Jobs, The ECONOMY & the Federal Budget
Eight in 10 Americans Recognize the Debt Is a Serious Problem | Why the Burgeoning Federal Debt Threatens the Economy and Costs Jobs | Stop Spending Money We Don’t Have | Establish an Enforceable Federal Spending Limit | Eliminate Wasteful Spending Earmarks | Promote Pro-Growth Tax Policies | A National Policy in Support of Affordable Energy | Further Reading
The national unemployment rate in January was 8.3 percent, the 36th consecutive month above 8%. The most recent data on Arizona showed an unemployment rate higher than the national average at 8.7%, and a loss of 7,700 jobs.
In a recent column for the Wall Street Journal, Stanford professor of economics John Taylor observed that the unemployment rate is “double what it was before the recession – and it’s been stuck at above 9 percent for 20 consecutive months.” He went on to ask: “Why the extraordinarily high and prolonged unemployment? My research shows that discretionary government interventions – deviations from sound economic principles and policies – have been largely responsible.”
The new Senator from Wisconsin, Ron Johnson, a successful businessman for the last 31 years, similarly observed: “When it comes to creating jobs, government is rarely helpful. Government tends to make it harder and more expensive to create jobs.” He cited a few examples to make his point: “The Small Business Administration estimates that government regulations cost our economy $1.7 trillion annually. According to the IRS’s own figures, it cost taxpayers 6.1 billion hours to comply with the tax code just last year. This is a staggering amount of money. And it is money that is not available for consumption, business investment, or job creation.”
He’s right. If we’re going to solve the problem of chronically high unemployment, we’ve got to get government out of the way and create an environment that makes it easier for businesses to invest and start hiring again. To do that, Congress and the President must cut government spending and borrowing, which are acting as brakes on the economy, slowing growth and job creation. Then we must reduce tax rates, cut government regulation, eliminate federal mandates, promote free trade, and pursue policies that make energy supplies more reliable and affordable.
A public opinion poll conducted by Gallup in 2010 found that nearly eight in 10 Americans viewed the nation’s exploding debt as “extremely serious” or “very serious.” That’s because they have seen the national debt increase by more than $3.6 trillion during the first two years President Obama has been in office, and it continues to grow. (Click here for the total public debt outstanding as of today.)
The deficit for the month of February 2011 alone set a record: $223 billion for just the 28 days of that one month! By the end of the fiscal year, the Obama administration estimates that more than $1.6 trillion will be added to the debt, and it will top a mind-boggling $15 trillion.
This explosion of red ink threatens the economy and its ability to create new jobs. It threatens Americans’ standard of living, our ability to educate our children, protect our environment, and even defend ourselves from those abroad who would do us harm. The single greatest challenge facing the President and Congress is reining in the debt and getting our country’s fiscal house in order.
The Obama administration is spending trillions of dollars we do not have on things we can’t afford and don’t need, and all of the borrowing required to fund those things is threatening the nation’s long-term economic health. Every dollar that the federal government borrows is a dollar that cannot be invested in new business enterprises, which create jobs.
To understand just how much the government is spending, consider this: 40 cents of every dollar that the government spends will have to be borrowed. It doesn’t take a rocket scientist to understand that such borrowing cannot be sustained for long without disastrous consequences.
That is because the government doesn’t just print extra money to cover that shortfall. If it did, we would be suffering rates of inflation beyond most of our imaginations. So it has to borrow the money – from savers, investors, pension plans, and even foreign governments, like China. And as any borrower must do, it must pay interest on that debt, an estimated $225 billion in net interest payments during this fiscal year alone. That’s more than discretionary spending on education, training, employment, social services, transportation, natural resources, and the environment combined.
We have no choice but to pay that interest or lenders will stop providing the money our government needs to pay its bills, whether for health care, education, environmental protection, defense, or law enforcement.
The problem is, interest payments will rise in coming years along with the debt that is accumulating under President Obama’s budgets. Whereas interest on the national debt will amount to about $225 billion this year, it will double by 2015, to an estimated $459 billion. In 10 years, it will amount to almost $800 billion. By then, interest payments could exceed spending on all other programs, except Social Security and Medicare.
What does that mean for the average American family? It means that Congress and the President could either impose crushing new taxes to pay rising interest payments, drastically cut federal spending on domestic programs and national defense, or borrow even more (though that would simply add to the debt and lead to even higher interest costs).
Each of these options means that American families can expect a lower standard of living and less back from their government every year. Less of every dollar of tax that they pay will be available for Social Security, Medicare, education, veterans’ services, nutrition aid, defense, and unemployment assistance, while more of every dollar will go just to pay interest on the national debt, and much of that will end up in the hands of foreign lenders.
Unless Americans are willing to work harder and harder for less and less – and I doubt they are – we have to reduce deficit spending to manageable levels and ultimately learn to live within our means, and the sooner the better. Otherwise, today’s spending spree is destined to leave less for tomorrow. That means a lower standard of living for us and our children and grandchildren.
There is an old Chinese proverb: “A journey of a thousand miles begins with a single step.”
Examples of Savings Proposed in H.R. 1
Elimination of the Alternate Engine, which the Pentagon says is unnecessary, for the F-35 Joint Strike Fighter
Reduced funding for the National Capital Arts and Cultural Affairs Program in Washington, D.C.
Elimination of funding for various czars appointed by the Obama administration
Elimination of funding to implement ObamaCare
An end to taxpayer subsidies for Planned Parenthood
A prohibition on military assistance to the country of Chad because of its continued use of child conscription
Reduced funding for the National Endowment for the Arts |
As Congress begins to consider serious reductions in spending, there is already a chorus of opposition suggesting that, since this or that program may cost “only” a few million dollars, why not spare it and look elsewhere for more significant savings? The simple truth is, there is no single program that can be cut or eliminated to solve our nation’s deficit problem. It’s just too severe. It will take reductions – large and small alike – in hundreds of different programs or more.
With that in mind, the new Majority that was seated in the House of Representatives in January 2011 took up a bill to start cutting spending in the fiscal year that is now under way. The House considered H.R. 1 in an open, transparent process that allowed consideration of 583 amendments offered by members of both political parties during more than 60 hours of debate. The version of the bill that eventually passed the House would cut about $61 billion in federal spending.
Predictably, opponents characterized the bill’s $61 billion in spending cuts as “draconian.” But are they?
Compare the bill’s $61 billion in spending cuts to a deficit of $223 billion for the month of February alone . . .
. . . and the projected $1.6 trillion deficit for the year.
In other words, even if Congress approved the $61 billion in spending cuts and the President signed them into law, the deficit for 2011 would still approach $1.6 trillion. Obviously, the spending cuts in the House bill are anything but draconian.
The proposed savings, while a good start, are just that: a start, and a relatively tiny one at that.
When the Senate had an opportunity to consider the House-passed bill on March 9, 2011, I voted for it.
The President and Congress are notorious for talking favorably about deficit reduction, but avoiding the tough decisions necessary to eliminate the red ink. This year’s $1.6 trillion deficit is evidence enough of that.
So, it’s important that Congress establish an effective mechanism to enforce spending control and ultimately balance the budget. Part one of that prescription is a statutory spending limit that sets a glide path to a balanced budget and requires automatic spending reductions when Congress and the President fail to act. I’ve cosponsored such an initiative with Senator Bob Corker.
The Commitment to American Prosperity (CAP) Act would establish a 10-year glide path to reduce federal spending from today’s 24.7 percent of Gross Domestic Product (GDP) to 20.6 percent of GDP. Congress would be required to meet annual, declining limits that could only be waived by a two-thirds supermajority vote in the Senate and House.
To give further force and effect to the CAP Act, I have also proposed a constitutional amendment to establish a Federal Spending Limit. Once approved by Congress and ratified by the states, it would further limit spending to the average level of revenue the federal government has collected for the last 30 years: 18 percent of GDP. The spending limitation in the amendment would become effective five years after ratification.
The advantage of a Federal Spending Limit is that it keeps our eye on the ball. It would tell Congress to limit spending. And by linking spending to economic growth, it would give Congress a positive incentive to enact pro-growth economic and tax policies. Only a healthy and growing economy -- measured by GDP -- would increase the dollar amount that Congress is allowed to spend.
For years, Senator McCain and I have fought against wasteful Washington spending, the most notorious examples of which come in the form of so-called “earmarks.” These are home-state or special interest projects that Members of Congress tuck into larger spending bills, often just before passage and without sufficient scrutiny to ensure the wise use of hard-earned taxpayer dollars. Perhaps the most famous example in recent years is the “Bridge to Nowhere” in Alaska, a bridge that would connect two towns in that state with a combined population of fewer than 9,000 at a cost of $320 million. (I voted to eliminate the project’s funding.)
Fortunately, the practice of earmarking finally appears to be coming to an end. Senators on my side of the aisle voted in late 2010 to abide by a policy against earmarking, and the Chairman of the Senate Appropriations Committee announced in early 2011 that the committee would abide by a two-year moratorium. The House now has a similar moratorium.
First, Avoid Job-Killing Tax Increases
The tax rates that had been in place for the last nine years were set to increase automatically at the end of 2010. The income-tax rate for those taxpayers in the lowest income-tax bracket was set to increase 50 percent. The capital gains tax rate would have jumped at least 25 percent, while the tax on dividends would have almost tripled.
Fortunately, Congress approved legislation I helped write to avert these tax increases through the end of 2012. And, we are already seeing some evidence that the extension of the low rates has bolstered consumer and investor confidence. Unemployment that had peaked at over 10 percent nationally fell to 8.9 percent in February.
What that tells us is that tax rates matter. If businesses are allowed to retain earnings, they will use the savings to invest, expand, and hire new workers.
Keeping tax rates as low as possible will promote economic recovery, help create jobs, and, in turn, provide more revenue to the Treasury to meet our obligations and begin to erase the budget deficit. Congress should make the existing tax rates permanent.
Second, Reform the Tax Code to Promote Job Creation and Economic Growth
Shortly after President Obama took office in 2009, several of my Senate colleagues and I met with him to exchange ideas about how to revive the economy. I challenged the President at that meeting to strike a better balance in his economic stimulus plan between his spending increases and the pro-growth tax cuts we were advocating. His response: “I won.” In short, he dismissed our ideas and proposed a massive stimulus spending bill that did nothing to promote economic recovery. Indeed, unemployment rose from 7.6 percent to a peak of 10.1 percent eight months after his stimulus plan was enacted.
Fortunately, the President relented toward the end of 2010, agreeing to extend the tax rates that had been in effect since 2001, but which were set to increase automatically on January 1, 2011. But that fix only lasts for two years. Tax rates – individual income tax rates, and the rates imposed on capital gains and dividend income – will soar in 2013 unless Congress and the President take further action.
With that in mind, Congress and the President need to unite behind policies that will provide new incentives for entrepreneurs to invest in new plants, equipment, and workers. Such policies include:
- Simplifying and reducing individual income tax rates.
- Reducing the corporate tax rate, which is now the highest in the world.
- Permanently reforming, or preferably eliminating, the death tax.
- Reducing taxes on capital gains and dividend income.
- Making the Research and Development tax credit permanent.
- Extending and making permanent the Small Business Investment Tax Incentive.
- Increasing expensing for businesses.
A healthy and growing economy depends on a reliable supply of affordable energy. Alternatively, policies that drive up the cost of energy hurt the economy and cost jobs.
When President Obama took office, the average price of regular gasoline in Arizona was about $1.84 a gallon. By March 2011, after two years of Obama administration policies that restrict domestic energy production, attempt to regulate greenhouse emissions, and threaten higher energy taxes, the price had skyrocketed to nearly $3.60 a gallon – almost doubling!
The rising cost of energy is the result, in part, of civil strife in North Africa and the Middle East, but domestic policies pursued by the Obama administration have also played a key role. A moratorium on offshore energy development in the Gulf of Mexico remains largely intact. According to recent studies, continuing delays in exploration and development in the Gulf could cost as many as 125,000 jobs in 2015, and result in the loss of $18 billion in revenue that could help narrow the federal budget deficit.
The administration is also delaying permits for energy development in the shallow waters off the Alaskan coast; an estimated 27 billion barrels of oil are offshore there. Northern Economics estimates that developing those resources could create 55,000 jobs per year and raise up to $24 billion in federal revenue.
The Obama administration’s regulation of greenhouse gas emissions could drive up the cost of gasoline and electricity by another 50 percent, while destroying 1.4 million jobs, according to the American Council for Capital Formation. Other studies estimate that the $90 billion in higher energy taxes the President has proposed could put another 165,000 jobs at risk.
We need to develop domestic sources of energy to help fuel our economy and protect the country’s energy supplies from being manipulated by OPEC and other countries which often are hostile to American interests. That means developing our domestic energy reserves, not locking them away.
For more information about my views on energy policy, click here.
“A Growth Agenda for America,” by Jon Kyl, in the Wall Street Journal, October 13, 2010.
“Higher Taxes Won’t Reduce the Deficit,” by Stephen Moore and Richard Vedder, in the Wall Street Journal, November 2, 2010.
“A Two-Track Plan to Restore Growth,” by John B. Taylor, in the Wall Street Journal, January 28, 2011.
“Obama’s ‘Investment’ Charade,” by Stephen Moore, in the Wall Street Journal, January 27, 2011.
“Reaganomics: What We Learned,” by Arthur B. Laffer, in the Wall Street Journal, February 10, 2011.
“Punter-in-Chief,” editorial in the Washington Post, February 15, 2011.
“Averting the Washington Monument Ploy,” by Richard W. Rahn, in the Washington Times, March 14, 2011.
