Triple-prong approach necessary to ressurect American economy
As a college student watching the United States economy slide into an abyss, I am immensely worried. I am worried that when I graduate jobs may not be plentiful. I am worried that robust economic growth may become a bygone phenomenon for the United States. I am worried that Washington is lacking smart, courageous leaders. But, despite all these worries, I take solace in knowing that all is not lost — the United States can recover. By enacting the right policies, the United States can boost economic growth, can create jobs for Americans and can help the country reduce its deficit.
But, for such a dream to come true, the United States will need to realize that, as former U.S.Treasury Secretary Larry Summers recently noted, "[T]he biggest problem the country has right now is not the budget deficit. The biggest problem the country has right now is the jobs deficit." With 24 million Americans unemployed or underemployed, or struggling with work; 9.2 percent unemployment; and almost five job-seekers for each opening, policymakers must focus on how to put Americans back to work and how to grow the economy.
The only real way to solve America's budget crisis is economic growth, which will come through boosting employment and getting consumers spending again. The U.S. should focus on a three-pronged plan to fix the economy — short-term job creation, medium-term tax reforms and spending cuts, and long-term entitlement reform.
In the short run, with consumers buried under a mountain of debt, the government must invest to put Americans back to work. Specifically, Congress should pass a national infrastructure bank (a measure that has bipartisan support) that can leverage public and private funds to create a modern-day Works Progress Administration to repair America's dilapidated infrastructure. With borrowing costs at about three percent, construction-sector unemployment higher than 15 percent and America's infrastructure graded at "D," this is an opportune time for infrastructure investments. Such a policy would increase demand causing businesses to hire more and invest the $2 trillion on which they are sitting. Put simply, with the private sector in neutral, the government represents the only means to increase demand (and, by extension, jobs).
In the medium run, the U.S. must begin to getits fiscal house in order. This policy should feature both tax reform and moderately phased-in spending cuts that minimize the immediate shock to the economy. The president and Congressional leaders have identified $1.5 trillion in spending cuts (both domestic discretionary spending and military) that can and should be made. In tandem with the spending cuts, the government must increase revenue by reforming the tax code.
Specifically, the government should end the regressive mortgage-interest deduction that disproportionately benefits the upper-echelon of society and will cost taxpayers more than $500 billion during the next five years. The government should also close the loophole allowing hedge fund managers preferential tax treatment; this tax expenditure costs the country $20 billion annually. Finally, the government should allow the Bush tax cuts to expire, which will address 75 percent of the deficit problem in the medium term. In the medium term, the nation needs a suite of spending cuts and tax reforms to address the fiscal problem.
Finally, in the long run, the United States must address entitlement spending (Social Security, Medicare, and Medicaid), which is out of control. While the exact policy options are not clear, the government must make these programs solvent while preserving their integrity. The answer is not distributing vouchers for Medicare or awarding block grants for Medicaid; but rather, enacting substantive reforms that reduce the cost of, but do not destroy, the social safety net.
This three-step approach — short-term job creation, medium-term tax reforms and spending cuts, and long-term entitlement reforms — will help end the current economic mess and show that the U.S. is serious about fiscal restraint. But, let me be clear, the most pressing challenge facing the nation is the 24 million Americans who are unemployed or underemployed. So, before we talk about balanced budget amendments, the deficit or the national debt, let's remember the millions of Americans who are struggling to provide for their families.
Neeraj Salhotra is a Sid Richardson College junior.
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