The latest House Republican budget plan asks low-income and middle-class Americans to shoulder the entire burden of deficit reduction while simultaneously delivering massive tax breaks to the richest 1 percent and preserving huge giveaways to Big Oil. It’s a recipe for repeating the mistakes of the Bush administration, during which middle-class incomes stagnated and only the privileged few enjoyed enormous gains.
Each component of the new House Republican budget threatens the middle class while doing nothing to add jobs or grow our economy. It ends the guarantee of decent insurance for senior citizens, breaking Medicare’s bedrock promise. It slashes investments in education, infrastructure, and basic research, all of which are key drivers of economic growth and mobility. And it cuts taxes for those at the top, asking the middle class to pick up the tab. It’s a budget designed to benefit the top 1 percent at everyone else’s expense.
The House Republican budget proposal released today would be a disaster for the American economy, cutting out the heart of investments that are critical to growth and competitiveness. Investment—both public and private—is the most fundamental determinant of economic growth. Investment creates jobs and boosts the economy today while raising productivity growth and living standards in the long run. Public investment in particular plays a vital role in providing investments that offer large returns for all but little immediate return for private individuals or businesses—such as schools and roads and scientific research from which we all benefit.
That’s why the conservative budget proposed today by Rep. Paul Ryan (R-WI), chairman of the House Budget Committee, is bad news for our economy. If enacted, the House budget could undermine the momentum of two straight years of creating a total of nearly 4 million new private-sector jobs. Worse, the Ryan budget will rob Americans of future economic opportunities by slashing more than $871 billion of investment in education and skills training, science and technology research and development, and transportation infrastructure in the decade between 2013 and 2022.
This year’s proposed House budget walks back from the $1.4 trillion investment cuts Rep. Ryan proposed in 2011 but still cuts deep enough to damage our economy now and in the long run. Economists assess prospects for economic growth by looking at how investment per capita grows over time—the more capital goods, skills, and knowledge people have to work with, the more productive and creative they can be. At a minimum, investment should keep pace with population growth and inflation, and replace depreciated past investments as they get worn out and used up through normal use.
But compared to 2010 levels—before conservative cuts began to bite into public investments—Rep. Ryan’s plan disinvests in America by cutting:
- Education and training investment per capita by 48 percent
- Transportation infrastructure investment per capita by 28 percent
- Science and technology R&D investment per capita by 24 percent
If investment is the stuff that makes strong economies, then Rep. Ryan’s budget is a plan for economic weakness. His proposed cuts to investment will mean a slower pace of job creation, higher costs for businesses, and more difficulty for Americans striving to realize their educational goals. It risks U.S. economic competitiveness falling behind global competitors.
Why investment matters for jobs and growth
Investment is the cornerstone of job creation, economic growth, and long-term prosperity for middle-class families and our country as a whole. Investments—in new scientific research, new factories, transportation infrastructure, and the education and health of our workforce—contribute to growth by putting new technologies to work, lowering costs for businesses, and increasing the productivity and competitiveness of American workers.
Both the private sector and the federal government have critical roles to play in the investment process. Business investment drives the economy but public investment paves the path on which business investment depends. That’s why countries with the highest levels of combined public and private investment have led the world economy out of the Great Recession.
Investments in education, infrastructure, and scientific research are critical to the health and productivity of the U.S. economy, but they also are important public goods. As with the fire department and lighthouses, public goods are investments from which everyone shares in the benefit but which the private market is unable or unwilling to provide. We are all better off—individually and as a society—from having:
- Education investments that boost productivity and earnings of the workforce
- Infrastructure investments that create efficient and low-cost transportation systems
- Research investments leading to technological innovations that spawn countless new business opportunities and improve our quality of life
These kinds of public investments can revolutionize the way we live our lives—think the Internet and satellite communications, cures for cancer, and so on.
Even before the Great Recession began in December 2007, investment in the U.S. economy was too low. In the 2000s, under former President George W. Bush’s policies that directed tax cuts at the wealthiest Americans—and tax and regulatory cuts at big corporations—private business investment experienced the slowest growth of any economic expansion in postwar U.S. history.
Over the past decade, the pace of investment in the U.S. economy fell from 18 percent of gross domestic product in 2000—the total value of goods and services produced by workers and equipment in the United States—to 16 percent in 2007, the eve of the Great Recession. Investment then plunged to just 11 percent in 2009 as the financial crisis and the bursting housing bubble took its toll—and before the Recovery and Reinvestment Act of 2009 helped reaccelerate investment to 13 percent of GDP last year.
Amid faltering U.S. investment under President Bush’s ineffective policies in the 2000s and political gridlock since then, other nations raced ahead. The pace of investment in China, for example, accelerated from 35 percent of GDP to 49 percent between 2000 and 2010. And after the gains posted because of the Recovery Act, gridlock in Congress in 2011 led to a budget continuing resolution that cut $750 million from education, among other cuts. China’s investments in education, however, continue apace.
This is happening in Congress when most aspects of our public infrastructure are crumbling for want of resources, creating real economic costs for businesses and families. According to National Science Foundation figures, federal investments in R&D fell from 1.1 percent of GDP in the early 1990s to 0.8 percent of GDP in 2009.
Yet another conservative plan to disinvest in America
Rep. Ryan’s plan to disinvest in the United States by $871 billion could not be more ill-conceived. Instead of laying the foundation for productivity and economic opportunity in the United States, the Ryan budget takes us in the wrong direction—disinvesting in the American economy to give tax cuts for the richest of rich, while allowing the foundations for sustained private investment to crumble.
We compare this House budget plan—for public investments in education and training, transportation and infrastructure, and science, space, and technology—to merely maintaining funding for federal public investment at the same level it was in 2010—before conservative cuts began undermining economic growth. The projected constant-level investment figures are compared to the shrinking investment levels proposed by Rep. Ryan, adjusted for inflation to 2012 dollars and expressed in per capita terms.
Ideally, for the good of U.S. economic growth and prosperity, investment would go up, as is the case in many competitor countries. But even viewed against the low bar of keeping investment at the same levels, we can see just how steeply the Ryan budget cuts critical investments. The details of the proposed cuts are equally alarming.
Education and training: Disinvests by 48 percent
The Ryan budget cuts per capita investment in education and training by 48 percent, cutting from a current level of $426 per person to a mere $223 per person by 2022. (see Figure 1) This proposal would cut investments from K-12 education nationally, including education for children with disabilities and investments in educational innovation.
These cuts also would take away resources from programs that help American workers to achieve higher skills and better opportunities by promoting adult education and literacy, career and technical education, community colleges, postsecondary education, and student aid. Cutting such investment will mean fewer people will have access to the education and skills training they need to fuel economic productivity and compete for good, secure jobs in labor market.
Transportation infrastructure: Disinvests by 28 percent
The Ryan budget disinvests in transportation infrastructure investment per capita by 28 percent from current levels, cutting from the current $307 per person down to $220 per person by 2022. (see Figure 2) Investments to improve and repair the nation’s interstate highway system, public transportation, aviation, railroads, and inland waterways will be on the chopping block under these proposed cuts.
Our nation’s failure to invest in infrastructure in recent decades has resulted in longer commute times, billions of dollars in gasoline wasted sitting in traffic, frustrating airport delays, and rising energy costs that hit working families and business owners alike. To make matters worse, other countries have been making substantial public investments in infrastructure, improving their relative competitiveness in the global marketplace.
General science, space, and technology: Disinvests by 24 percent
Investments in science and technology research provide a critical foundation for innovation systems in the U.S. economy overall. The Ryan budget cuts per capita investments in science and technology research and development by 24 percent. While we invested $104 per person on research in 2010, the Ryan plan would cut science research to $79 per capita by 2021. (see Figure 3) Federal funding for the broadbased scientific research and development programs at NASA, the National Science Foundation, and general science programs at the U.S. Department of Energy historically provided numerous technological innovations that have revolutionized our economy but also provide critical R&D resources supporting private industry.
In total, the Ryan budget proposal would strip more than $871 billion from public investments in education, infrastructure, and science and technology—investments that create a foundation to support private investments and a more productive economy with greater opportunities and broader prosperity. The key to our long-term success and the competitiveness of our economy is to boost public and private investment from the low levels of the past decade. By disinvesting in the sources of productivity and competitiveness to pay for tax cuts for the already wealthy, the Ryan budget plan puts little value on America’s economic future.
Adam S. Hersh is an Economist at the Center for American Progress. Sarah Ayres is a Research Associate with the economic policy team at the Center.
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