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The economic transformation envisioned in the Progressive Growth series of papers, which boast clear sets of policy plans to transform America’s economy through clean energy, innovation, and opportunity, requires a progressive economic program that is fiscally responsible as well as pro-growth. Our latest Progressive Growth paper, "Responsible Investment: A Budget and Fiscal Policy Plan for Progressive Growth," details how the next administration and Congress can do that.
Our plan will not only help ensure future U.S. economic prosperity but also is affordable and can be paid for in a way that supports the progressive values of work, fairness, and simplicity. How? By accelerating America’s transformation to a low-carbon economy, by spurring innovation to sustain productivity growth and job creation, by rebuilding the ladder of opportunity by restoring economic security and mobility, and by creating a virtuous circle of rising economic fortunes for a growing global middle class.
To grow our economy and ensure that everyone has an opportunity to benefit from this growth, we need to rebuild our infrastructure to support the transformation to a low-carbon economy, invest in human capital, and help support greater economic security. We believe our nation cannot afford to wait to make these necessary investments—in universal health care, education and lifelong learning, science and technology innovation, new green energy job training programs, and new wealth-creating opportunities for all Americans—if we want our economy to remain thoroughly competitive in the global marketplace.
But we also believe the federal government must undertake these investments in the context of an overall fiscally responsible package that supports progressive values. In this report, we demonstrate that this is possible. With sensible priorities it is possible to invest in our future. In fact, the goals of Progressive Growth are well within our reach and can be achieved with spending and revenue levels that have been met by recent administrations.
Right-wing naysayers believe that the United States cannot afford to make these investments and rebuild our infrastructure. They are wrong, and in fact have demonstrated that they are not careful stewards of the nation’s finances. The Bush administration came to Washington in the midst of historical budget surpluses, but through a combination of tax cuts for the wealthy and a misguided and exceedingly expensive war in Iraq, plunged the national pocketbook into debt.
For the past six years, President Bush has touted his tax cuts as an economic cure-all. Yet the tiny tax cut received by middle-income workers hasn’t been enough to pay for burgeoning debt payments, higher gas prices, tuition increases, and exploding medical costs—even as wealthy taxpayers have enjoyed ever-higher incomes taxed at stunningly lower rates.
As we work to limit the damage of Bush’s budget priorities, we need to address the budget gap as well as the national investment gap created by years of neglect. We can do this through a strategy that seeks, over the long-term, to reduce our nation’s debt as a percentage of gross domestic product. Meeting this debt reduction goal is achievable, and can be done with revenue and spending targets that are in keeping with recent history
Taking steps toward reducing national debt as a share of the economy is sound policy. As the economy grows, we will have an increased capacity to pay off our national debts. So long as the national economy is growing faster than our debt, we are enhancing our ability to meet future needs. As we enter 2008, the housing crisis, the possibility of a recession, and the potential need to stimulate the economy may temporarily result in a short-term increase in our nation’s debt. Over the long-term, however, reducing our debt-to-GDP ratio is a strategy that will get our government’s fiscal house in order and allow for wise investments in our economy.
Improvement occurs when the deficit is small as a share of the economy—rapid economic growth combined with small deficits—or surpluses—lead to declining debt levels. Under Progressive Growth, the nation’s debt would drop to 32.3 percent of GDP at the end of 2018, down from the projected 36.0 percent of GDP as of the end of 2008. A slightly larger but similar drop occurred during the Clinton presidency, when our country’s debt-to-GDP ratio fell from 45.3 percent at the beginning of 1992 to 39.8 percent by the end of 1999. Our Progressive Growth plan for the economy would thus place our national debt below averages from the last forty years. Debt as a share of GDP from 1967 to present has averaged 35 percent, and since 1980 has averaged nearly 40 percent.
In total, our proposals outlined in our Progressive Growth economic strategy call for a combination of responsible investments and tax reform to make our tax system fair, simple, and fiscally responsible. We make the tax code fairer, simpler, and better able to meet the challenges of the next decade and beyond by taxing work and wealth equally, closing loopholes, enhancing enforcement, and modifying the payroll tax. By combining these and other changes—such as expanding the earned income tax credit and boosting retirement savings through a new universal 401(k) pension savings program— we begin to tackle both short-term and longer term budget imbalances.