Even more troubling, the Congressional Budget Office projects the future growth rate for America’s potential real GDP will be a full percentage point below its post-war average – which may not sound like much, but the consequences are alarming.
With one-percent lower growth, our economy will be $31 trillion smaller in 2062, and the Treasury will collect $97 trillion less in taxes over the next half century – making it significantly harder to balance the budget and reduce America’s risky level of federal debt.
Narrowing this growth gap is our greatest economic challenge. There is no combination of tax increases or spending restraints in any “budget compromise” that would sufficiently reduce our budget deficits to bring the federal budget into balance without sustained strong economic growth.
This is why the president’s budget proposals are so disappointing. Business investment in new buildings, equipment, and software drives private sector job creation. Uncertainty over future inflation arising from three rounds of quantitative easing; tax increases and the prospect for even higher taxes in future; and the additional costs of new regulations associated with environmental regulations, Dodd-Frank, and ObamaCare have deterred new business investment that would have otherwise kicked economic growth and job creation into high gear.
Like President Obama, President John Kennedy wanted to expand social-welfare programs. Unlike Obama, however, Kennedy understood that vigorous economic growth was necessary for enacting Medicare. So Kennedy won approval for an investment tax credit in 1962. Then President Lyndon Johnson signed Kennedy’s proposal for across-the-board income tax rate reductions shortly after Kennedy’s assassination in 1964. These tax cuts triggered an economic boom in the 1960s.
Another Democrat working with Republican lawmakers, President Bill Clinton, won approval for NAFTA in 1993 and the Uruguay Round Agreements in 1994. After Republicans took control of Congress in 1995, Clinton and the Republicans balanced the budget, cut the tax rate on capital gains, and reformed welfare. Once again, the U.S. economy soared in the 1990s.
Instead of taking the economic path that worked for his Democratic predecessors, President Obama’s budget contains radical proposals could not possibly be accepted by House Republicans and have even faced scrutiny from congressional Democrats. For example, limiting IRA account values, as the president proposed, would place a lifetime cap on savings. Encouraging Americans to spend their money rather than save it opens them up to greater risk for their retirement in a time when entitlements remain on a fiscally unsustainable path. This is clearly an attack on a generation of savers. We should limit the amount taxpayers have to pitch in for presidential family vacations before we limit Americans' ability to save for their families and their retirement.
By proposing $3.77 trillion in new spending and $580 billion in new taxes, this president seems focused on eliminating “success” from the American economic lexicon. Isn't it time to enact real pro-growth policies that encourage job creation and investment?
We know that massive government stimulus, higher taxes, and growing Washington red tape aren't working. We need to close the growth gap that this president’s economic policies have created. More political platitudes masquerading as economic policy will not help grow the economy, jobs, or the paychecks of working Americans.
Brady is chairman of the Joint Economic Committee.