The One Thing America Has to Invest In Immediately: R&D

The days of record setting deficits ($1.4 trillion in 2009) are behind us.  The budget deficit has fallen from 10% of GDP in 2009 to an estimated 5.3% in 2013 and the national debt is projected to fall from 76.3% of GDP to 73.1% in 2018.  Our nation’s improved fiscal situation can be attributed to a recovering economy, tax revenue increases, and the draconian spending cuts enacted by the sequester.  Instead of a grand bargain, Democrats and Republicans in Washington have gone for a piecemeal approach to deficit reduction and neither side is happy.  The left thinks we need higher taxes and more stimuli spending on job growth, while the right continues its austerity crusade.

And yet despite their differences, the President and Congress have authorized about $3 trillion of deficit reduction, but at what cost?  Our representatives in Washington chose short-term solutions over long-term reform.  The skyrocketing costs of entitlement programs, especially Medicare and Medicaid have not been addressed.  The Congressional Budget Office forecasts the deficit will start rising again in 2016 due the burdens of our aging population. 

Congress continues to let the American people down.  Instead of entitlement reform, we received the indiscriminate, across the board spending cuts.  These reductions may lower the deficit, but they will not create jobs.  As Jared Bernstein of the Center on Budget and Policy Priorities put it, “We’ve over focused on the deficit.  It’s time to tackle the job crisis.”

Our economy will never recover if we do not invest in the jobs, infrastructure, and research of the future.  This is the exact opposite of what Congress has done.  In a previous post, I discussed how our nation’s infrastructure investment gap would slow future growth.  Research funding by the National Institute of Health has been cut by 17%in the past decade, which “adjusted for inflation, puts overall funding at levels not seen since 1999.”  If the sequester cuts continue, the NIH will lose $19 billion dollars in funding over the next 10 years.

In order to stay globally competitive, the United States should increase research and development spending, not decrease it.  Countless innovations and immense economic value can come from government grants.  According to a Battelle Memorial Institute report, the $3.8 billion human genome project yielded $800 billion in economic growth and created 310,000 jobs.  Unfortunately, it seems more likely that future scientific breakthroughs will come from outside of the United States.

We need to take advantage of this period of falling deficits before it's too late.

Chad Kolinsky is a blogger and active member at The Can Kicks Back. 

Dispelling Chained CPI Myths

Dead on arrival… When President Obama released his budget recently, Congressional Republicans immediately shot it down. This was no surprise because the budget called for tax increases, which Republicans vehemently oppose. However, I was puzzled by the negative reactions of a few Democrats; after all, President Obama’s budget included many progressive ideas, such as more stimulus spending. What could have caused such dissent from his party? Well, the budget called for the adoption of Chained CPI to measure future inflation; a move that Democrats and Republicans condemned as an assault on seniors and a severe benefit cut. 

Shifting to Chained CPI entails updating and improving the way the federal government measures inflation for various government programs. The government indexes benefits (such as Social Security), in order to keep up with inflation, so that both rise at the same rate. The government has not changed the way it calculates inflation in quite some time. Since the 1990s, Chained CPI has been viewed as a more accurate measure of inflation than our existing policy because current estimates overstate inflation and, hence, benefits paid.

This brings me to the first myth about Chained CPI. Chained CPI is NOT a benefit cut. Chained CPI slows down the rate of growth of social security payments. Seniors will not wake up next month and receive any fewer dollars in Social Security benefits than they are used to. Chained CPI would shave only 0.3% off inflation estimates or about $9 annually for the average couple that retired in 2010. Under Chained CPI, Social Security benefits would keep up with cost of living, rather than increase faster than inflation as they do now. 

In fact, moving to Chained CPI actually helps strengthen Social Security. By 2033, the Social Security trust fund will be depleted and will require a massive increase in the payroll tax or a 25% across-the-board decrease in benefits. As the Baby Boomers retire over the next two decades, more and more pressure will be put on the Social Security trust fund. The worker-to-retiree ratio has fallen from 5:1 in 1960 to 3:1 in 2010 and will only continue to decline, which means less revenue to support beneficiaries. In two decades, Social Security will no longer be solvent. Imagine the horrors if the checks actually stopped coming! The shift to Chained CPI will help maintain social security for current and future retirees.

Another prevalent myth claims Chained CPI is a hidden tax increase that will hurt the poor, the disabled, and the elderly. Chained CPI will slow the growth rate for income tax brackets. Individuals right on the cusp of a higher tax bracket may suddenly be “bumped up” into a higher one. However, it is important to remember two points. First, due to our marginal income tax system, only the small portion of above the threshold will be taxed at a higher rate, and second, Chained CPI should be viewed as only one part of comprehensive tax reform.

Chained CPI alone will not solve our budget deficit problem nor will it close the Social Security funding gap, but Chained CPI or a similar policy will play an integral role in any budget deal between Democrats and Republicans. The switch has already been a part of most major bipartisan deficit-reduction plans (Simpson-Bowles, Domenici-Rivlin, Obama-Boehner). Fix the Debt, a non-partisan movement to fix America’s finances, states that the switch to Chained CPI will reduce the social security funding gap by 1/5 and reduce deficits by more than $300 billion over the next decade.

Chained CPI is not just smart policy; it is also smart politics. Congress and the President can easily find a way to make this happen and doing so will prove that both Democrats and Republicans are serious about solving America’s deficit crisis. Furthermore, Chained CPI does not just kick the can down the road to future generations. It asks all Americans, old and young, Democratic and Republican, to be willing to exchange a small amount of personal sacrifice for a whole lot of societal benefit.                 

Chad Kolinsky is a graduate of the University of Miami and a blogger for The Can Kicks Back (www.TheCanKicksBack.org), a non-partisan and Millennial-driven movement to fix the national debt. 

America's Infrastructure Crisis

             Investment in infrastructure creates more “bang for our buck” than any other type of government spending.  A study from the San Francisco Federal Reserve found that, on average, each dollar of infrastructure spending increased state GDP by at least $2 dollars; more than a 100% return on investment. 

            As President Obama mentioned in the State of the Union last month, Americans continue to drive over more than 60,000 structurally deficient bridges everyday.  The lack of investment in infrastructure has left us in a crisis.  In 2002, American infrastructure ranked 5^th globalyl; by 2012 we were 25^th, behind countries like Saudi Arabia, Barbados, and Spain to name a few.  The American Society of Civil Engineers claims that without investing an additional $157 billion per year in infrastructure, the United States will lose over 3 million jobs and trillions of dollars in GDP by 2020.  And we thought the $85 billion sequester was bad?

            We must close our infrastructure gap to stay competitive.  Today, China has over 20,000km of high-speed rail; compared to our one track.  The port of Shanghai, handles more containers than the eight largest US ports combined.  Sitting back and allowing our nation to fall further behind should not be an option.

            We can choose to elect representatives who will maintain the status quo; who will not reform the entitlement spending that is bankrupting our nation.  Or we can elect individuals that will make the necessary investments for our country to succeed.  For the first time, this past election, more millenials (18-35) voted than senior citizens.  As a generation, we must find our voice and make it heard in Washington.  We must get out and demand bipartisan solutions to our nations problems and investments in our future!

A New Sheriff in Town!?

     Finally we have someone in Washington willing to stand up to the big banks.  Sen. Elizabeth Warren had some tough questions for the SEC, OCC, and other regulatory agencies.  Sen. Warren helped establish the Consumer Financial Protection Bureau and should have been appointed to lead it.  However, Big Finance used their lobbying power to prevent her confirmation.  I hope they regret that decision now.  Newly elected, Sen. Warren now sits on the Senate Banking Committee and Big Finance will have to answer to her.  Hopefully this is the beginning of a new era of accountability in the banking industry.

Investing in Growth

            The word on everyone’s mind is sequester.  Turn on the news, the radio, or pick up a magazine and you will see it.  The sequester is a series of indiscriminate spending cuts to lower our nations budget deficit.  It will cut government programs across the board; excluding entitlement spending (the true cause of our debt crisis).  Entitlement spending requires more and more of our nations budget each year and yet our leaders in Washington refuse to discuss actual reform.  President Obama has proposed to base future entitlement payments on chained-CPI, which will save a substantial amount of money.  However, this does not address the fundamental problems with Medicare and Social Security (high medical costs combined with an aging population). 

            Even better, the sequester is a manufactured crisis; a result of Washington’s inability to compromise and lead our nation out of a weak recovery.  The purpose of the sequester was to force Democrats and Republicans to work together for real reform.  Who in their right mind would allow these indiscriminate budget cuts?  Our leaders in Washington would HAVE to make a deal before the sequester comes into effect.  Once again the American people have been let down. 

            With all this talk of spending cuts, one key aspect of our recovery is lost in the noise.  Where is the discussion of growth?  How will Washington help the American economy prosper in the 21^st century?  We might be able to cut our way to lower deficits, but we cannot cut our way to more economic growth.  The best way to increase revenues and decrease our deficit is to increase the taxable base.  What better way to increase revenues, then through growth inspired policies?  The faster the economy prospers, the quicker a solution to our debt will emerge. 

            Today’s low interest rate environment puts us in a unique position to invest in our future.  With interest rates at record lows we can borrow and invest to help our nation prosper.  But we must act now!  If the FED’s minutes this week showed anything, it was the fact that interest rates will not be low forever.  Washington’s fiscal policy needs to compliment the FED’s monetary policy. 

            Now some people may argue that the government has tried and failed to steer the economy in the right direction.  They will point to the trillion dollar deficits of the past four years and failed investments in companies like Solyndra and A123.  However, I beg to differ.  Imagine what our economy would look like today if the government spent trillions on research and development, education, and infrastructure rather than bailing out big banks.  What we need today is a smarter government that invests its limited funds efficiently; not a smaller government that you can  “drown in a bathtub”. 

             Like it or not the government plays an instrumental role in steering the economy.  It is time to move beyond the ideology of how we would like our government to be and accept the reality of what government is.  Washington has played an important role in the economy for generations.  President Eisenhower, a republican, invested in America’s infrastructure and help build the interstate highway system, which revolutionized commerce in our nation.  The Apollo program provided advances in technologies ranging from kidney dialysis, to semi-conductors, to athletic shoes.  And we should never forget that the United States Military played an instrumental role in developing ARPAnet, the precursor to the Internet. 

            The American economy is revved up and ready to go; we just need Washington to clear us a path.  Will they decide for a short-term Band-Aid or real investment in our future?  Will they maintain entitlements for the older generations or provide a future for the younger generation?  It is time for millennials to make our voice heard in Washington.  Our government needs incentives to focus on long-term solutions.  It is time for us to stand up and demand a prosperous future!

The election is over!! Now what happens...

            The election is over!! Thank God!! If I saw one more ridiculous political ad on TV I might have puked.  This long, bitter campaign feels like it took forever.  Obama and Romney were campaigning since the 2010 midterm elections, if not earlier.  And people wonder why our Congress and government get nothing done?  In England candidates for Prime Minister campaign for 6 weeks and in France Presidential hopefuls campaign for 3 weeks.  Unfortunately that is not how things work in the United States.  Our media thrives with prolonged campaigns.  Just imagine what they would talk about on Fox News or MSNBC if our campaigns were only a few weeks! (Heaven forbid they focus on real news and informing the electorate rather than fear-mongering and partisan politics.)  Imagine what our leaders in Congress could get done if they didn’t have to focus so much time on fundraising and getting reelected. 

            Luckily for the American people the campaigns are over and the elections finalized.  Now we can finally focus on solving America’s problems.  Now is the time to put aside partisan politics.  Now is the time for the sacrifices and reforms that America needs.  And now is the time for Congress to give us a plan for the future, to lift the uncertainty of the fiscal cliff, and to allow our economy to flourish! 

            The election night rhetoric sounded promising.  Mitt Romney urged his supporters and party to work with the Democrats.  Barack Obama spoke not of red states or blue states, but of the United States.  Harry Reid offered his support to work together with Republicans in the Senate.  John Boehner said we must raise the bar and offered the President his help in garnering Republican support for increasing revenues as long as Democrats are willing to decrease spending and reform entitlements.  It seems like a grand bargain is coming after all!

            But all this sounds familiar to the 2011 debt ceiling debacle that created the fiscal cliff.  We hope this time ends with real reform rather than childish finger pointing.  So what did this election change you may ask?  Well not much to be honest.  President Obama was reelected, Democrats still control the Senate, and Republicans maintained their majority in the House.  This was a status quo election; even though, almost every American isn’t happy with the status quo. 

            My hope is that the message has been sent to our government.  They must do something to solve all the issues our great nation faces.  As I have stated before, the only thing holding back the United States is Washington.  I believe the economy is ready to take off.  Corporations have the cash and the desire to spend and hire, and they just need a plan.  Look at any consumer or housing index and you see that the American people are regaining their confident in the economy.

            So the ball is in your court Mr. President, Senator Reid, Speaker Boehner, and all of our elected representatives in Washington.  I urge you to listen to the people of our nation and put aside ideology and politics.  Put aside egos and agendas.  Put America first and work together to help us prosper once again!