Congress Is Choosing Stagnation Over Reform

By Javier Ortiz

For America’s economy to move forward and make sustainable and meaningful gains, real reforms are going to be required on a number of issues. The benefits associated with making serious policy changes seem obvious, but have not been achievable in recent sessions of Congress. Brinksmanship has superseded bipartisanship, sending a message to the business community (read: job creators) that elected officials in Washington simply do not have the political will or understanding to decrease uncertainty in the marketplace and incentivize hiring and investment.

First off, it is critically important that the “fiscal cliff” is addressed before our nation’s economy experiences both massive tax increases and spending cuts, which would harm businesses. Recently, it was reported that employers have held back from hiring workers and expending capital due the impending sequestration and the unpredictability of the tax situation. Local news reports in California, Florida, and Virginia have indicated that many defense contractors, who are worried about the $500 billion in cuts from defense spending, have already implemented hiring freezes. Further, local restaurants and other small businesses in these states are worried about losing customers if defense companies are forced to declare bankruptcy, and have also refrained from hiring new staff.

Ensuring tax rates remain as low as possible for Americans is an important step for economic growth. We simply cannot tax our way to prosperity; in fact, history proves taking more hard-earned dollars from workers and small businesses has the exact opposite effect. Stephen Moore of The Wall Street Journal arrives at a similar conclusion in his new book: Who’s the Fairest of Them All? The Truth About Opportunity, Taxes, and Wealth in America. Moore points to the Kennedy and Reagan administrations as evidence for his position, as those regimes cut taxes and saw more economic growth than in periods with higher tax rates. 

Going further, the tax code is an unmitigated disaster, as it is overly and unnecessarily complex. According to a government estimate from the National Commission on Fiscal Responsibility and Reform, tax reform alone could result in $180 billion a year in new revenue.

Next, the fiscal irresponsibility in Washington must stop. In each of the last four years, we incurred a deficit of more than one trillion dollars, which has resulted in a debt explosion totaling more than $16 trillion. We are mortgaging the country’s future by recklessly spending beyond our means. Today, America’s external debt per capita is $47,664, leaving us not far behind European countries like Greece, which has a corresponding ratio of $50,792, and even ahead of some troubled countries such as Portugal, which has a debt per capita of $47,483.

We must begin to identify methods to operate the government more efficiently, while also making serious and sustained cuts. Too many times, Washington has kicked the can down the road, avoiding genuine reform. As a result, the size and scope of government has increased to staggering levels. In fact, over the past decade, the federal workforce has increased by tens of thousands of employees, according to government data.

And there cannot be a serious conversation about the fiscal trajectory of the nation without making significant changes to the largest drivers of the debt, the entitlements. Today, Medicare, Medicaid, and Social Security constitute roughly 40 percent of our budget. By 2037, the Heritage Foundation estimates they will make up nearly 70 percent of the budget, leaving virtually no room for other priorities critical to economic growth, such as education and infrastructure, among others.

These entitlement programs are not only growing larger, but they are also going bankrupt.  Medicare is the primary cause of America’s long-term deficit and its shortfall will compose 81 percent of the federal deficit by 2040, according to the Heritage Foundation. This is largely because the Baby Boomer generation is entering retirement, meaning more and more people are becoming beneficiaries, leading to higher costs, and ultimately, insolvency. The Medicare Board of Trustees predicts the program will begin to go bankrupt by 2024. Meanwhile, due to Obamacare, Medicaid will add up to 16 million more enrollees who will be eligible for benefits, with a large portion of the associated costs being covered by the federal government. Finally, Social Security is projected by its trustee to run out of money in 2033, as the number of beneficiaries will continue to grow at a substantially faster rate than the number of covered workers.

For far too long, our elected officials in the nation’s capital have failed to demonstrate leadership and reach compromises resulting in paralysis. Resolving the fiscal cliff, reforming the tax code, putting the brakes on wasteful spending, and making entitlements solvent would send a message to the business community that Washington is committed to getting its fiscal house in order.

In addition to these imperatives, there a number of other issues that Congress has overlooked for far too long. To compete globally in the 21st Century, we will need to expand trade, develop a national energy policy, reform the regulatory regime and reduce unnecessary litigation, improve educational systems including post-secondary worker training, invest in infrastructure particularly transportation systems, and reform immigration laws.

Unless the 113th Congress begins to make advancements on these issues, we will continue to fall behind other countries in areas like education, where the United States currently ranks 17th according to an international study from the Economist Intelligence Unit, and the business community will continue to have reservations about investing resources and expanding their networks. That lack of confidence in the ability of government to reform itself, set an ambitious agenda and execute with any level of proficiency will force more and more employers to sit on the sidelines as workers struggle to find jobs, while our nation continues to experience minimal growth and stagnant economic activity.

Javier Ortiz is a Republican strategist, principal at Crane and Crane Consulting, and an advisor on public policy and regulations for a D.C.-based law firm.

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