In his State of the Union address tonight, President Obama calls for raising the minimum wage to $9 per hour, up from its current $7.25. He also called for raising the tipped minimum wage — made by tipped employees, such as waitresses — and for indexing the minimum wage to inflation so that it grows along with the economy:

We know our economy is stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, nineteen states have chosen to bump theirs even higher.

Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead. For businesses across the country, it would mean customers with more money in their pockets.

In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up while CEO pay has never been higher. So here’s an idea that Governor Romney and I actually agreed on last year: let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.

According to a fact sheet released by the administration, “Raising the minimum wage to $9 restores the inflation-adjusted value of the minimum wage back to where it was in 1981.” If the minimum wage had simply kept up with inflation since the 1960s, it would be over $10 per hour today.

Currently, the minimum wage does not lift a family of three out of poverty and its covering a much smaller percentage of health care and education costs than it used to. Raising the minimum wage also disproportionately helps women and minorities, since they make up a majority of low-wage workers.

Conservatives usually oppose minimum wage increases on the grounds that they will hurt small businesses and job growth. However, study after study has shown that raising the minimum wage does not have a negative effect on employment. In fact, an analysis of state minimum wage increases showed that those state boosting their wage “had job growth slightly above the national average.” This holds true even when the economy is weak.

Sen. Patty Murray (D-WA) chaired her first hearing as head of the Senate Budget Committee today. In her opening statement, she had strong words for the sort of short-term austerity in which Republicans (and too many Democrats) want to engage:

Experts and economists across the political spectrum agree it makes sense to invest in job-creation in the short term, while putting ourselves on a strong path to responsible and sustainable deficit and debt reduction over the medium and long-term. And poll after poll shows that’s what the American people support too.

Federal Reserve Chairman Ben Bernanke put this idea well in a speech he gave in August of 2011. He said: ‘Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.’ [...] I think that’s exactly right. I will work with anyone to tackle our debt and deficit responsibly, but as I’ve told Senator Sessions and others — I feel very strongly that it just doesn’t make sense to replace our budget deficit with deficits in education, infrastructure and research and development.

With the deficit shrinking and the national debt stabilizing while unemployment stays stubbornly high, focusing on deficit reduction instead of jobs and economic growth is utter folly. Federal Reserve Vice Chair Janet Yellen yesterday rightly blasted Congress for allowing fiscal policy to be a “headwind for the recovery.”

Despite the experience of Europe, where austerity has ushered in recession, joblessness, and more debt, lawmakers on both sides of the aisle want to bring those same policies here. But spending is not the problem in the U.S.: the problem is a consistent output gap that has left the country a long way from full employment.

Both Politico and the Wall Street Journal reported that Senate Democrats are planning to revive the Buffett rule, a minimum tax on income in excess of $1 million, in their plan to avert the so-called “sequester” spending cuts scheduled for March. President Obama proposed a minimum millionaires’ tax during last year’s State of the Union address.

The rule would have raised about $50 billion in revenue, and fixed a tax code that allows some millionaires to pay lower tax rates than middle-class families. Here are two charts showing why the Buffett rule is so vital:

Republicans last year filibustered the Buffett rule in the Senate.

House Minority Leader Nancy Pelosi’s (D-CA) claim this weekend that the government doesn’t have a spending problem has been met with typical outrage from Republican politicians (and several members of the Washington media) who have spent the greater part of the last three years arguing that reining in America’s supposed out-of-control government spending would put the country on a more stable economic footing. There is, however, no basis to those claims, as actual evidence points in the opposite direction.

As this chart from Slate’s Matt Yglesias shows, overall government spending has plateaued under President Obama after rising sharply under George W. Bush and during Obama’s first year in office, when the economic recovery act went into effect.

In fact, the reduction in growth of spending under Obama is unprecedented in the last half-century, and government spending under Obama is growing at the slowest rate since Dwight Eisenhower was president:

This reduction in spending, however, is not necessarily a good thing. This chart, flagged by Brian Beutler, highlights how perilous rapid fiscal contraction can be. As Investor’s Business Daily notes, “The federal budget deficit has never fallen as fast as it’s falling now without a coincident recession.” Even during the 1990s, a time of rapid economic expansion and low unemployment, the deficit fell only half as fast as it is scheduled to in 2013. The Congressional Budget Office, meanwhile, estimates that full implementation of the sequester (factored into this 2013 projection) will significantly dampen economic growth:

This chart from the Federal Reserve’s Janet Yellen illustrates the effect of fiscal contraction of economic growth. In previous recessions, government spending has encouraged faster recoveries, and the stimulus initially helped boost this recovery. But the spending cuts that have resulted since 2010 have had the opposite (and a totally predictable) effect, driving down consumption and slowing the recovery:

Despite the hand-wringing from conservatives and media types about the federal debt and deficits, these charts make it clear that America’s problem isn’t that the government is spending too much. Rather, it’s that the government isn’t spending enough. Investments into infrastructure, education, teachers, public workers, and other programs could boost the economy. Instead, Washington has turned its attention to cutting spending, and the results have been dire, even if they are totally predictable to anyone who has read about the plight of the European economy over the last three years.

Kentucky is currently considering overhauling its pension system. Sadly, the bill that recently passed the state senate — and will soon be discussed by the state assembly — cuts benefits for workers, but doesn’t shore up the system’s funding.

The bill would abolish traditional pensions for new public sector workers while cutting cost of living adjustments for retirees, yet would cost even more than the current system. The switch would cost an extra $55 million over the next 20 years, according to analysis by the Kentucky Center for Economic Policy.

The bill would also require that the state pay the full amount of its required contribution to the pension plan. Supporters claim that these changes are necessary because pension plans in Kentucky are underfunded by a considerable amount.

However, the plan does not specify where the revenue for these new contributions will come from and instructs the legislature to create a funding source in 2014 when it writes a new budget. We should be skeptical about Kentucky’s promise to fund these new contributions given its history of not paying the required contribution, a key reason its pension plan is so underfunded.

Kentucky has only paid on average 68 percent of its actuarial required contribution to the state pension plan over the past 10 years, according to CAPAF analysis of the Center for Retirement Research’s Public Plans Database. In 2011, the most recent year for which data are available, the state only contributed 52.9 percent of the ARC. This underfunding is a key reason why Kentucky’s state employee pension system is severely underfunded.

Paying the full amount of the actuarially required contribution every year is critical to making sure a pension plan is well-funded. Organizations like the Pew Center on the States, the National Institute on Retirement Security, and Standard & Poor’s have all highlighted the importance of paying the ARC every year.

To be sure, paying the ARC every year doesn’t ensure that a pension plan will be fully funded. Recessions and stock market crashes will reduce the pension’s returns. The Great Recession is a large reason — perhaps the largest reason — why many pension plans are underfunded. If public pensions had earned the very modest returns of Treasury bonds in recent years, which is far below the average return for pensions, almost the entire shortfall as of 2011 would have been eliminated.

Our guest blogger is Nick Bunker, an economic research assistant at the Center for American Progress Action Fund.

Last year, economist Emmanuel Saez estimated that the richest 1 percent of the U.S. captured a whopping 93 percent of the income gains in 2010, as the U.S. was emerging from the Great Recession. Saez is now back with updated numbers from 2011, and they make the picture look even grimmer:

From 2009 to 2011, average real income per family grew modestly by 1.7% (Table 1) but the gains were very uneven. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Hence, the top 1% captured 121% of the income gains in the first two years of the recovery. From 2009 to 2010, top 1% grew fast and then stagnated from 2010 to 2011. Bottom 99% stagnated both from 2009 to 2010 and from 2010 to 2011.

How is it possible for the 1 percent to capture more than all of the nation’s income gains? The number is due to the fact that those at the bottom saw their incomes drop. As Timothy Noah explained in the New Republic, “the one percent didn’t just gobble up all of the recovery during 2010 and 2011; it put the 99 percent back into recession.”

Saez added that “In 2012, top 1% income will likely surge, due to booming stock-prices, as well as re-timing of income to avoid the higher 2013 top tax rates…This suggests that the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.”

American workers who lost jobs during the Great Recession are slowly returning to the workforce, but in doing so, they are often coming back to jobs that pay them less than the ones they lost, according to a study released last week. More than half of the people who became unemployed during the recession found a new job within six weeks, but a majority of them found jobs that paid less than the one they lost, the study from Rutgers University found:

Those who were laid off during the recession and fortunate enough to find new employment are generally settling for less in their new positions. As shown in Figure 2, nearly half (48%) say their current job is a step down from the one they held before the recession hit. A majority (54%) report lower pay in their new job compared to the job they held before being laid off.

One reason workers are returning to jobs that pay less than the ones they lost is likely because of the influx of low-wage jobs since the recession. A National Employment Law Project survey found that 58 percent of the jobs created since the end of the recession have been in low-wage sectors, even though such jobs made up just 21 percent of recession losses. Mid-wage sectors accounted for 60 percent of jobs lost during the recession, but have so far made up only 22 percent of those created during the recovery.

Florida Sen. Marco Rubio will deliver the official Republican response to President Obama’s State of the Union address tonight. While Rubio has been pitched as the “savior” and “new face” of the GOP, a preview of his speech gives the indication that he is just as disconnected from the current economic reality as the rest of his party.

Previewing his speech for The Weekly Standard’s Stephen F. Hayes, Rubio said he would make the case that the national debt “has a direct impact on unemployment” and that it is hurting job growth:

“The debt has a direct impact on unemployment. Every dollar that is being lent to the government is a dollar that is not being invested in our economy,” he says. “The immediate danger of the debt, and the one that speaks to people in the real world, is the fact that the debt is contributing to the fact that they don’t have a good job.”

The idea that the national debt is harming economic growth is a favorite tenet of conservative orthodoxy, but there’s no evidence of that orthodoxy being correct. European politicians have spent the last four years attempting to spark economic growth through deficit and debt reduction, and the result has been total failure. Multiple rounds of spending cuts across Eurozone countries were never followed by economic growth, and now the Eurozone is back in recession, as are seven of its 17 countries, while unemployment is at record highs.

The United States bucked that trend and pursued economic stimulus, resulting in faster growth than Europe. Still, spending cuts have dampened the recovery. Government spending flatlined in recent years, and crunched state and federal budgets have led to the loss of roughly 700,000 government jobs — most of which are teachers, firefighters, police officers, and other middle-class public workers that could be contributing to economic growth if only they had a paycheck. The loss of those jobs has reduced demand and led to the loss of more jobs in the private sector.

America’s problem is that it is focused on spending cuts (which the Congressional Budget Office says will further dampen growth in 2013) and is not investing enough to offset the lack of private demand. Economists estimated that the American Jobs Act (blocked by Republicans three years ago) would have created more than a million jobs while boosting economic growth.

A rational Congress would look both to Europe and the U.S.’s own situation and realize that austerity has failed. But Rubio and Republicans remain convinced that the debt is “contributing to the fact that” Americans don’t have good jobs. To the extent that’s true, it is because politicians like Rubio are focused more on the debt than they are on policies that would actually help create the jobs Americans are looking for.

Several commentators have posited that President Obama should focus on the federal deficit during tonight’s State of the Union address, explaining to America how he will rein in a supposedly out of control budget. Obama should “spend the bulk of his time talking about the deficit,” wrote the Post’s Chris Cillizza. “When President Obama delivers his State of the Union address Tuesday evening, here’s one thing you won’t hear: an ambitious new plan to rein in the national debt,” bemoaned the Washington Post’s Lori Montgomery.

But this is completely backwards. With unemployment stubbornly hovering around 8 percent, Obama’s focus should be on jobs and economic growth, not the deficit. Here are seven reasons why:

1. Deficits are shrinking. According to the latest projections from the Congressional Budget Office, over the last few years, $4.5 trillion in deficits have been reduced. In August 2010, CBO’s “alternative fiscal scenario” projected a deficit in 2020 of 7.8 percent of GDP. Now it projects that deficit will be 4.7 percent of GDP.

2. The debt is all but stabilized. CBO noted that the debt is basically stabilized, peaking at 77.7 percent of GDP in 2014, then dropping to 73.1 percent in 2018 before rising slightly again in 2022. According to the Economic Policy Institute, an additional $670 billion in deficit reduction is enough to fully stabilize the debt, which is less than half of the additional deficit reduction Obama has called for.

3. Spending growth is slow. House Minority Leader Nancy Pelosi (D-CA) said over the weekend that spending is not a problem, and the stabilizing debt and falling deficit show that she’s right. Under Obama, spending is growing at its slowest rate since the Eisenhower administration. Tax revenue, meanwhile, hit lows not seen since World War II over the last few years.

4. The output gap is huge and job growth is slow. As economist Adam Hersh noted, $900 billion more in economic activity is required to fill the “output gap,” the difference between what the economy is producing now and what it needs to produce to create full employment. CBO projects that the unemployment rate will not fall below 6 percent until 2018. The U.S. still needs 3 million jobs just to make up for those lost during the Great Recession.

5. Austerity is killing the recovery. CBO anticipates that economic growth will be slow this year due to “fiscal tightening that has already begun or is scheduled to occur.” European countries that have cut spending in an attempt to reduce their debts have, instead, quashed economic growth while their deficits barely moved (or expanded). Federal Reserve Vice Chair Janet Yellen yesterday blasted Congress for allowing fiscal policy to be a “headwind for the recovery.”

6. Infrastructure investment is collapsing. Public investment has plunged since the Great Recession. According to the American Society of Civil Engineers, America’s infrastructure deficit stands at $1.6 trillion and will grow to $2.75 trillion over the next decade, which will cost the country $3 trillion in wasted economic potential and 3.5 million jobs.

7. Borrowing rates are incredibly low. The cost of borrowing for the U.S. has been low for years, plunging to record lows over the summer. This provides a golden opportunity for government to borrow money and create jobs while making valuable public investments.