Moving on to the Economy after the Election
Moving on to the Economy after the Election
Michael Ettlinger outlines how Congress and the president can have it both ways on deficits, spending, taxes, and investments and still put our fiscal house in order and invest in our economy.
Phew. Glad we’re past the election. Now it’s time to stop all the political maneuvering and take the necessary steps to boost our economy. Here’s the simple list, all of which have bipartisan support: reduce the deficit, increase the deficit, boost spending, cut spending, raise taxes, lower taxes, increase public investments, disinvest. You think that’s a crazy list? We’ll take them one by one.
Reduce the deficit. Most members of both parties agree that we need to address the large federal budget deficits that are projected for coming years. If we don’t eventually reduce the deficit then interest rates will rise and investment will be misdirected away from the private sector.
Increase the deficit. The key word in the last paragraph was “eventually.” Republicans and Democrats both usually favor deficit-causing economic stimulus in times of economic weakness. Recall that the George W. Bush administration passed stimulus packages in 2002 and 2008. Republicans like more tax cuts in their stimulus stew and Democrats like more spending. What they have in common is a willingness to let deficits spike in times like these. So “deficit increases now, deficit cuts later” should be a bipartisan mantra.
Boost spending. We should shut off the trillion dollar spending sequester scheduled for January 2. It would be very bad for our economy and cost jobs in both the public and private sectors. Hardly anyone from either party wants those cuts. That was their point: to schedule spending cuts that were so offensive that policymakers would reach a major budget deal to avoid them. It didn’t work. It’s time to accept that reality and shut off the cuts. And while we’re increasing spending, let’s put some into hiring back the teachers that have been laid off. Cutting education is not the path to a strong economy.
Cut spending. But there’s still the deficit. Any long-term deficit deal needs to include spending cuts. Just not the ones in the sequester. There’s a locus of cuts that policymakers of both parties support. They just need to vote for them en masse so that neither party can demagogue the other over their votes. Overly generous agricultural subsidies would be a good place to start.
Raise taxes. Believe it or not, this is also an area where there’s more bipartisan agreement than public pronouncements suggest. There is, of course, a huge disagreement on who should pay more and how much. But right now taxes are only paying for about 68 percent of what we’re spending. Everyone knows that’s unsustainable.
Lower taxes. We don’t want, however, to raise taxes on everyone in a weak economy. Right now, middle-class spending is only barely keeping stores open and factories humming. So the middle-class payroll tax holiday that’s set to expire should be extended and even expanded—temporarily. When the Republicans offered up an alternative to the original Obama stimulus plan, the Recovery and Reinvestment Act of 2009, the payroll tax holiday was part of their plan. And Democrats have been for it too. We ought to be able to work this out.
Increase investments. Our country’s infrastructure is in very poor shape. Education and scientific research are linchpins to our long-term economic health. These investments would be money well spent and we should spend it. And it creates jobs now—which we need. There’s a long tradition of bipartisan cooperation on this sort of spending.
Disinvest. Hidden in the tax code are billions of dollars of subsidies that ostensibly support private investment, but which are of little economic use. Let’s start with the tax breaks for oil companies. At today’s oil prices no incentive is needed to get oil companies to drill for oil. Over the past few years a number of Republicans have started to acknowledge that there’s room to move in reducing tax breaks. Democrats have long been on this theme.
Over the past several months it may have seemed like our country was going to fall apart in the face of irreconcilable differences. But the two political parties aren’t as far apart as the election campaign has made it seem. The devil is certainly in the details. But if Congress and President Barack Obama can get past the bitterness of the campaign and focus on what voters sent them to Washington to do, then there’s every reason for hope.
Michael Ettlinger is Vice President for Economic Policy at the Center for American Progress.
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Vice President, Economic Policy