RELEASE: Cuts vs. Investments: Comparing Budget Plans and their Impact on the U.S. Economy
Washington, D.C.–Economists agree that the key to creating good jobs and a strong economy is investments—particularly investments in infrastructure, research innovation, and worker productivity. Nevertheless, House Republicans seem determined to do just the opposite of what America needs to promote economic growth. In the wee hours of the morning on February 19, the Republican-controlled House of Representatives passed a continuing resolution, or CR, to fund the federal government through September 2011 on a party-line vote. This came just five days after President Barack Obama released his own budget request for fiscal year 2012. The contrast in governing styles and priorities for public investment could not be more striking.
Both plans would legislate substantial fiscal contractions and lay off public employees at a time when 14 million Americans remain unemployed and our economy still struggles with recovery from the Great Recession—moves that will inflict unnecessary hardship and slow economic growth. Goldman Sachs economists estimate that the Republican CR will shave 1.5 to 2 percentage points off U.S. economic growth, pushing us dangerously towards a double-dip recession. But while the Republican CR runs a scorched-earth policy over the federal budget, President Obama’s budget actually expands critical investments in infrastructure, innovation, and education that will boost competitiveness and productivity of the U.S. economy for the long run.
Private investment drives our economy but public investment paves the way by providing the foundation for competitiveness, productivity, and economic growth. Figure 1 compares these two plans in five areas of public investment critical to America’s economic future: transportation and infrastructure; science, research, and technology; job skills and worker productivity; competitiveness and innovation; and education. Dollar amounts presented in Figure 1 represent proposed changes from 2010 funding levels. Note that cuts in the Republican CR represent only seven months of spending; on an annualized basis these cuts would be even deeper. We discuss some of the underlying investment specifics below.
Transportation and infrastructure
Investments in high-productivity infrastructure create lower costs for American businesses, stimulate manufacturing innovation and the jobs that go along with it, and will ease the billions of dollars in wasted time and gas due to congestion. The president’s budget boosts investments in transportation infrastructure by 38 percent over 2010 levels. These investments facilitate the creation of a National Infrastructure Bank for financing infrastructure development, expand investments in highways by 66 percent, and increase investments in rail by 88 percent.
Alternatively, the Republican CR cuts funding for transportation infrastructure by 9 percent, slashing $2.7 billion from rail, $675 million from federal transit investments, and nearly $1 billion from highway investments.
Science, research, and technology
The president’s budget invests in the science and research that will encourage the United States to develop and deploy renewable energy technologies, health and life sciences, and spawn entirely new industries and jobs that today don’t even exist. It boosts funding for the National Science Foundation by 13 percent, the National Institute of Standards and Technology by 15 percent, the Department of Energy’s Office of Science by 10 percent, and funding for science and technology research at the Department of Homeland Security by 18 percent.
Alternatively, the Republican budget slashes investments in science and research by more than $6 billion, including cutting one-third of funding to NIST and the Office of Science, $360 million from NSF, and almost $600 million from the Department of Homeland Security Science and Technology program.
Job skills and worker productivity
Ensuring our workforce has the necessary technical skills is critical to securing middle-class jobs and promoting the competitiveness and productivity of the U.S. economy. The president’s budget increases spending on job training and education by 27 percent. His budget includes a 56 percent boost in funding for student aid to expand access to higher education.
The Republican budget cuts funding for job skills and productivity programs by more than $2.3 billion. It eliminates resources for state and local workforce-development systems that train and educate American workers.
Competitiveness and innovation
The president’s budget invests in the global competitiveness of the U.S. economy by supporting agencies that promote export market growth and business development—especially for small businesses. His budget includes a 16 percent boost for the International Trade Administration, an additional 11 percent for the Economic Development Administration, and an increase of $35 million for the Small Business Administration.
On the other hand, the Republican budget cuts funding for these key programs by $90 million, including a 9 percent cut to SBA and a $5 million cut to the International Trade Administration.
Decades of economics research show that education investment is a leading factor in long-run economic growth. The president’s budget expands investments in educating the workforce of the future by more than $800 million. Meanwhile, the Republican CR cuts education investments by 12 percent. Head Start, which gives kids early learning opportunities, is increased by 12 percent in the president’s budget. The Republican CR cuts Head Start by 15 percent.
Investments in safe and sound finance
The future strength and dynamism of the U.S. economy will also rest upon investments made in a safer, fairer, and more efficient financial system. This means beefing up our financial cops on the block and giving the Wall Street Reform and Consumer Protection Act a chance to do its work.
The president’s budget would boost funding for the Securities and Exchange Commission with a 28 percent funding increase to $1.427 billion, and for the Commodity Futures Trading Commission with an 82 percent spending jump to $308 million, compared to fiscal year 2010 budget levels. Meanwhile, the Republican CR would defund the SEC by nearly $45 million and the CFTC by $57 million. Those proposed cuts are million-wise and trillion-foolish. Moreover, the CR would cut $54 million this year from the new Consumer Financial Protection Bureau, a 42 percent cut, while the Obama budget would expand CFPB funding by 145 percent to $329 million.
Conclusion: Investment the key to economic growth
Figure 2 shows the critical importance of investment for economic growth. It shows the relationship between high levels of investment (in buildings, factories, schools, machinery and equipment, and physical infrastructure) and economic growth since the start of the Great Recession for the top 30 countries leading the global economic recovery. Taken together, these countries comprised 88 percent of total world GDP growth in 2010. The upward sloping line shows a clear positive relationship: We can invest more to compete and lead economically, or we can fail to invest and risk falling behind in competition with other economies.
This is the real consequence in the choice between the president’s budget and the Republican CR. The CR cuts sharp and deep, shortsightedly taking funding away from public investments that will rob us of economic growth and productivity in the long run. The president’s plan makes a down payment on America’s competitive economic future.
Adam S. Hersh is an Economist and Sarah Ayres is a Research Associate at the Center for American Progress.