issue: Fiscal Policies

Wall Street Journal: A Rare Bipartisan Success for Congress

Posted on by The Progressive Policy Institute

PPI President Will Marshall was quoted in Wall Street Journal piece regarding the rare showing of bipartisanship by Congress in passing the recent spending bill and whether or not the public should expect more of that moving forward.

“Most Republicans agreed…that this wasn’t the right time for them to flex their new political muscles—that will come next year when they control the entire Congress,” said Will Marshall, president of the Progressive Policy Institute, a centrist Democratic organization. “They’d rather go home for Christmas than join Ted Cruz in a crusade to shut down the government.”

Read the piece in its entirety on Wall Street Journal.

How private investment is saving America’s infrastructure

Posted on by The Progressive Policy Institute

On August 3, 2014, the first cars drove the new and much-needed Port of Miami Tunnel. The project broke ground in 2010 and was intended to ease congestion in downtown Miami.

What set this project apart from others is the way it was financed – through a so-called “public-private partnership” (P3) –  in which a consortium of private investors provide financing for projects and are repaid by a state or local government over time.

Traditionally, infrastructure projects have been largely funded by the federal government through grants to states, which in turn pass funding on to localities. Until recently, P3s have largely stayed in the background, accounting for just a small fraction of total infrastructure financing.

But projects like the Port of Miami Tunnel are likely to be more commonplace as cash-strapped governments look for other resources to replace crumbling infrastructure.

Continue reading at Republic 3.0.

Book review: Reclaiming America’s fiscal freedom

Posted on by The Progressive Policy Institute

There’s a lull in Washington’s budget battles, but it won’t last. Inevitably, the fight will flare up again, because the nation’s spending and tax policies are fundamentally at odds with what it will take to restore shared prosperity in America.

For now, though, it’s a relief to be spared another mortifying spectacle of fiscal brinkmanship.  After their 2010 midterm sweep, Republicans were convinced they had won a mandate for drastic cuts in federal spending. Spurning compromise, they shut down the government and repeatedly pushed the country to the brink of default. Such reckless antics shook investor confidence in the U.S. economy, triggered a credit downgrade and made America look like a banana republic.

While tea party zealots were chiefly to blame, Democrats didn’t exactly cover themselves with glory, either. President Obama lost his gamble that Republicans would relent in their opposition to tax hikes rather than let the budget sequester gouge big holes in defense spending. And by rejecting serious entitlement reform, Congressional Democrats allowed domestic spending to bear the brunt of deficit reduction. Continue reading “Book review: Reclaiming America’s fiscal freedom” →

Obama Goes Big on Infrastructure

Posted on by The Progressive Policy Institute

President Obama’s new budget proposes a bold, $300-billion push to modernize the nation’s aging and inadequate transportation systems over the next four years. Here at last is a call for action on the scale we need to get the U.S. economy out of its slow growth rut and back on a high-growth path.  Two generations of federal underinvestment in public infrastructure has left much of it in disrepair, deterred private investment and limited the economy’s growth potential.

There’s only one problem: Obama’s plans to get America moving again by improving roads, ports and transit systems have been repeatedly stalled by ultra-conservatives within the GOP.  It’s bad enough that there are those in Congress who automatically oppose whatever Obama proposes.  But many far-right politicians also seem to have forgotten what they learned in Economics 101 – investment in public goods like transport, water and energy infrastructure are essential foundations for robust economic growth.

PPI’s forthcoming paper highlights new research conducted post-crisis confirming that the economic returns from infrastructure spending are enormous.  In fact, our analysis shows an emerging consensus that for every $1 spent on transportation infrastructure, the increase in economic growth is between $1.5 and $2.

The United States faces an enormous deficit in transportation investment – almost $900 billion by 2020 by some accounts. Yet there’s no doubt that modern transport systems are essential to our nation’s competitiveness – to facilitate U.S. international trade, regional commerce, and local access to essential services. Not having access to fast and reliable public transit services could disproportionately affect the low-income and inner city populations relying most on fast and affordable public transit to get to work.

So we applaud President Obama’s proposal, and hope that Congress will finally start investing in America too.

Restoring Regular Order

Posted on by The Progressive Policy Institute

The Murray-Ryan deal sailed through the House yesterday, raising hopes that Washington may be returning, however fitfully, to “regular order” when it comes to the federal budget.

At a time when fiscal brinksmanship and 11th hour continuing resolutions have become the new normal, it is easy to forget the years prior when passing an annual budget was something that lawmakers were eager to undertake. They looked forward to their budget debates and hearings, as these events allowed them not only to engage in their oversight duty, but also to perform their theater. These were their stages to affect policy and gain public recognition.

What would it mean to restore regular order on budgeting? Although Congress has the ultimate responsibility for passing a budget, the process actually begins in the executive branch. The first step is for the President to submit his budget early next year.

For decades, federal agencies have submitted initial budget requests to the Office of Management & Budget (OMB) for review in the early fall. Budgetary decisions are then made by the OMB Director and are passed back to the agencies. The agencies may appeal these decisions, but have a short window of time to do so. This process is presumably happening right now. Continue reading “Restoring Regular Order” →

Ungrand Bargain

Posted on by The Progressive Policy Institute

For years, fiscal hawks have been urging elected officials to “go big” on debt reduction.  But as yesterday’s House vote on the Murray-Ryan budget showed, budget minimalism is the art of the possible in today’s Washington.

It’s an exceedingly modest agreement that temporarily repairs some of the damage done by the Budget Control Act of 2011. Nonetheless, the Senate ought to pass the two-year budget too, because it would accomplish three important things:

First, it would prevent another government shutdown in January. With the recovery finally gaining steam, it’s essential that Washington refrain from the kind of fiscal brinksmanship that has repeatedly torpedoed economic confidence. Yet the GOP could yet force a fiscal crisis over raising the debt ceiling, which has to be done again early next year.

Second, the agreement blunts the impact of the sequester, at least for the next two years. The deal would replace about half of the sequester’s cuts to domestic and defense spending in 2014 with savings elsewhere in the budget. And because those offsets take effect in future years, the deal also would reduce fiscal drag on the economy. Still, it’s just a temporary fix, and in any fiscal reform worthy of the name, the sequester must go.

Third, the deal could signal a “return to normalcy” in budget politics. In a rare moment of bipartisan accord, it passed the House with roughly equal numbers of GOP and Democratic votes. And for once, House Speaker John Boehner forthrightly criticized the Tea Party bitter enders and right-wing pressure groups who oppose on principle even tiny compromises with Democrats on fiscal matters.

The Murray-Ryan agreement has one really egregious flaw: It failed to extend unemployment benefits for 1.3 workers stuck in long spells of unemployment. Senate Democrats say they will try to rectify that Grinch-like omission next year.

All in all, however, the deal strikes a small blow for fiscal sanity and against the extremists who have held sway over Republicans since the 2010 election.

Democrats Must Avoid Republican Economic Anarchism

Posted on by The Progressive Policy Institute

Economic calamity begets radical politics. America’s worst financial panic and recession since the 1930s gave birth to the Tea Party and Occupy Wall Street movements. Now Occupy seems to be fizzling out, but in Week 2 of a government shutdown, it is looking more likely that Tea Party Republicans could plunge the nation gratuitously into a new economic emergency.

The GOP’s surrender to fiscal anarchism is bad for the country. But it does give President Obama and his party an opportunity to seize the high ground on jobs and economic growth — the issue uppermost in Americans’ minds. For that to happen, however, Democrats will need to abandon their ritual business-bashing, embrace the productive forces in U.S. society and honor companies that are investing in America’s future.

Why? Because the nation’s job drought is really an investment drought. With gridlock in Washington and financial troubles at the state and local level, real government spending on productive assets from highways and bridges to computer equipment is down by half compared with the average level of the 2000s.

Private sector investment is doing better but still falls well short of what the country needs to generate “breadwinner” jobs and raise middle-class wages. Although corporate profits have rebounded lustily, many companies are still hoarding cash — about $2 trillion worth — or spending it on stock buy-backs. U.S. business investment, outside of housing, is still 20% below its long-term trend.

Continue reading at USA Today.

Why Boehner’s to Blame

Posted on by The Progressive Policy Institute

The government of the United States of America is closed for business today, courtesy of the Republican Party. It’s a national embarrassment, like a scene from the Marx Brothers’ classic 1933 satire “Duck Soup,” only without the anarchic humor.

Hail Freedonia!

Who produced today’s farce? Was it the Tea Party hotheads, 50 or so House Republicans who love ideological combat but hate governing? Or was it Sen. Ted Cruz, perhaps the most cunning demagogue America has produced since Joe McCarthy?

All played their discreditable parts. But the man in the director’s chair is John Boehner, who is bidding for the title of worst House speaker in U.S. history.

Why Boehner? Because he knows better, and could have prevented the shut-down. And because, as America’s third-ranking constitutional officer, after the President and vice president, he is supposed to serve America’s interests — not the febrile demands of his party’s most rabid partisans. That’s Eric Cantor’s job.
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Read the entire piece at the New York Daily News.

America’s job crisis: What entrepreneurs say

Posted on by The Progressive Policy Institute

The worst economic downturn since the Depression is behind us, but the great American job machine keeps sputtering. Four years into “recovery,” too many Americans are still unemployed, underemployed, on disability or out of the workforce altogether.

What are U.S. political leaders doing about the nation’s jobs emergency? Next to nothing.  Instead, House Republicans have plunged Washington into another senseless round of fiscal brinksmanship, jeopardizing economic recovery in their Ahab-style quest to destroy the great white whale of Obamacare.

Imagine, instead, that we had a functioning political system. What could Congress and the White House do to goose the pace of job creation?

Instead of turning to the usual (partisan) experts and Beltway interest groups for answers, why not put that question directly to U.S. job creators themselves? That inspired suggestion comes from John Dearie of the Financial Services Roundtable and Courtney Geduldig of Standard & Poor, who hit the road two years ago to do exactly that.

They present the findings of this unique survey in a new book, Where the Jobs Are: Entrepreneurship and the Soul of the American Economy.  It’s based on the authors’ intensive conversations with over 200 entrepreneurs who attended roundtables in 12 cities. What results is a concrete and practical blueprint for policy changes that can help entrepreneurs launch new businesses, expand existing ones and create the good “breadwinner” jobs that can support middle class families.

There are no blinding revelations here; most of their prescriptions are familiar to Washington policy hounds like me. But this only underscores that job creation isn’t some arcane branch of economics that only Nobel laureates can fathom. U.S. policymakers mostly know what to do – which makes their failure to act all the more tragic.

Continue reading at The Hill.

Simplify, Simplify, Simplify: The First Principle of Tax Reform

Posted on by The Progressive Policy Institute

Overhauling the federal tax system is one of the most important steps U.S. political leaders can take to promote economic growth and fairness. It is also that rarest of issues in today’s Washington—one that commands broad support on both sides of the political aisle. For these reasons, the Progressive Policy Institute urges the White House and Congress to give top priority to fixing our broken tax system over the next 12 months.

Everyone knows our tax code is too complicated, too inefficient and too riddled with preferences for special interests. Americans deserve better. PPI believes we need a federal tax system that is simpler and more progressive; that steers investment into productive, job-creating activity; that enables U.S. workers and companies to compete on an even footing in world markets; and, that serves the most basic purpose of any tax system—raising enough revenue to finance the government while ensuring fairness to taxpayers.

Comprehensive tax reform obviously poses daunting political obstacles. Nevertheless, it’s a goal Democrats and Republicans share. The Senate Finance Committee has published 10 papers on various options while the House Ways and Means Committee has organized 11 subgroups to consider different areas of the tax law. Over 1000 comments have been filed. With Sen. Max Baucus retiring this year, and Rep. Dave Camp term-limited as chair of the House Ways and Means Committee, the two most important players on tax policy are strongly motivated to get something done.

This paper will not offer a sweeping blueprint for reform. Instead it focuses on one crucial aspect of reform: Simplification. PPI has long argued that our tax system is too complex and ill-fitted to the needs of middle-class families and small entrepreneurs. They benefit little from the existing array of incentives and loopholes, which are mainly targeted on special interests or people with a level of income and wealth they can only dream about. The code’s byzantine complexity also costs business and individuals hundreds of billions in compliance. In a recently released annual report to Congress, the IRS’s National Taxpayer Advocate, Nina Olson, estimated that individual and business taxpayers spent 6.1 billion hours to complete filings. The bloated federal code contains almost four million words and on average has more than one new provision added to it daily.

The code is so complex that nearly 60 percent of taxpayers hire paid preparers and another 30 percent rely on commercial software to prepare their returns.

In fact, according to PricewaterhouseCoopers, only four nations have more pages of “primary tax legislation” than does the United States. And the World Bank’s www.doingbusiness.org ranks 61 nations as having tax systems friendlier to business than does the United States, while the World Economic Forum puts the U.S. tax system in 107th place in a ranking of the efficiency of 117 national tax regimes.

Congress perennially fiddles with the code, and it takes a full-time army of lobbyists to keep track of all the changes: the Treasury Department reports that there have been more than 14,400 revisions since 1986. It is imperative, then, that any comprehensive overhaul of the federal tax system not make the code even bigger and more complicated. Tax reform without dramatic simplification should not be considered genuine reform.

Download the policy brief.

“Cut and Invest” vs. Austerity

Posted on by The Progressive Policy Institute

President Obama’s new budget attempts to define a progressive alternative to conservative demands for a politics of austerity. Having just returned from a gathering of center-left parties in Copenhagen, I can report that European progressives are wrestling with the same challenge, and are reaching similar conclusions.

There was wide agreement that the wrong answer is to revert to “borrow and spend” policies that have mired transatlantic economies in debt, while failing to stimulate sustained economic growth. The right answer is a “cut and invest” approach that shifts spending from programs that support consumption now to investments that will make our workers and companies more productive and competitive down the road.

“You can only have a Nordic model if you’re competitive,” declared conference host Helle Thorning-Schmidt, prime minister of Denmark. “In this country, we cannot tax more; it’s that simple,” she added. “If you like the welfare state, if you want to sustain it, you have to take the tough decisions.” Continue reading ““Cut and Invest” vs. Austerity” →

Obama Budget Catching Hell From Both Sides: Why That’s a Good Sign

Posted on by The Progressive Policy Institute

In his piece for the Daily Beast, John Avlon quotes PPI President Will Marshall,

“In a panicky reaction to President Obama’s budget, some liberal groups are trying to chain Democrats to a Norquist-style pledge to defend the status quo on entitlements,” says Will Marshall of the Progressive Policy Institute. “It’s dumber than dumb, but at least it shows the country that Obama is trying to rally the center against the enemies of compromise on both sides.”

Read the entire article here.

Student Debt Crisis and the Private Sector

Posted on by The Progressive Policy Institute

Does the government have a conflict of interest when it comes to student debt? On one hand, the government fills an important role in providing financial access to higher education. But on the other hand, it needs to deleverage a record-level debt that now amounts to over 70% of GDP.

This question may seem odd given the government’s move to bring the student loan market in-house over the last few years (ending its guarantee program in favor of direct loans). But it may be an important question if we want to develop a politically viable solution to the growing student debt crisis.

Bringing loans in-house saved interest and administrative costs, but it didn’t actually decrease tax payer risk: the government now has $850 billion in student debt exposure on its books, up from $381 billion in 2005. And as tuition keeps rising, public funding keeps falling, and more people pursue college, new debt issuance is growing fast – new government loans were over $100 billion last year. This is potentially problematic, especially given the recent rise in default rates, because it means fewer government assets are available to respond to future crises. Not to mention it leaves tax payers increasingly vulnerable.

Continue reading “Student Debt Crisis and the Private Sector” →

Paul Ryan’s Third Strike

Posted on by The Progressive Policy Institute

If Rep. Paul Ryan was chastened by his 2012 election defeat, it doesn’t show in his latest budget. It’s a defiant reaffirmation of libertarian dogma that makes no pretense of being a realistic blueprint for governing.

In fact, the House Budget Committee chairman’s new plan aims to shrink government on an even faster timetable than his previous two, balancing the federal budget in 10 years. He proposes to cut public spending by $4.6 trillion over the next decade, but raises nary a penny in new tax revenue.

That of course makes his plan radioactive to Senate Democrats and President Obama, who campaigned and won on explicit promises to take a “balanced” approach to debt reduction. Nonetheless, Ryan seems quite pleased with his handiwork. “We House Republicans have done our part,” he wrote in Tuesday’s Wall Street Journal. “We’re outlining how to solve the greatest problems facing America today.”

Actually, all Ryan’s plan proves is that it is mathematically possible to balance the budget in 10 years with spending cuts alone. So what? You could achieve the same result by raising taxes the same amount. Neither is going to happen. Democrats will never accede to the first, and Republicans will never accede to the second.

Read more.

Student Debt: A Bubble More Like a Balloon

Posted on by The Progressive Policy Institute

There is an intense debate as to whether the student debt crisis is a bubble or not. The short answer: yes, but it’s more like a balloon. And the good thing about balloons is that they don’t have to burst; there is an option to deflate them slowly.

In some ways the ongoing student debt crisis has the classic symptoms of a bubble. There is an artificial inflation of value (here, tuition) that is in part fueled by low-cost funding (here, government-issued student aid). The latest Federal Reserve numbers show student debt is now a staggering $1 trillion and climbing. Yet the real earnings of young college grads are falling, down 15 percent since 2000. Already student loan defaults are at 11 percent and rising. Moreover, the true default rate is actually higher because of post-graduation grace periods. Not surprisingly, the Wall Street Journal reported earlier this week that student loan debt is now crowding out other borrowing and spending.

In other ways the student debt crisis is different—potentially worse—than the typical financial bubble. First, student debt is uncollateralized. There’s no home or property that can be reclaimed in default. Second, student debt cannot be discharged in bankruptcy, or restructured to meet the repayment ability of struggling debt owners. And most importantly, the majority (85 percent) of student debt is owned by the government. That means taxpayers are directly on the hook for $850 billion in potential losses. Worse, the government doesn’t really have the option to cut back on loan issuances or raise interest rates because that would go against equal access and opportunity.

The fact that the government holds the majority of student debt is what could transform this bubble into a controlled balloon—a balloon that can be deflated slowly. We know where most student debt is; it is not as spread out across unknown entities like subprime mortgage debt.

This week we released a preliminary proposal for the creation of private-sector student debt investment fund (SDIF) that would purchase existing student loans, refinance the debt at today’s historically low interest rates, and apply a discount to the loan amount. This could be the release valve that deflates the balloon, by reducing the financial burden to debt holders and transferring risk. That could free up government resources to address another important issue—rising tuition.

Stop the Debt!

Posted on by The Progressive Policy Institute

Writing for Politico, Will Marshall argues that President Obama should counter the Republican’s proposal of balancing the federal budget in 10 years with an achievable goal of stopping the debt growth this year:

Republicans have retreated twice this month on the fiscal front, but they aren’t giving up. After having been forced to swallow higher tax rates and a debt ceiling increase, they’ve regrouped behind a new demand: balance the federal budget in 10 years.

That’s not going to happen, but no matter: The GOP is making an ideological statement. President Barack Obama should counter with a realistic fiscal goal, one Congress could actually achieve this year: Stop the debt from growing.

It’s finally dawned on Republicans that control of the House doesn’t entitle them to dictate the nation’s agenda. Still, they want to keep debt reduction front and center in Washington, because it’s a proxy for what conservatives regard as the nation’s overriding priority: shrinking the federal government.

But Obama won the election, and he has other ideas. One of them is not letting the right hold America’s economy hostage to demands for brutally deep cuts in public spending. The public backs the president, as evidenced by polls showing Americans believe GOP rigidity is the chief obstacle to a fiscal compromise.

Read the piece at Politico.