The 4 percent growth idea is catching on. The latest evidence comes today in the Wall Street Journal’s lead editorial, “Ryan and...
The 4 percent growth idea is catching on. The latest evidence comes today in the Wall Street Journal’s lead editorial, “Ryan and the Right”. The Journal takes some conservative politicians to task for criticizing the new budget proposed by Wisconsin Rep. Paul Ryan. Two Republicans, Tim Huelskamp of Kansas and Justin Amash of Michigan, joined all the Democrats in opposing Chairman Ryan’s plan in a House Budget Committee vote last week (the budget passed, 19-18). The objection of the two GOP freshmen, as well as other conservatives, is that the proposal doesn’t balance the budget quickly enough. Ryan’s plan gets the annual deficit down to 1.2 percent of Gross Domestic Product (GDP) by 2022. A Democratic plan, which highlights major tax rate increases, reduces it to 2.7 percent by then. The non-partisan Congressional Budget Office (CBO) projects the deficit for fiscal 2012 at 7.6 percent of GDP, one point lower than in 2011 but, nevertheless, the worst for any year between 1946 and 2008. The CBO forecasts that, under current law, the deficit will drop to 1.2 percent of GDP – the same level as Ryan’s plan – but no one believes that “current law” will prevail. Under a more likely “alternative scenario,” which, for instance, retains indexing for the Alternative Minimum Tax and keeps Medicare reimbursements for physicians at current levels, the CBO projects deficits during the next decade in the range of 5 percent. That’s more than double the proportion that prevailed before the 2008-09 recession (between 2001 and 2008, the deficit averaged 2.3 percent of GDP). Deficits today are a problem. No doubt. But the Journal takes issue with critics of both parties who say that the budget can be balanced more quickly by raising tax rates – and, thus, putting a damper on the increased work and investment that boost growth. On the other hand, “Mr. Ryan wants to avoid a tax increase and reform the tax code because he realizes that the budget will never balance without economic growth faster than today’s 2% a year.” And that 2 percent figure is roughly what the CBO and a consensus of economists see prevailing for the next decade and beyond. Ryan’s budget also reduces spending from 24.1 percent of GDP to 19.8 percent. Spending is the problem, and lower federal spending boosts long-term growth. What the Journal’s editorialists understand is that growth is the key to increasing opportunity and prosperity in America. It is also the best answer to deficits and debt. As economist Alex Brill has calculated, increasing growth to 4 percent by 2017 and holding it there for the next five years will reduce accumulated deficits – that is, federal debt – by almost $4 trillion, which is just shy of the amount that the debt has risen during President Obama’s 38 months in office. As the Journal puts it: “Mr. Ryan is thinking ahead of his critics by focusing on the two most important priorities: growth and reform.” Absolutely right. It is appropriate that Rep. Ryan will be the featured speaker at the Bush Institute’s conference on “Tax Policies for 4% Growth” in New York on April 10. Growth is the answer, and jacking up tax rates won’t get us there. Lower rates, accompanied by reforms that eliminate preferences and broaden the base – that’s the ticket. This post was written by James K. Glassman, Founding Executive Director of the George W. Bush Institute.
