After the Debt Deal - Growth; Imaginative Job Creation Could Expand Federal Revenue and Shrink the Arrears

The Washington Times (Washington, DC), July 29, 2011 | Go to article overview

After the Debt Deal - Growth; Imaginative Job Creation Could Expand Federal Revenue and Shrink the Arrears


Byline: Quin Hillyer, SPECIAL TO THE WASHINGTON TIMES

However the current debt-limit battle plays out, Washington lawmakers in the next phase of financial policymaking should move beyond simple accounting and focus primarily on economic growth.

Arithmetically, there is no way within reason to handle this nation's debt and unfunded liabilities without powerful and long-lasting growth, which both boosts revenues and reduces the number of people needing government aid. I well remember Housing and Urban Development Secretary Jack Kemp saying in the early 1990s, when the whole economy was less than $6 trillion, that the budget could be balanced if the economy hit $10 trillion within a decade - even if government weren't actually cut but merely restrained. People laughed at his notion that the gross domestic product could grow that fast.

Kemp was right: The economy hit his $10 trillion target in just nine years. Even after some temporary budget discipline was again lost beginning in late 1998, the government earned overall surpluses for four straight years. Republican fiscal discipline in 1995 through '97 certainly played a large role, but without growth, discipline alone would not have been enough to balance the budget.

Those same lessons are applicable now. Better still, the elements of a growth package already are available in provisions from the Gang of Six debt-crisis proposal that have been embraced by liberals such as former President Bill Clinton and President Obama and conservatives such as Sen. Tom Coburn, Oklahoma Republican. These provisions, or close approximations of them, should not be tied to any all-or-nothing deadline and should not be seen as part of a budget plan at all (except incidentally). Instead, they should be considered specifically as a growth or jobs bill and adjudged on that basis.

Granted, the budgetary effects of the package will need to be officially scored. For those purposes, the bill should be designed to be revenue-neutral by Congressional Budget Office static analysis - but with a twist. For liberals, who do not believe that tax cuts generate growth that helps recapture lost revenue, the package would have no budgetary downside but would achieve greater efficiency and simplicity along with some movement toward their vaunted goal of fairness. For conservatives, who believe in the dynamic growth effects of tax cuts, the officially revenue-neutral package actually could promise higher government revenues in the long term and, thus, lower deficits.

Here's how.

Conservatives understand that despite the Orwellian sound of it, some taxes are more equal than others. Marginal tax rates tend to affect economic incentives and productivity more than some narrowly targeted provisions. …

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