Prioritizing Opportunity for All in the Federal Budget: A Key to Both Growth in and Greater Equality of Earnings and Wealth

OPPORTUNITY AND OWNERSHIP INITIATIVE RESEARCH REPORT Prioritizing Opportunity for All in the Federal Budget A Key to Both Growth in and Greater Equality of Earnings and Wealth C. Eugene Steuerle April 2016 ABOUT THE URBAN INSTITUTE The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. For nearly five decades, Urban scholars have conducted research and offered evidence-based solutions that improve lives and strengthen communities across a rapidly urbanizing world. Their objective research helps expand opportunities for all, reduce hardship among the most vulnerable, and strengthen the effectiveness of the public sector. This work is licensed under a Creative Commons Attribution-NonCommercialShareAlike 4.0 International License. Cover image by Tim Meko. Contents Acknowledgments iv Prioritizing Opportunity for All in the Federal Budget 1 Introduction and Summary 1 The Nation’s Limited and Declining Opportunity Budget 4 How to Pursue an Opportunity Agenda, and Its Relationship to Equality 9 How Opportunity Relates to Equality 9 Opportunity: A Forward-Looking Agenda 16 Why Other Programs Need Not Be Pared 16 Why Now? 17 Conclusion: Exciting yet Daunting Challenges 20 Notes 23 References 24 About the Author 26 Statement of Independence 27 Acknowledgments This report was funded by the Ford Foundation through the Urban Institute’s Opportunity and Ownership initiative. We are grateful to them and to all our funders, who make it possible for Urban to advance its mission. The views expressed are those of the author and should not be attributed to the Urban Institute, its trustees, or its funders. Funders do not determine research findings or the insights and recommendations of Urban experts. Further information on the Urban Institute’s funding principles is available at www.urban.org/support. Extremely helpful input was provided by Greg Acs, Laudan Aron, Breno Braga, Amy Elsbree, Solomon Greene, Harvey Galper, Heather Hahn, Donald Marron, Signe-Mary McKernan, Caleb Quakenbush, Caroline Ratcliffe, Steve Rose, Margaret Simms, and Brett Theodos. The author especially wishes to thank Caleb Quakenbush for his work on the data contained herein and for reviewing innumerable drafts and Fiona Blackshaw for her always outstanding editing. The views expressed here are not necessarily those of the many individuals who provided valuable comments. IV ACKNOWLEDGMENTS Prioritizing Opportunity for All in the Federal Budget Elected officials from both political parties are advocating policy agendas that claim to advance opportunity. But to move from rhetoric to action, we need to rigorously discern the outcomes being pursued, then measure how well programs achieve those outcomes. We also need to recognize the extraordinary potential for achieving better outcomes within a budget that likely will provide an average lifetime total of over $2 million in health, retirement, education and other direct supports—and about $4 million in total spending and tax subsidies—for each child born today.1 Prioritizing opportunity throughout the budget, not simply in a program here or there, is a crucial way to reduce inequalities in earnings and wealth. Introduction and Summary The federal budget has never broadly promoted opportunity for all. Yes, it has achieved other worthy objectives, including reducing poverty among the disadvantaged; and yes, it sometimes promoted opportunity as a byproduct of those other purposes. But when budget numbers are examined, programs aimed directly at promoting opportunity—that is, programs that encourage and enable households to invest in human and social capital, increase their earnings, and build wealth over time—have taken a back seat to other objectives. The opportunity programs that do exist often exclude disadvantaged groups and those with low or moderate incomes. More strikingly, current law schedules almost no share of the additional revenues provided by economic growth for programs like work supports, education, and children’s programs aimed directly at promoting opportunity, leading to their further demise as a share of the economy and the federal budget. Meanwhile, recent decades have seen little gains and sometimes losses by lower earning households, including African Americans and Hispanics, in their share of earnings and wealth. Many factors, including the movement to a postindustrial international economy and a system of winner-take-all rewards in industries ranging from technology to entertainment, can be cited. Still, the failure to shift a greater share of government spending and tax subsidies toward an opportunity-for-all budget—for instance, toward programs that promote rather than discourage wealth-holding by low- to-middle income households—likely bears responsibility as well. The federal budget has never broadly promoted opportunity for all. Meanwhile, the share of earnings and wealth held by lower earning households, inclu