MY VIEW: Laura Tyson November 2012
Former Council of Economic Advisers Chair and CRFB Board Member Laura Tyson writes in The New York Times about the dual challenges of "Go Fast" to repeal the fiscal cliff and "Go Big" on a comprehensive plan to reduce the debt over the long term. She writes:
Washington faces two urgent fiscal challenges in the next few months. Before the end of the year, the lame duck Congress, the most polarized in recent history, must negotiate an agreement with President Obama to protect the still fragile economic recovery from the so-called fiscal cliff — the $600 billion in spending cuts and tax increases scheduled to begin to take effect on Jan. 1. Then, early next year, a newly elected but still divided Congress must approve an increase in the federal debt limit. Failure to do so in a timely way would damage confidence, posing yet another threat to the economy’s continued healing.
These two challenges are manifestations of the long-running fiscal challenge confronting the country: the fact that the federal debt is rising at an unsustainable rate. That’s why a political deal to address the fiscal cliff and the debt limit in the near term should be linked to a credible framework to put fiscal policy on a sustainable path in the long term.
By the end of this year, policy makers need to “go fast” to address the fiscal cliff and debt limit and to “go big” to establish the broad outlines of a significant multiyear deficit-reduction plan.
On the solution, Tyson writes that any comprehensive plan must focus on growth. This of course means tax reform, but also directing spending toward infrastructure, education and training, and research and developments. Only a sufficiently big plan, though, will have the breathing room and the scope to do it.
A more progressive tax code, achieved through some combination of higher tax rates and capping deductions for high-income taxpayers, would be a powerful tool both to counteract these trends and to achieve long-term fiscal sustainability.
The goal of a “go big” plan for deficit reduction should be to ensure the economy’s long-term growth and competitiveness. Yet the debate over spending in Washington is fixated on cutting entitlement spending. Very little is heard about the need to increase federal spending in education and training, research and development and infrastructure, three areas with proven track records in rate of return, job creation, opportunity and growth.
Spending in these areas accounts for less than 10 percent of the federal budget; this share has been declining for several decades and is slated to fall to dangerous new lows as a result of the caps on nonmilitary discretionary spending already in place.
A pro-growth framework for deficit reduction must reverse these trends. More government investment in the foundations of economic growth should be recognized as a core principle of deficit reduction.
The full piece can be found here.
"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.