Mayor: Best Economic Stimulus is Now Fiscal Responsibility – Super Committee Must Break Partisan Deadlock and Take Bold Action
The following are Mayor Michael R. Bloomberg’s remarks as prepared for delivery today at a forum hosted by the Center for American Progress and the American Action Forum at the Center for American Progress’ headquarters in Washington, DC. Please check against delivery.
“Thank you, Elaine and Neera, and good morning. This happens to be Election Day, although there aren’t too many big contests today – unless you count Dancing with the Stars. I want to thank both the Center for American Progress and the American Action Forum for hosting us – who said there’s no bi-partisanship in Washington? But it’s always nice to come to DC – for a few hours anyway.
“I’ve come here as a concerned citizen, like all of you, and as an entrepreneur who dedicated 20 years to building a company and as the Mayor of 8.4 million people, many of whom are deeply worried about their futures.
“Nearly 40 percent of my constituents are immigrants. They came to America – and to New York – for the opportunity to work and to build better lives for themselves and their families. That’s the promise of America: a nation of dreamers and strivers; we keep our eyes on the stars and our nose to the grindstone. We understand that success requires hard work – there’s no free lunch.
“That’s true in New York City, and it’s true in towns across America, except one: Washington.
“For too long, Washington has operated on the ‘something for nothing’ principle. Both parties have promised their constituents the world – and given them debt and a sluggish economy and anemic job growth. They’ve adopted ambitious programs – without any serious way of paying for them. They’ve promised to produce and protect jobs – and for the most part, the elected officials have their jobs, but right now, there are 14 million everyday Americans who can’t find work, and more who have stopped looking.
“Both parties preach fiscal responsibility, and yet the national debt stands at $10.3 trillion. That’s about $34,000 for every man, woman, and child in the country and it’s growing by $4 billion – every day. If our current tax and spending policies hold, in 10 years the national debt will be $21.5 trillion, or about $72,000 per person.
“Thanks to the ‘prudence’ of the two parties, the Federal government is running annual budget deficits of $1.3 trillion, which means it’s borrowing one of every three dollars it spends.
“To put that in perspective: if you made $40,000 a year – would you spend $60,000? Not for long you wouldn’t – because no bank would continue lending to you.
“But Washington doesn’t have that problem. It effectively prints money, while the rest of us have to earn it. And so even during the good times, when responsible management of the budget would’ve meant saving money, Washington was gorging itself on debt.
“In 2000, the federal government took in $2 trillion in revenue and spent $1.9 trillion. In 2010, the federal government took in $2.3 trillion in revenue and spent $3.6 trillion. That means, over 10 years, our revenues increased by 15 percent while our expenses increased by 80 percent.
“Spending money we don’t have seems to be about the only thing the two parties can agree on, but it is threatening the very future of our country. Why? That’s what I’d like to discuss today: Why the era of ‘Something for nothing’ has to end – and end now – and what it will take to do it.
“For the past few years, government has attempted to stimulate the economy largely by deficit spending and tax cuts – and I think it’s fair to say the results have been, at best, mixed. Even though we’re in better shape than Europe, far too many Americans are still out of work. Far too many families are still having trouble keeping up with their bills. Far too many small businesses are still struggling to keep their doors open – and they are responsible for about half of all jobs in America.
“By now, it should be clear that more government spending and tax cuts cannot stimulate the job growth we need to regain economic stability. We’ve already crossed that bridge – and borrowed too much.
“Likewise, consumer spending cannot stimulate the growth we need to regain economic stability – because consumer debt remains high. Both government and consumers have balance sheets that are heavily in the red. Neither has the money to lead an economic recovery – but luckily, one group does: business.
“Unlike in the run-up to the 2008 crash, where businesses took too much risk, today they are not willing to take risks we need them to – and the result is that a lot of capital is sitting on the sidelines. Why this is happening is not something that government leaders seem to fully grasp – and as someone who has been in both business and government, I’ve seen how the two sides often talk past each other.
“Last week, at Senator Michael Bennet’s request, I convened a dinner with a bipartisan group of Senators and New York business leaders. We had a very frank discussion about the economy and how Washington is handling it. Some of the business leaders expressed the concern that they are not being heard in Washington – and they are half-right.
“They are being heard – but they are not being understood. Hopefully, this morning I can do a little translating.
“Generally speaking, major American companies are not short on cash. But one of the big reasons they are not investing is that they are short on confidence in the Federal government’s ability to manage macro-economic policy.
“Companies do not make major investments when the future of tax and regulatory policies are so up in the air. Every CEO and business leader that I speak with says virtually the same thing: They are not going to make major investment decisions until they know how Washington intends to grapple with our huge deficits. And right now, they have no idea how or if that’s going to be accomplished.
“That uncertainty is a major drag on job creation – because the price of uncertainty for business is paralysis. Decision-makers abhor a lack of clarity. You can price tax increases and labor costs into your business plan and still invest and grow.
“But if you don’t know what’s on the other side of the ledge – you don’t jump off it. You sit and wait – and that’s what companies are doing. Companies are expressing a vote of no confidence in Washington because of the lack of certainty they face, and we see the effects in the lack of job growth and investment.
“When business leaders talk about uncertainty, they are often talking about how healthcare reform or financial regulatory reform will end up being implemented – and those questions are real impediments to growth.
“But as important, and the subject for today, is the broader uncertainty that exists about the country’s long-term fiscal stability. There is widespread recognition in the business community that we have to make big changes – now – or risk having big changes thrust upon us in the form of further credit downgrades, high inflation, or unacceptably severe austerity that would harm the most vulnerable Americans. So – what does the business community hope to see out of Washington?
“Nearly every CEO I talk with says the same thing: If the Federal government passed a real deficit reduction plan – and we’ll talk about what ‘real’ means in a minute – business leaders would respond just as they did in the 1990s, when President Clinton and Congress adopted a long-term deficit reduction plan that gave businesses more certainty about the market. That sense of greater certainty – that confidence in the future of the country and the stability of markets – was then and is now, worth its weight in gold.
“But so long as the Federal government continues running huge deficits, and engaging in kabuki dances every few months about how to fix them, business leaders will be less likely to make major long-term investments that would produce jobs.
“One of the reasons this message is not penetrating the Beltway is that too many elected officials have not spent enough time in the private sector to know that investment decisions are about more than dollars and cents. They are about expectations – expectations of where the market is moving, and in which ways the government will push it.
“That’s why today, I believe the best economic stimulus is fiscally responsible, long-term deficit reduction that sends a clear signal to the private sector about Washington’s commitment to economic stability.
“Real deficit reduction means more jobs today and tomorrow. But real deficit reduction requires real political courage – and that, unfortunately, is the biggest deficit we face.
“As we all know, the Super Committee on deficit reduction has until November 23rd to come up with recommendations for achieving $1.2 trillion in savings over the next ten years. To put that in perspective: that would shrink our deficit by about 13 percent. That’s it. A drop in the bucket. And the Federal debt will continue to grow.
“Agreeing to $1.2 trillion in savings would be just scratching the surface of the problem – and yet, as of this moment, it appears the committee is in danger of failing to reach even that low bar as a result of the usual partisan brinkmanship.
“The term ‘gridlock’ may have been invented in New York, but when you come to Washington, you realize it’s been turned it into a way of life.
“Last summer, we saw the depths of Washington’s dysfunction, when the gridlock over how to cut the nation’s spiraling deficit sunk our perfect credit rating, sent the financial markets tumbling downward, and made the credit rating agencies the target of a witch hunt.
“In the span of those two months, Washington did more to hurt our economy – not to mention our reputation as a reliable steward of democracy and free markets – than it had done to help our economy over the previous two years. Whatever faith Americans had in Washington’s ability to function was almost totally destroyed. At the time, it felt like rock bottom for our political system.
“But now, as a great New Yorker once said, it’s starting to feel like ‘déjà vu all over again’ – only worse.
“Today, the international business community is beginning to whisper comparisons between the U.S. Congress and the Greek Parliament, and if the Super Committee falls victim to the same kind of partisan paralysis that increasingly defines Washington, those whispers will grow louder. Beyond the damage that a deadlocked committee would do to our reputation, the automatic cuts it would trigger to discretionary and defense spending would come at a terrible price.
“We will pay the price in public safety – because the cuts would, in the words of Defense Secretary Panetta, ‘truly devastate our national security.’ We will pay a price in our public safety net – because the cuts would fall hardest on those who most need government assistance. We will pay a price in public debt – because the deficit will continue over-burdening taxpayers and obligating our children to pay the debts we’re incurring today. And most of all, we will pay an economic price in lost jobs and lost growth.
“We cannot afford to pay those costs. We cannot allow both ends of Pennsylvania Avenue, and both sides of the aisle, to abdicate their leadership responsibilities. We cannot allow Washington to default on its obligations to the American people. And we cannot allow the U.S. government to be put on auto-pilot, cutting spending without regard to the effectiveness or importance of the programs being cut.
“That’s no way to run a government – and as a country, we are better than that. We are stronger than that. And it’s time we start remembering that – or else this Congress, and this Administration, will be remembered for commencing the decline of the greatest economic power ever built.
“Simply put: we need to stop the growth in the deficit that will destroy us. We need to start creating the conditions that will allow the private sector to create jobs and strengthen the economy.
And, we need the one thing that ties these two pieces together: leadership. Leadership in Congress and the White House.
“In the last few weeks, I’ve talked to various members of the Senate and House leadership and members of the Super Committee, and I know both sides want to find common ground. But good intentions are not good enough.
“Likewise, the President deserves credit for pushing toward a big deal last summer – and for offering his own plan in September. But that’s not enough either. The executive branch must do more than submit a plan to a committee – and then step aside and hope the committee members take action.
“That’s not how any CEO would run a business – and at least in modern times, it’s not how landmark pieces of legislation have gotten through Congress. Tough problems require determined, forceful, and bold leadership – and real action. That’s the only way we’re going to end the era of ‘Something for nothing’ – and it’s up to us to demand it from both Congress and the White House.
“As important as it is for Washington to take action, if Congress reaches an agreement for $1.2 trillion in savings, which will probably be built on some accounting obfuscation and subterfuge – a it would be almost as bad as getting no deal at all.
“Why? Because it would allow Congress to walk away from real deficit reduction until at least 2013 – which would be disastrous for the American economy.
“And let’s remember: The $1.2 trillion in savings they are talking about would be completely wiped out – and then some – if interest rates go up just one percentage point more than budget projections assume.
“Interest rates today are now at an all-time low – about 3 percent. But it wasn’t that long ago when interest rates were at 5 and 6 percent – and I can remember trading bonds at 14 percent. And if interest rates don’t return to historical norms, God help us – because that will likely mean the Fed has kept rates low to stimulate a stagnant economy.
“Thus, the only thing worse for the deficit than interest rates going up would be interest rates not going up. So we can’t just say that Congressional inaction doesn’t matter – and that we’ll just grow our way out of these deficits. Growth can help reduce them – but when we grow, interest rates will rise, and so will our payments on our debt, which will add to our deficits.
“In fact, doing nothing and waiting for growth is not kicking the can down the road – it’s kicking ourselves in the head.
“Because while we stand still, other countries will be racing ahead of us by creating new industries and new jobs. And the longer we wait, the further behind we’ll be. Then, job creation and deficit reduction will be that much harder – since our competitive position will be that much worse.
The reality is: if we don’t take serious action now, our growing deficit problem could turn into a full-blown fiscal emergency.
“What we need from the Super Committee isn’t a plan that tinkers around the edges. We need a bold, long-term, and comprehensive plan that will stabilize a Federal budget that is hemorrhaging money and put us on the path to long-term economic growth and stability.
“We need a plan that looks at the economic consequences for our country – not the political consequences for the next election. And that means having the courage to admit what everyone knows: We are not going to be able to just cut our way out of the problem and we are not going to be able to just tax our way out of the problem. We must do both – and I’d like to suggest two very basic principles that can get us there.
“First – all sides have to be willing to give on something. We don’t have to slaughter the sacred cows, but we do need to get a little milk from them.
“Just like a base-closing commission, this Committee must accept that real solutions require rising above narrow partisan, regional, and ideological concerns. We need both parties to stand up to their own special interests, start putting their love of country before their fear of the next campaign.
“Democrats have to face the reality that we need more spending cuts, including reasonable entitlement reform. And they have to stop pitting Americans against each other in a game of class warfare for their own political purposes.
“Republicans have to face the reality that we need more revenue – more revenue than we can get from cuts alone. And they have to stop protecting every tax break and loophole as though they were sacrosanct, when in fact many of them are bad economic policy.
“There is a broad middle in America – in all 50 states – that wants each side to work together on this kind of pragmatic compromise. Voters are smarter than most elected officials give them credit for being. From my experience, they respect courage and reward results, even if they don’t always agree with you.
“So let’s talk about how each party can do what the voters want by coming to the middle – and let’s start with the Democrats.
“The good news is: there is actually much more common ground on the spending cuts than most people realize. Both parties have proposed at least $400 billion in cuts to Medicare. Both parties have proposed at least $200 billion in non-defense discretionary spending. Both parties have proposed some cuts to Medicaid. And both parties have agreed to peg payments more accurately to inflation by reducing the Consumer Price Index, for a savings of about $40 billion.
“We should do all of that and more. It won’t be easy – and it won’t be pain free – but we cannot get our deficit under control without controlling spending.
“Over the past few months, I’ve talked with some of the leaders who have championed a bold, structural solution to our deficit problem: people like Alan Simpson and Erskine Bowles, and the Gang of Six. They’ve studied this issue inside and out, and done the serious research on the economic and security implications of the cuts, not just the political fallout.
“They also outlined a plan for how the cuts could be phased-in over the span of ten years, to ensure they don’t interfere with the current recovery. We can’t spend the next four years studying the problem all over again. The world is passing us by, and people are suffering today. We need action now – bold action.
“And so let me say clearly: I believe the time has come for members of the Super Committee to embrace the spending cuts in Simpson-Bowles largely in their entirety, including their Social Security reforms.”
“When you look at Social Security’s underlying numbers, the need for reform is undeniable – especially when you consider that one of every two children born today is likely to live to be more than 100 years old. That’s great news for the next generation. But to support their retirements, we’re going to have to adjust.
“Already, Social Security is the greatest transfer of wealth in the history of the world – with the possible exception of OPEC. And as fewer and fewer workers support more and more retirees, that transfer will get ever more burdensome for American workers. In 1950, there were 16 workers for every one retiree, which kept taxes reasonably low for each worker. Today, there are only 3.3 workers for every retiree. And 15 years from now, the number is expected to be only two workers per retiree. That means Americans will spend more and more of every day working to support other people’s retirement, instead of supporting their own families.
“The sooner we address this problem, the more gradually we can phase in changes. By making modest adjustments to future benefits now, by slowly and gradually phasing in a higher retirement age over the next six decades, and by adopting the Bureau of Labor Statistics’ more accurate measure of the Consumer Price Index, known as the Chain Weighted CPI, which seems to be a point of agreement on the Super Committee, we can make Social Security solvent for the next 75 years – and we can make sure that young people of tomorrow are not spending far more of their income supporting seniors than the young people of today.
“Democrats also have to accept the fact that there is no way we can do serious deficit reduction without finding more savings in health care costs. For starters, we should adopt tort reform that reduces costs and medical errors and we should begin moving away from a fee-for-payment system that incentivizes spending instead of healthy outcomes.
“We ought to be paying doctors to keep their patients healthy – not to run every conceivable test, whether it’s needed or not. We spend $7,500 a year per capita on health care, while Europe spends only $3,300 per capita. And yet they have a greater life expectancy by a couple of years.
“While the Super Committee is not going to change that in the next two weeks, there’s no doubt that serious, structural deficit reform requires serious, structural health care reform that saves money and saves lives, so the public can get the health care they need and deserve, at an affordable cost.
“Now – on the other side of the aisle: We need Republicans to accept the fact that we have a serious revenue problem, which brings me to the second key principle that I believe can lead us to a pro-growth deficit deal: All income groups have to be part of the solution.
“It’s fair to ask those who earn more to bear more of the burden – that’s the whole idea behind a graduated income tax. But all of us should help carry the load – and there is actually a very straightforward and achievable way to do that: Allow the Bush tax cuts to expire at the end of 2012, not just for high-income earners, as the President has proposed, but for all tax brackets.
“Along with accepting the cuts in Simpson-Bowles, allowing the tax cuts to expire is the other key step that it’s time to take. Now, a year ago, I was among those who urged the President to extend the Bush tax cuts for a couple of years, allowing the economy more time to recover.
“It was a prudent thing to do then as a short-term measure. It gave the Federal government time to address some of the underlying problems, including our unsustainable deficits – and with the appointment of Simpson-Bowles, that looked like a real possibility.
“Unfortunately, over the past year, Simpson-Bowles never even made it to the floor of Congress for a debate, no less a vote. And while nothing has happened in Washington – in Europe, we are we seeing what happens when deficits are ignored indefinitely. The European experience is a painful reminder that deficits come with economic costs and by 2013, the huge annual deficits the U.S. will be running are going to be a much bigger drag on economic growth than returning marginal tax rates to their 1990s level.
“Opponents will yell and scream about taxes and cuts destroying the economy. But the same people said the same thing in 1993, when President Clinton and Congress adopted those rates as part of a major deficit reduction plan. And I think everyone would agree that turned out pretty well.
“Incomes taxes here in the United States are lower than in most of the developed countries we compete with, and if we return to the Clinton era rates, they’ll still be lower. So there would be no disincentive for foreign entrepreneurs to come and create businesses and jobs here.
“Interestingly enough, in New York we have the opposite situation: our State income taxes are higher than the other states we compete with, including New Jersey and Connecticut. So raising our State income taxes would create a disincentive for entrepreneurs and businesses to come to New York. That would make us even less competitive than we are today and that’s why New York State government should avoid a state ‘millionaire’s tax.’
“Not only is it class warfare that divides us when we need uniting, but I think Governor Cuomo is exactly right that a millionaire’s tax will lead people and businesses to leave New York or grow in other places – and we just can’t afford that.
“I recognize that allowing the Bush tax cuts to expire is not a step the Super Committee is likely to take. But it is a step the President can take on his own – by committing to veto any further extensions. Here is where he should throw politics aside and lead – not follow – the conventional wisdom.
“If Congress knew for certain that the Bush tax cuts would expire next year, in the months ahead, it would increase the likelihood of a bipartisan plan to reform the tax code in a way that would simplify it, increase revenue and increase economic activity.
“For Republicans, coming to terms with the need for more revenue also means identifying tax breaks and loopholes, as well as subsidies, that don’t make economic sense. It’s encouraging that Republicans are talking about closing some corporate tax loopholes, but they shouldn’t stop there.
“Farm subsidies that drive up consumers’ costs should be dramatically cut back, if not eliminated entirely. The same goes for many of the tax breaks and subsidies we give to the energy industry.
“And, since fair is fair, tax loopholes in the financial industry that are outdated should be closed too, such as taxing carried interest as ordinary income. I say this even though many of the people who would be affected are my constituents – and I’ll probably be getting a few phone calls later today.
“Taking the steps I’ve outlined this morning, particularly adopting the cuts in Simpson-Bowles and allowing the Bush tax cuts to expire, would allow us to achieve a goal that, incredibly, is not even being discussed in Washington right now: balancing the budget in ten years.
“The spending cuts in Simpson-Bowles, plus Clinton-era tax rates, plus closing some tax loopholes and ending wasteful subsidies would save about $8 trillion and effectively bring our budget into balance by 2021.
“If the world’s richest country cannot balance its books over the course of a decade – something is terribly wrong. It’s just not that difficult to do, if we have the courage – and we shouldn’t accept the usual excuses.
“People can say – ‘This Congress and President will never do it.’ Well, it’s up to us to hold them accountable, not just for clearing the lowest of hurdles, but for adopting a mature, serious, long-term clear agreement that will set our country on a path of fiscal responsibility – and toward a return to economic prosperity.
“The ideas I’ve put forward today aren’t intended to be a cure-all. In addition to getting our fiscal house in order, and giving businesses the confidence they need to start up the jobs machine, we need to undertake major reforms in so many areas. We need a less costly, more effective health care system. We need lower and flatter corporate taxes, because when you have the world’s second-highest corporate tax rate, you drive away investment. And most urgently, we need an immigration system that stops depriving us of the entrepreneurs, scientists, engineers, and laborers that we need to grow our economy. It’s terrible economics – I call it national suicide – and it’s one more example of how Washington is preventing our economy from adding jobs.
“These next two weeks will tell us a lot about whether Washington is capable of moving our country forward. I’m an optimist – so I’m hopeful that members of the Super Committee will recognize that this moment isn’t about what the party leadership will say or how a party faction will vote or what impact it will have on the next election. It’s about our future. And it’s about having the courage to do right by our children.
“America’s greatest moments have come when Washington has risen above politics as usual – and worked together to solve the toughest problems. Not as party loyalists – but as loyal Americans.
“That’s the sense of common purpose we see from coast to coast – in blue states, red states, and purple states. It’s the can-do spirit that has always defined our country. And it’s the understanding that, in the end, the future of the greatest country in the world rests in our own hands. Let’s not screw it up. Thank you.”