I support smart economic policies to reduce the structural deficit over time. However, I want to share three major concerns.
1. We are in danger of killing or weakening needed growth in the name of reducing deficits.
My organization is a member of the Jobs for America Now coalition, and we want to warn you that Americans are very concerned that premature deficit reduction could undermine the very fragile economic recovery. A focus on deficits is now causing senators to fail to pass needed jobs bills.
Forecasters predict that official unemployment rates will remain well above 9 percent for several years.This is simply unacceptable. We need new efforts to create jobs and send aid to the states.
Adopting spending cuts or tax increases to reduce deficits before the economy recovers will simply slow growth and undermine the tax revenues essential for solving deficits long term.
2. While deficits should be reduced over time, some deficit-reduction strategies are misguided.
My organization was also a leader of Americans United for Social Security. And the coalition, Health Care for America Now, which helped pass health reform.
The deficit was caused by the Bush tax cuts; by the recession itself; by the military build-up; and, most importantly,
by growing health care costs in the whole society.
Unfortunately, many deficit hawks seem fixated on cutting Social Security benefits and on cutting Medicare and Medicaid benefits. All are mistaken.
Social Security has nothing to do with our deficit problems. It is supported by its own dedicated payroll taxes.
If we had decent economic growth, Social Security would not require any fixing.
This commission is not the venue for discussing Social Security solvency. Social security is not the cause of deficits. And recent statements by co-chair Alan Simpson are so wrong – implying that Social Security contributes to the deficit and that the trust funds do not exist – that nobody can be expected to trust this commission to deal with the solvency of Social Security.
Growth in Medicare and Medicaid spending is a problem – but one that is driven by rising health care costs in the whole society. Our country has just embarked on a new health reform effort, aimed at achieving health care coverage for all, while beginning to get control of costs by reforming the way doctors and hospitals practice medicine.
We need more structural reforms, such as a public option than can give competition to private health insurers,
and requiring drug companies to compete to lower prices.Additional health care reform is best way to achieve savings in health care. Slashing or capping spending Medicare and Medicaid programs will only hurt vulnerable populations.
Finally, anyone who tries to achieve fiscal balance by just by cutting non-defense discretionary spending finds it is a fools’ errand. Even if you cut it in half, you still get little impact on the deficit – but you devastate important public programs.
3. We should reduce the deficit, but that cannot be our only economic policy goal. We also need to invest in the future.
My organization was also the founder of the Apollo Alliance for green jobs and new energy. President Barack Obama ran for election on a promise of public investment that would stimulate new productive industries that would make our economy more energy-efficient, and help the private sector create a next generation of green jobs
To assure a productive economy and robust and sustainable growth, the federal government needs to spend on the order of $400 billion annually over the next five years.
My admonition to you: Grow the economy, reduce the deficit — and invest in the future.
We agree that once recovery comes, the normal deficit needs to be reduced – but there are two possible paths to this goal.
The first and less desirable path is austerity economics: the government sharply cuts spending long before full employment is reached; production stagnates; revenues decline. We eventually reach budget balance but at a lower level of economic output, and reduced public services. And we then cross our fingers and hope that some new speculative boom, fueled by low interest rates, will again drive growth.
In the second path, government increases public spending financed by deficits for a year or two, until employment revives and gross domestic product is rising rapidly. Government then collects more revenues from a stronger economy. We should gradually reduce military spending, while also raising revenues.
My written testimony contains revenue options and cites military cuts which could the deficit, while increasing public investment in the next generation of infrastructure, green technology, and improvements in education, all of which drive private sector job creation and overall American productivity.
We at the Campaign for America’s Future have little doubt about which is the best path if we want prosperity and not just budget balance. We think the majority of Americans agree.