STABILIZING THE DEBT: SHORT, MEDIUM, AND LONG TERM POLICY
Sending the economy back into recession would be the worst thing we could do for our fiscal outlook. To ensure that our country returns to the level of sustainable economic growth necessary to successfully tackle our fiscal challenges, economic recovery must take priority over deficit reduction in the short-term. This does not, however, mean ignoring our long-term challenges at present. The recent health care reform legislation is a prime example of how to tackle our long-term fiscal challenges without trimming the near-term budget deficit and stalling the economic recovery. In the next few years, the country should adopt the following broad guidelines as it recovers:
- No deficit reduction until full recovery. Until the private sector has recovered, any cuts in public spending will simply translate into slower growth for the economy as a whole and a slower return to more normal levels of employment. Therefore, deficit reduction should be off the table until the economy has fully recovered. We support a 6-for-6 trigger: the economy should achieve an unemployment rate lower than six percent for six consecutive months.
- Job creation as the first priority. Jobs and economic growth are essential to our capacity to reduce deficits. efforts to spur job creation today will put us on a better economic path and create a solid revenue base.
- Revenue sharing with the states. Not only must the federal government create jobs, but it should support states with ailing budgets to help them avoid devastating job cuts. If states with budget shortfalls continue to slash their payrolls to meet balanced budget requirements, the job cuts will hinder the country’s return to growth just as much as if the federal government failed to create jobs itself.
- Strengthen Social Security and retirement security. Ensuring that all workers enjoy a secure and adequate retirement is a necessary part of rebalancing our fiscal priorities. maintaining or increasing social security benefits ensures that retirees will have a guaranteed income stream, which in turn stabilizes the economy during recessions. reforming the individual retirement system is also critical for this goal. Without secure benefits to supplement social security, most workers could not afford to retire. Finally, the current system of tax preferences for retirement savings must be examined to ensure that government is promoting retirement security as efficiently as possible.
- Replenish federal government revenues and modernize the tax code. Restoring government revenues to adequate levels is critical to support the programs and make the investments in our country that the private sector is unable to provide. by closing tax loopholes, altering the portions of the tax code that largely benefit the wealthy, and looking for untapped revenue sources such as a carbon tax, we can secure the capital necessary to fund vital federal programs.
- Reassess national security goals and budget. The United States’ budget for national security is larger than the combined budgets of the rest of the world. A national task force has identified over $1 trillion in defense spending that could be eliminated over a decade without jeopardizing national security by making appropriate, responsible reductions in the defense budget, we can free up funds for other critical areas including deficit reduction.
- Curb the rise in health care costs. over the past decades, health care costs in the United States have risen at over twice the average rate of other developed nations. These cost increases are excessive and largely caused by the perverse incentives of the “fee for service” payment system and lack of competition in the medical sector. The recently passed health care reform will slow the rate of these increases, but further reform will be necessary to prevent government spending on medical services from taking up a prohibitively large portion of the budget. Further changes should wait until we can determine the successes of health care reform, but enacting a strong public option to compete with private insurers and buy drugs and services in bulk would be a strong next step to containing costs.
- Close the public investment deficit. For decades, federal spending on critical human and physical capital has been decreasing. Government investments in education, transportation, and energy infrastructure have fallen as a share of GDP as revenues have shrunk and other areas, including defense, have eaten up increasing shares of the budget. New schools, a modern energy grid, and a green transportation network are among the many critical investments necessary to ensure our country’s future growth.