A phrase you hear in Washington a lot these days is “shared sacrifice.” To an alarming degree, the budget debate has degenerated into a game of green-eyeshade arithmetic, with many in Washington demanding that we trade ephemeral spending restraints for large, permanent tax increases.
The only winners in that trade are special interests in Washington, with taxpayers and working families taking the hit today, and future generations taking an even harder hit tomorrow. I call it the “shared scarcity” mentality. What’s missing from the equation is economic growth.
Fiscal discipline is a means to a greater end: a growing, prosperous economy. These goals are mutually reinforcing: Sound government finances are essential to economic growth, and economic growth is essential to stable revenues and a citizenry that is not dependent on government spending.
Past periods of American prosperity were no accident: They resulted from adhering to the foundations of economic growth:
1) We have to stop spending money we don’t have, and address the structural drivers of our debt.
2) We have to restore common sense to the regulatory environment, so that regulations are fair, transparent, and predictable.
3) We have to keep tax rates low and predictable, so that job creators have incentives to invest in America; and
4) We have to refocus the Fed on price stability, instead of using monetary stimulus to bail out Washington’s failures. Businesses and families need sound money.
Let me deal with each in order.
The first foundation, real spending discipline, is pretty simple. You can’t get quality, sustainable growth by continuing to bury the economy in debt. More debt means more uncertainty, and more uncertainty means fewer jobs.
Mounting debt also threatens our poorest and most vulnerable citizens, because those who depend most on government would be hit hardest by a fiscal crisis. We have to make our safety net programs more sustainable so that they are there for those who need them most, and this starts by building on the successful, bipartisan welfare reforms of the mid-1990s.
Most important, we cannot avert a debt crisis unless we directly address the relentlessly rising cost of health care. These rising costs are not just threatening the nation with fiscal ruin, but also hurting our economy. One reason that many people haven’t seen any increase in their wages in a long time is because health care costs are rising too quickly and eating into their paychecks.
Getting health care costs under control is critical, both for solving our fiscal mess and for promoting growth.
The second foundation addresses the growing scourge of crony capitalism – in which bureaucrats in Washington abuse the regulatory process to pick the winners and losers in the private economy.
Congressional Republicans continue to advance reforms that stop regulators from strangling job growth and innovation in red tape. We’ve advanced legislation to stop the Environmental Protection Agency from imposing job-destroying energy caps on American businesses. We’ve advanced legislation to revisit the flawed Dodd-Frank law, which actually intensifies the problem of too-big-to-fail by giving large, interconnected financial institutions advantages that small firms do not enjoy. We’ve advanced legislation that requires Congressional approval of any new government rule with an estimated economic cost of $100 million or more.
But most important, we passed a full repeal the new health care law, with its burdensome maze of new regulations, penalties and restrictions that stifle job creation.
The third foundation recognizes that we cannot get our economy back on track if Washington tries to tax its way out of this mess.
The economics profession has been very clear about this – higher marginal tax rates create a drag on economic growth.
Christina Romer, the former director of President Obama’s Council of Economic Advisers, has argued: “Tax changes have very large effects on output. Our [research] suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent.”
Finally, the fourth foundation calls for a rules-based monetary policy to protect working families and seniors from the threat of high inflation.
The Federal Reserve’s recent departures from rules-based monetary policy have increased economic uncertainty and endangered the central bank’s independence. Congress should end the Fed’s dual mandate and task the central bank instead with the single goal of long-run price stability. The Fed should also explicitly publish and follow a monetary rule as its means to achieve this goal.
These are our four foundations of economic growth – and the House-passed budget starts the long, arduous and necessary process of restoring these foundations and building a prosperous future.
The House-passed budget lifts the crushing burden debt by cutting wasteful Washington spending and reforming those government programs that drive the debt. It doesn’t just put the budget on a path to balance – it actually pays off the debt over time.
America is an exceptional nation, defined by upward mobility and committed to leaving future generations with a better nation that the one we inherited. I am confident that this generation will keep that commitment and defend the American legacy. We must reject the shared scarcity approach, and instead choose renewed prosperity.
Ryan represents Wisconsin’s First Congressional District and serves as Chairman of the House Budget Committee. Ryan authored the House-passed Fiscal Year 2012 Budget Resolution – The Path to Prosperity: http://budget.house.gov/fy2012budget/
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