It is abundantly clear that both parties are unrealistic about what it will take to fully address our nation’s economic difficulties. Republicans cling to the false belief that an unprecedented austerity program will somehow not precipitate economic contraction while the Democratic fallacy of significant GDP growth and modest tax increases on only the rich magically solving the future entitlement liability shortfalls is no less unreasonable. We need leaders who will work together, call the nation to shared sacrifice, put party ideology aside, and offer solutions that address the structural problems with our economy.
We face numerous immediate challenges: high unemployment, enormous government debt and deficits at the federal and state levels, a widening wealth gap and decline of class mobility, the disappearance of the middle class, and the prospect of a double-dip recession. However, to fully address these challenges, we need a combination of short-term and long-term solutions that require our nation’s leaders to be pragmatic and consider enacting policies that might anger their political bases. Below are some examples of policies that can help address the nation’s economic woes; I’m hoping to see other users leave their own suggestions in the comments.
On the revenue side, we should both raise revenue and ensure that tax increases do not stifle economic growth. We should raise the estate tax and allow the Bush tax cuts to expire for all tax brackets, implement Pigovian taxes on carbon emissions and foods that contribute to our nation’s obesity epidemic, phase out the mortgage interest deduction, and increase normal capital gains and dividend taxes. Tax loopholes and oil and agricultural subsidies should be curtailed or eliminated. However, to counteract the negative impact these additional taxes would have on economic growth, some of the incremental revenue should be used to fund a domestic alternative energy infrastructure, create a capital gains tax exemption on direct investments in small or high-growth businesses, expand the SBA loan program to ensure businesses have access to the credit they need to expand, and reduce the payroll tax to make it easier for companies to hire domestic workers. We should also eliminate or modify the accredited investor rule for investments in small, private, businesses to increase the availability of growth capital.
On the entitlements side, we need to raise the retirement age and reduce benefits for future Social Security and Medicare recipients and ensure that current beneficiaries share the pain with phased in reductions in benefits. Medicare should be empowered to negotiate with drug companies as we can no longer afford to subsidize the entire world’s access to new and innovative treatments. To cope with the expected increase in demand for healthcare services, new Medical, Nursing, and Allied Healthcare education programs should be funded out of some of the savings from entitlement reductions.
Discretionary spending should not be immune from cuts. The dramatic expansion of defense spending since 9/11 should be reexamined as the wars in Afghanistan and Iraq are wound down. Other programs’ budgets should be thoroughly examined by a new department, which has the express purpose of finding cost savings and sharing cost-saving best practices between agencies.
With some of the funds generated from tax increases and entitlement and discretionary spending reductions, we should fund programs designed to address the unemployment rate and restore the American Dream. Part of the problem is that there is a gap between the skills required by industry and those possessed by many of those who are unemployed or underemployed. Education grants and loans should be increased, but directed only to students receiving degrees that are likely to result in gainful employment in their field of study—science, engineering, technology, healthcare, etc. That should improve loan repayment rates and reduce the cost of such programs to the government while ensuring that students do not face undue hardship from loans they are unable to repay. In addition, funding should be provided to companies and non-profits that aim to disrupt the education market with high-quality, low-cost, training that could reduce the cost of helping displaced workers prepare for new careers in industries where there is demand for skilled workers.
Only by coming together, attacking our economic problems from all sides, and abandoning party dogma can we fix the structural problems with our economy and ensure our domestic economic security.