Defunding America’s Future - The Squeeze on Public Investment in the U.S.
November 29, 2018
As president and founder of the Progressive Policy Institute (PPI), a non-profit public policy think tank, Will Marshall introduced the focus of the event as centering around the report released earlier this year by PPI highlighting “how short-sighted fiscal policy is undermining critical investments in education, infrastructure, and scientific research that are integral to the long-term health of our economy.” The report aimed to assess the climate of public opinion around fiscal issues and found that fiscal discipline was the top concern among the national voting survey on the eve of the midterm elections. As Marshall explained, there is a gross lack of understanding, not only in the public sphere but in Washington, D.C. as well, that the national deficit issue is entirely connected to the underinvestment in core components of economic growth. Marshall calls for a “spirit of realism” that addresses the need for more tax revenue complemented by more efficient government spending.
Moderating the event’s panel was David Thornburgh, President, and CEO of the Committee of Seventy, a non-partisan organization “created and sustained by business and civic leaders who care about the quality of governance,” particularly focusing their efforts on Philadelphia and Pennsylvania.
How did we get here?
In unpacking the disinvestment from factors of economic growth, Ben Ritz explained that since the 1980s, federal spending on education, infrastructure, and scientific research has decreased dramatically. Despite now being in a time of growth where most economists would agree on increasing taxes, the recent two trillion dollar tax cut along with a large spending package that was recently passed is projected to add several trillion to the national debt over the next decade. In summary, the combination of large tax cuts and decreased spending on key sectors is creating a massive economic burden on the country, leaving future generations to figure out how to remedy the ever-growing problem.
What is at stake?
Bob Inman related these looming fiscal issues to the numerous long-term problems being exacerbated by spending and revenue decisions. With the demographic shift of the country, namely the rising elderly population relative to the working population, comes the growing costs of social security and Medicaid. In short, there is an increasing economic obligation and a decreasing ability to pay for it. Because tax cuts are reducing the revenue needed to pay off these programs, borrowing is becoming the only viable option, which will inevitably lead to higher interest rates and payments in the future.
In addition to this growing deficit, the inability to pay for it is tied to the defunding of education, infrastructure, and scientific research—the very sources of growth, productivity, and revenue that the country needs.
Perhaps more abstractly, Ritz called attention to another factor at stake. Beyond the rising economic issues being discussed, the strain that legislators feel negatively impacts the motivation to tackle the issue in D.C. According to Ritz, the Obama administration ended at a relatively good place in terms of accumulated revenue from efforts from both parties to begin cutting down the deficit. Unfortunately, much of that accumulation has now been quickly eroded with the recent tax cut under the Trump administration.
In addition to the equity issues of “How can you cut taxes for rich people while coming after programs that support me?” […] it also begs the question that I’ve heard a lot of progressives ask, which is “Why do we go through the effort of putting the budget in order if it’s just gonna get blown up the next time someone takes control?”
The declining willingness and interest to address the growing debt problem is further aggravating the deficit.
Where do we go from here?
Nonetheless, the panelists look to possible solutions from this seemingly bleak crisis.
In terms of the tax cut, it was “bad, but not apocalyptic,” according to Ritz. While it certainly added to the deficit, many of the provisions are set to expire within the next decade. If allowed to expire, the long-term effect will be minimized.
Inman focused on the key drivers of economic growth as an answer to the problem, specifically public and private investment. Gained profits from private entities need attractive private projects to put their excess money into. As explained by Inman, this leads to higher private capital and higher wages, ostensibly giving way to growth. “Unfortunately,” he continues, “the bundle of private projects available to firms was not all that attractive relative to the amount of money flowing back.” Instead, firms were more interested in buying back shares, which drove up share prices. With no high returns for the future nor capital accumulation, such outcomes serve to the detriment of investment and long-term growth. Inman notes that lowering the taxes on capital does lead to accumulation and growth, but there need to be productive private projects that appeal to firms relative to shares. The tax policy has potential, but will not see returns unless carried out more deliberately.
After serving on the Appropriations Committee in the Pennsylvania House, Rep. Madeleine Dean can attest to the fact that budgeting “reveals our priorities—or failure of priorities—in many instances.” Coming in as a freshman Democrat in 2012 after a special election during a time when the Republican Party held the majority, Rep. Dean made strides in bipartisan efforts to invest and sustain state dollars into infrastructure and areas of growth. She hopes to invigorate the same efforts at the federal level.
Making the tough call on investment spending isn’t always easy. Such investments don’t yield results until much later down the road. Ultimately, it takes the courage to advocate and vote for these growth-centered budgets in order to create tangible benefits for the future.
About the Speakers
Bob Inman, Professor of Finance, Business Economics & Public Policy, and Real Estate is a Richard King Mellon Professor at Wharton. His expertise centers on public demands and fiscal policy, particularly related to infrastructure.
Rep. Madeleine Dean, Pennsylvania General Assembly Member and incoming U.S. Congresswoman (PA-4), has served in the general assembly since 2012. She graduated from Widener University Delaware Law School and formerly taught writing, rhetoric, and ethics at La Salle University.
Ben Ritz, Director of the Center for Funding America’s Future at the Progressive Policy Institute, holds a master’s in public policy from American University. He formerly worked in a similar bipartisan policy center focusing on reforming social security.