Washington, D.C. — America’s fiscal and economic landscape has shifted significantly over the past three years, but the budget debate in Washington has yet to catch up to the facts, according to a new report released today by the Center for American Progress. Entitled “It’s Time to Hit the Reset Button on the Fiscal Debate,” the report argues that deficit reduction should no longer be Washington’s primary economic concern, and it calls on policymakers to refocus on pro-growth investments and immediate measures to boost job creation. Included in the report is a proposal to replace the damaging and counterproductive sequester with a reasonable, manageable plan that includes some upfront investment in economic growth.
“Washington is focused on the wrong problem. Our leaders should be working to expand economic growth in this slow recovery instead of insisting on austerity and massive deficit reduction, even in the short term,” said Neera Tanden, President of the Center for American Progress. “Austerity is a failed experiment in other countries and it is a recipe for economic decline here at home.”
Three years ago, official projections showed America’s debt spiraling out of control. Respected economists warned of the consequences of allowing the debt to get out of hand, and some policymakers and pundits argued that deficit reduction would not only avoid those dire consequences but could also help give our struggling economy a boost. What has gone largely unnoticed, however, is that when you fast forward three years to where we are today, the fiscal and economic landscape has shifted in very important ways, but the debate has not shifted much at all.
First and foremost, the fiscal outlook for both the medium term and the long term has improved substantially, driven by two main factors:
- The United States has enacted about $2.5 trillion in deficit reduction with about three-quarters coming from spending cuts.
- Health care cost growth has slowed dramatically in the past several years.
Second, the economic context for deficit reduction has also changed significantly:
- The key argument that high debt causes slower growth has crumbled.
- Countries around the world have experimented with austerity, and those experiments have failed spectacularly.
- The U.S. economy has not healed nearly as swiftly as was projected when the budget cutting began.
- The push for immediate debt reduction has resulted in some perverse policy outcomes.
The report’s author, CAP economic policy expert Michael Linden, argues that it’s time to recognize all that has transpired in the past three years and begin the conversation anew. Linden details that there is absolutely no reason for deficit reduction to take precedence over every other important issue facing the country. Concerns about the budget should no longer be allowed to hijack every other policy discussion. This is especially true when it comes to the damaging and shortsighted sequester. The dramatic changes in the fiscal and economic landscape should prompt us to revisit the sequester and find a way to fix it before it can do more harm.
To that end, CAP’s report proposes a reasonable plan to replace the sequester through 2016. The plan is based on four principles:
- Keep it manageable. Congress has proven that it is unable to “go big,” so we should go small instead and find a way to address the sequester in the short term.
- Apply the savings from the fiscal-cliff deal. The sequester was supposed to achieve $1.2 trillion in legislated deficit reduction, and the fiscal-cliff deal has already achieved 60 percent of that.
- Balance is important. Most of the deficit reduction we have achieved so far has been from spending cuts. The sequester replacement must include some revenue as well.
- Focus on the economy. Merely avoiding the economic harm of the sequester is not enough. We need to take affirmative steps to boost growth and invest in the future.
Read the report: It’s Time to Hit the Reset Button on the Fiscal Debate by Michael Linden
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