAs) are one potential tool to address these problems. CDAs are accounts designed to help children and their families, especially low- and middle-income ones, build wealth for the future. Countries around the world, such as Singapore and Israel, have long had formal CDA policies. Several U.S. states, including Oklahoma, Maine, and Rhode Island, have also pioneered their own programs and found some success in improving opportunity and financial literacy for participants. There are also many proposals to establish CDA-like accounts at the federal level, the most prominent of which is a “baby bonds” proposal sponsored by Senator Cory Booker and Congresswoman Ayanna Pressley. However, as detailed more throughout this report, this plan is expensive, relies on accounting gimmicks to create the false appearance of wealth creation, and does little to help children build financial capability to grow wealth on their own.

PPI proposes instead to create “Child Opportunity Accounts” (COAs) that would better promote equal opportunity, self-sufficiency, and financial capability for all children. As the first section of the paper explains, these accounts would be universal: every child would receive an account at birth with a $700 balance, automatically invested in a diversified investment vehicle. Then, every year on the child’s birthday up to their 16th birthday, the government would make additional contributions of up to $700, depending on a household’s income. The universal provision of accounts provides all children a shared educational experience building wealth at relatively low cost to taxpayers, while the means-tested annual contributions ensure the most financial assistance goes to children whose parents would otherwise struggle to give them the same “starting capital” in life as their wealthier peers.

The next section focuses on how the accounts would help children and parents acquire the financial understanding and habits to effectively manage their assets. To help young Americans build financial capability, information about important topics would be embedded into the access portals for the accounts, and account holders would be required to pass a financial literacy assessment before accessing their funds at adulthood. This financial education can occur both in formal classroom settings and via informal family socialization.

This report then examines how account holders can use their COA savings to pursue opportunities, laying out allowable uses for withdrawals and guardrails to ensure they do not exhaust the account balance too quickly. Young adults would be permitted to withdraw up to 25% of the balance per year between ages 18 and 25 to use for a number of “qualified uses,” including education, health care, starting a business, a down payment for a house or car, select moving expenses, and/ or saving for retirement. Once they have reached age 25, account owners would be able to withdraw the remainder of the funds without adhering to the 25% limit. The report also explains how COAs can help establish a civic compact for America’s youth that reinforces their responsibility to positively give back to the nation, rather than merely acting as a new entitlement.

Finally, PPI offers several fiscally responsible options to pay for these accounts, so that the wealth they build for young Americans won’t be canceled out by a higher public debt burden that they will be forced to service. One particularly fitting pay-for, which PPI detailed in another major report last month, is reforming the taxation of inheritances. This pair of policies would work in tandem to equalize opportunity by taxing the birthrights of people born in the richest 1% of households to give every American child a birthright of their own. And unlike other welfare schemes, this combination of policies would neither give handouts to adults who could otherwise have earned the money themselves nor confiscate a single penny that someone earns through their own hard work to pay for it.

Read the full report. 

Safety and Wages at Amazon: The Broader Context

Posted on by Alex Terr

There is nothing wrong with politicians paying attention to worker safety. Monitoring worker safety is an important role of government, both historically and today. 

But Senator Bernie Sanders’ latest report attacking Amazon’s safety record sheds more heat than light on the subject. The report is based on the premise that the company operates “uniquely dangerous warehouses.”

However, a careful look at government data tells a different story. In particular, we look at the rate of job-related injuries and illnesses that result in at least one day away from work (“lost time incident rate” or LTIR). These are the more serious safety incidents, measured relative to 100 full-time equivalent workers. 

In both 2022 and 2023, the average LTIR at Amazon’s U.S. warehouse facilities was only 1.1, significantly below the general warehousing industry as a whole, including all sizes of establishments (see figure below).  

Perhaps more important, Amazon’s U.S. warehouse facility LTIR was less than the average LTIR for the vast array of general merchandise stores across the country, including department stores and supercenters, and their associated e-commerce fulfillment facilities. The general merchandise store industry employs more than 3 million workers, suggesting that Amazon’s safety record stacks up well in a broader context. 

The Sanders report was released as the International Brotherhood of Teamsters is leading protests against a small number of Amazon facilities nationally. Once again, it’s not unreasonable for workers to press for better working conditions and higher wages. But it must be noted that Amazon and other e-commerce companies would be better characterized as pay leaders rather than pay laggards. According to BLS data, real pay growth over the past five years for production and nonsupervisory workers in e-commerce industries, such as general warehousing (6.2%) and couriers and messengers (5.1%), significantly outperformed the national average for all private sector industries (4.0%). In particular, real pay growth in ecommerce industries has outstripped major industries such as manufacturing, construction, and general merchandise retailers, where real pay has actually fallen since 2019 (see table below).

After the November election, progressives must focus their attention on issues that are important to working-class Americans. Job safety and wage growth are clearly relevant. But combining these key topics with distorted attacks on large tech companies is not the way to win the hearts and minds of voters.  

 

 

 

 

 

 

Table 1. 5-Year Real Pay Growth, Selected Industries
Real hourly pay, production and nonsupervisory workers, percentage change, October 2019-October 2024
General warehousing* 6.2%
Health care 5.1%
Couriers and messengers* 5.1%
Private sector 4.0%
Manufacturing 2.6%
Construction 2.5%
General merchandise retailers -2.9%
*E-commerce industries
Data: BLS

 

 

Many Americans Are Unprepared to Weather a Trump Economic Storm

Posted on by Max Sherrill

After a pandemic-induced recession and several years of high inflation, many Americans are pessimistic about both their own personal finances and the overall economy. Unfortunately, the incoming Trump administration will likely bring more economic turbulence, with sweeping policy promises that could cause economic growth and employment to drop, while reigniting high inflation. Americans without robust savings are especially vulnerable in such turbulent times.

One of the most unnecessary contributors to inflation over the past four years was an excess of deficit-financed stimulus spending. But Trump and Congressional Republicans appear likely to repeat the mistake of their predecessors by extending and possibly expanding upon the tax cuts they enacted in Trump’s first term — which would cost more than $4 trillion over 10 years — without offsetting most of the cost. Furthermore, while the tax cuts’ largest benefits will disproportionately flow to wealthy Americans, the inflation they could cause would be borne primarily by working-class Americans who consume more of their household income than their upper-income peers. 

As both a candidate and as president-elect, Trump has promised several other policy shifts that would wreak havoc on American households’ financial stability. For example, Trump promised throughout his campaign to impose a 10-20% tariff on every imported good, with at least a 60% tariff on Chinese goods. More recently, Trump also threatened a 25% tariff on Canada and Mexico, two of our largest trade partners. If implemented, these proposals would lower most Americans’ incomes by thousands of dollars, as importers pass the cost onto consumers through higher prices for everyday items.

If enacted, these policies and the many others Trump has advocated for, such as mass deportations, would send shockwaves through the economy. One prediction from the Peterson Institute for International Economics suggests severe consequences for Americans: Prices could skyrocket as much as 28% above the baseline prediction, gross domestic product could be  $6.4 trillion lower, and employment would fall in exporting industries such as agriculture and manufacturing. While other estimates may be smaller, they all point to disastrous consequences for American households if Trump succeeds in enacting the economic agenda he campaigned on. 

Households without savings to rely upon will be especially vulnerable to these economic disruptions. Emergency savings can not only provide a crucial financial cushion during unexpected events such as job loss but can also reduce reliance upon debt when a household’s costs rise faster than its income. Yet the past few years of inflation have taken a toll on American households, with 65% of adults in a Federal Reserve survey published earlier this year saying price increases have worsened their financial situation. One consequence of higher prices is that it becomes harder to adequately save for emergencies: According to the same survey, 46% of Americans surveyed did not have emergency savings to cover three months of expenses, up from 41% in 2021. Another recent survey by Blackrock found that more than one in four Americans lack any form of easily accessible savings to draw from during a crisis. 

Donald Trump’s voting base is especially at risk: Blackrock’s survey found that 36% of rural households, which backed Trump by a 28-point margin, had no form of emergency savings — one of the highest of any demographic group. But these communities will also be among the hardest hit by Trump’s economic policies: The trade wars caused by his across-the-board tariffs will not only raise the prices they pay on consumer goods, but hit export-reliant industries that are important for rural economies, such as agriculture. As other countries respond with retaliatory tariffs, the industry will suffer as American products become substantially less competitive overseas.

Ideally, policymakers should avoid pursuing policies that will cause economic uncertainty or chaos. But in any case, they should pursue policies that promote financial capability to help vulnerable households weather whatever turbulent times lie ahead. PPI will be highlighting some potential policies that could advance these objectives in the next year.

Missing the Mark: How the DOJ’s Google Antitrust Remedies Fail Consumers and the Economy

Posted on by Max Sherrill

The remedies proposed by the Department of Justice (DOJ) for the Google antitrust case, released on November 19, are a stunning example of prosecutorial overreach. DOJ antitrust chief Jonathan Kanter and his team went far beyond Judge Mehta’s findings, proposing to break up one of America’s most successful, innovative, and consumer-friendly companies.  

Indeed, the DOJ’s proposed remedies serve as an ironic post-election punctuation mark, emphasizing how the Biden Administration poured vast amounts of resources and attention into a case against Google that working Americans simply didn’t care about. Voters rightfully complained about the high price of food and homes, and voted that way. Tech firms were not on their list of major policy concerns, especially since tech was a low-inflation sector of the economy. 

Moreover, PPI’s analysis shows that rather than Google suppressing growth, the tech sector has been a powerful source of jobs during the pandemic and after. Since 2019, domestic tech employment has risen by some 700,000 workers, spread around the country, including significant job gains in states such as Colorado, Arizona, Pennsylvania, and Florida.  

Antitrust policy is not a popularity contest, of course. But if there’s one thing that the election teaches us, it’s that government actions have to serve the needs of ordinary consumers. And by that measuring stick, many of the proposed remedies from the DOJ fail miserably. 

For example, the DOJ would force Google to provide vast amounts of user and search data at a minimal cost to “rivals and potential rivals” — that is, anybody who asked — creating inevitable data security and privacy nightmares. No sane consumer would support a “remedy” that increases the exposure of their data. 

The DOJ would also require Google to divest Chrome and hobble Android in ways that would make these popular products less useful to consumers. These changes would be a disaster for ordinary users. 

DOJ’s ambitious and expansive remedy proposals serve as an illustration of how the Biden Administration missed the boat politically and economically. 

Weinstein Jr. for Forbes: Why Home Prices Remain Too High.

Posted on by Max Sherrill

One of the key messages voters sent on Election Day 2024 is they are fed up with high prices — and at the top of that list is the cost of owning a home.

For Americans, housing is their single biggest expense, and today, it is less affordable than at any time in the last 40 years. the beginning of 2020, the median cost of a home was around $280,000, today that number has risen above $400,000, a jump of 43%. That’s one of the reasons that some are arguing today that costs of running credit scores somehow plays a determinative role in driving prices up. But that’s a red herring—a way to distract policymakers from what’s really at fault.

According to the Joint Center for Housing Studies at Harvard University, there are three primary factors driving up home prices: 1) a lack of supply; 2) higher interest rates; and rising insurance premiums due to the increased risk of weather amid a changing climate.

Keep reading in Forbes.

Weinstein Jr for Forbes: Bankers Want To Keep Fed Independent From President

Posted on by Alex Terr

(Disclosure—I helped design the survey on Fed autonomy mentioned in this article)

Next week America will choose a new president. According to one poll, 58% of bankers believe former U.S. President Donald Trump would be better for the financial sector vs. 35% who think the policies of Vice President Kamala Harris would be more beneficial.

But while bankers may favor President Trump, they are not big fans of his push to make the Federal Reserve more subservient to the president. According to a recent bank industry survey, only 5% would support an effort to “force” the Fed to consult with the president on interest rate decisions, and just 7% wanted to give the president the power to demote or replace a Fed chair. (Disclosure: I was hired by IntraFi to help design the survey on Fed autonomy. However, I do not receive any financial compensation from individuals participating in its poll.)

The Fed is the nation’s leading independent agency. Because it does not rely on Congress and the White House for annual budget appropriations, it does not have to worry that its funding (which primarily comes from the interest earned on the securities it owns) will be cut off if it decides to raise interest rates. Furthermore, the leadership of the central bank (the governors and Fed Chair) are appointed for a term and cannot be removed from office by the President simply because of a policy disagreement.

While other agencies are legally established as “independent,” few have the level of autonomy the Fed does. The vast majority of these departments rely on Congress for funding and many political appointees, such as the Administrator of the Environmental Protection Agency (EPA), can be fired at will by the President.

Keep reading in Forbes.