ECONOMIC REPORT OF THE PRESIDENT

allowing for additional investments in education, job training, research, and
health care, as well as postponing reaching the statutory limit on the Federal
debt (Somanader 2015). Second, the Fixing America’s Surface Transportation
(FAST) Act signed into law in December 2015 funded surface transportation
including roads, bridges, and rail for five years, authorizing $306 billion in
spending—or an increase of roughly 4 percent in highway investment and 7
percent in transit investment in real terms—while increasing predictability
of funding (CEA 2016b). Third, the Protecting Americans from Tax Hikes
(PATH) Act signed into law in December 2015 ensured that the expansions
enacted in 2009 of the Earned Income Tax Credit and Child Tax Credit,
and the American Opportunity Tax Credit (which provides a tax credit
for students in higher education) are permanent features of the tax code.
These tax credits now provide tax cuts of about $1,000 for about 24 million
families each year (Leibenluft 2015). The PATH Act also made permanent
tax incentives for investment in research and experimentation and small
business investment (through expensing capital purchases). In addition, in
September 2016, Congress approved a spending bill funding the government
through December 9 and provided $1.1 billion in the fight against Zika, as
well as additional funding for military infrastructure and housing.
Federal
Over the four quarters ended in 2016:Q3, real Federal purchases
grew 1.1 percent. At the Federal level, government purchases—including
consumption and gross investment—contributed weakly, but positively, to
four-quarter GDP growth (0.1 percentage point), approximately the same as
during the four quarters of 2015. This modest contribution is accounted for
by decreases in other spending which partly offset the sequester relief under
the BBA. On a quarterly basis, real Federal purchases can be volatile (Figure
2-3). Federal purchases picked up in the third quarter after falling in the first
two quarters of 2016.
State and Local
After strong contributions to real GDP during the four quarters
of 2015, State and local government purchases—consumption plus gross
investment—are on track to have a negligible impact in 2016. Real State
and local government purchases contracted 0.2 percent in the four-quarters
ended in 2016:Q3, after growing 2.5 percent during the four-quarters of
2015 (Figure 2-3).
The State and local share of nominal GDP fell from its historical peak
of 13.0 percent in 2009 to 11.0 percent in 2016, a level not seen since the
late 1980s, as State and local governments cut their purchases in the face of
The Year in Review and the Years Ahead | 69