The Blue Sky Series: David Walker's plan
Two weeks ago, I spoke with former SEIU president and current Georgetown fellow/fiscal commission member Andy Stern about hosting a series of pieces laying out different ideas to kick-start job creation. The idea here is not to see how many compromises can dance on the head of the congressional pin; it's to see what exactly different experts think needs to be done. In Ben Bernanke's memorable term: "blue sky thinking."
The first piece came, naturally enough, from Andy Stern; the second was from Dean Baker, the third from Mark Zandi, the fourth from Heather Boushey, the fifth from Michael Lind, the sixth from an anonymous (ex-)hedge fund manager, and the seventh from Rep. Paul Ryan. Today's, however, comes from David Walker.
Snowed in by our structural deficits
By David M. Walker
President & CEO, The Peter G. Peterson Foundation
To stimulate the economy and shore up confidence, deficit spending can be a necessary tool if it is temporary, properly designed and effectively implemented. Short-term deficits and increasing debt levels can be acceptable as long as they aren’t permanently enshrined in the budget. At the same time, we must be mindful of future fiscal challenges and the looming specter of our structural deficits which could lead to a future economic crisis much worse than the Great Recession.
Can we create jobs and spur growth at the same time as we reduce our structural deficits and restore fiscal responsibility? Absolutely. The best way to accomplish these twin tasks is to think about complimentary short-term, medium-term and long-term policies.
Over the next 12 months, we need to start ramping up efforts to mitigate the effects of high unemployment. The Senate’s eventual extension of unemployment benefits in July was a good start. Since households receiving unemployment tend to spend it quickly, unemployment benefits can help companies hire new workers due to increased demand for their products. This effort can be coupled with a tax credit for employers who add to their workforces as well as appropriate safeguards to prevent abuse. Such targeted short-term policies are among the most efficient ways to spur hiring and inject some needed capital into the economy right away. However, any such actions must be tied to benchmarks in economic improvement. An automatic trigger would end additional extensions, stimulus funds and related temporary measures when the unemployment rate levels are reduced to a stated level (e.g., 8 percent).
Over the next few years, the government should consider making targeted infrastructure investments to keep America moving forward as the administration and some bipartisan advocates have repeatedly suggested. These could include updating transportation networks to address urban sprawl, traffic congestion and environmental concerns, creating new infrastructure for broadband and high-speed rail, and creating a distribution system for new and existing forms of alternative energy. In other words, we should pick projects with an eye toward maximizing the potential return on investment, avoiding cost overruns and targeting sectors that benefit the most people, create the most jobs and help our future competitive posture, such as moving the nation toward a clean-energy economy.
Another interesting idea that has been posed for the medium-term is permanently extending the R&D tax credit. While we should seriously evaluate all tax credits for their effectiveness, extending the R&D tax credit could create needed stability for businesses by emboldening them to invest and innovate. Supported by the Obama administration as well as businesses, the U.S. Chamber of Commerce has stated: “The R&D tax credit creates high-wage American jobs.” Such broad and enthusiastic support should encourage lawmakers to make this credit permanent, giving businesses the predictability they have been clamoring for.
Certainty and stability are important to promote long-term growth, but our fiscal outlook is dire and could undermine our efforts to expand the economy in the coming years. We must address our nation’s longer-term structural deficits. This includes developing a plan that will re-impose tough statutory budget controls, reform social insurance programs, reduce and constrain defense and other spending, and reform our tax system.
There is little question that one way to help achieve fiscal sustainability and economic growth would be to reform our byzantine tax system, one of the biggest impediments to sustained economic growth. Currently, our tax code is complicated and counterproductive. It hampers businesses and contributes to our structural deficits. In the future, we should reform our tax code to promote growth, not stifle it; improve our competitive posture, not inhibit it; and generate revenue from those who can most afford it.
There are a number of reforms that could be considered to achieve these objectives. First and foremost, we could dramatically simplify the tax code. Second, we could broaden the corporate tax base, lower marginal rates and move to a more comparable basis for taxing global income. By doing so, we will give US corporations incentives to keep their labor forces here and entice foreign corporations to move to our shores. Third, new forms of revenue must be considered that do not stifle economic growth. These could include a progressive consumption tax and/or a carbon (gasoline) tax.
Realigning our tax code with our priorities would create jobs and help restore fiscal responsibility. But it would also allow us to invest in research, education, innovation and the competitiveness of our nation.
We can no longer hibernate through this long economic winter. We must take measured actions in sensible intervals to generate growth and prevent a much bigger future fiscal crisis. Consumers are already waking up to this reality, as aggregate consumer debt has fallen for seven straight quarters. Now, we need the same kind of fiscal responsibility in Washington, balanced with smart efforts to generate growth in the short-term. A concerted effort will allow us to help American workers without adding to our long-term deficits.
We aren’t yet buried up to our heads, but the time is now to get out the shovels and start digging before it’s too late.
Photo credit: Chip Somodevilla/Getty Images.
Posted by: nadezhda04 | September 20, 2010 4:16 PM | Report abuse