Dave Cooper contributed to this post.
In three separate polls conducted in November, Americans repeatedly expressed their concern for the federal deficit. The most recent one, an Associated Press (AP) – CNBC Poll, showed that 85 percent fear that the growing debt will harm future generations, and 56 percent believe that the U.S. will experience a severe debt crisis in the coming decade.
Yet at the same time, most Americans list creating new jobs and the bolstering the economy as their top priority for Congress and the President. What these polls, as well as many politicians and economists, fail to recognize is that choosing between strengthening the economy and reducing the nation’s debt is a false choice: restoring America’s future requires that we do both – and begin now.
The Bipartisan Policy Center’s Plan, Restoring America’s Future, is the only deficit-reduction proposal that calls for an immediate, one-year tax cut of nearly $650 billion in order to reignite the economy, while simultaneously putting in place long-term policies that will reduce the federal deficit and stabilize the national debt.
The one-year payroll tax holiday in the plan will immediately add money to employee paychecks, stimulate demand for goods and services, encourage businesses to invest, and incentivize companies to hire new workers. In fact, according to the Congressional Budget Office (CBO), the one-year payroll tax holiday will create between 2.5 and 7 million jobs.
The Bowles-Simpson proposal does recommend that Congress consider a small, partial payroll tax cut of $50-$100 billion. While this is a step in the right direction, a full one-year tax holiday would be a far stronger tool for restoring the strong economic growth that is essential for reducing and stabilizing the national debt.
Coupling a temporary payroll tax holiday to an effective, long-term debt-reduction plan creates a virtuous cycle. A rejuvenated economy will ease some of the hard choices that need to be made to stabilize our debt. At the same time, a credible plan that puts America on the path to fiscal sustainability will boost business confidence and signal to credit markets that the United States will be able to meet its obligations for the foreseeable future. Policies that improve the government’s fiscal position will also enable the Federal Reserve to hold interest rates down longer in order to strengthen the economic recovery.
As the vast majority of Americans now acknowledge, the ballooning national debt is a serious threat to our country’s future – a threat we can no longer afford to ignore. With a combination of short-term stimulus and long-term deficit reduction measures, as put forward in Restoring America’s Future, we can protect the country’s future while we strengthen the current economy.