Everyone knows that a budget is an exercise in trade-offs. But our leaders too often forget that budgeting should not be a zero-sum game in which investments in our families are set against investments in growth and both are set against deficit reduction. Rather, investing in growth creates good jobs that lift up our families. Investing in the health, security and skills of our families is the key to bottom-up growth. And all of these investments must be paid for because it is not pro-growth to run up massive deficits, and it is not pro-family to pass the bill on to our children and grandchildren.
Today, we find ourselves in a deep fiscal hole. Eight years of economic mismanagement have added $4 trillion to our deficit, including more than $500 billion spent on the war in Iraq and $2.7 trillion in tax cuts for the most affluent that they did not ask for and did not need.
Sen. John McCain’s economic plan does little more than double down on these failed fiscal policies. He does not just continue President Bush‘s tax cuts for the very wealthy - he is proposing $3.4 trillion in additional cuts. He does not just continue President Bush’s reckless spending - he is proposing more than $1 trillion in additional spending. If Mr. McCain’s plans become reality, leading economist Brad DeLong estimates that we will lose $300 billion in national income - an average loss of $1,800 per family.
Sen. Barack Obama believes that we simply cannot afford four more years of Bush economics. He understands that when you are in a deep fiscal hole, the first thing you do is stop digging. That is why he has proposed specific, credible ways to pay for every one of his policy proposals while at the same time, dramatically reducing our deficit. But he also knows that for the past eight years, we have been failing to invest in our families, cutting back on everything from medical research to early childhood education to job training. Mr. Obama’s budget addresses this priorities deficit at the same time that it addresses the budget deficit.
At the heart of Mr. Obama’s plan is a commitment to cut government spending. That starts with ending the war in Iraq responsibly, freeing up some of the more than $10 billion per month we currently spend on the war. Next, he will take a tough look at the entire budget and cut programs that are not working. And this is not just talk - during this campaign, he has already committed to reducing subsidies for Medicare HMOs and banks that make student loans, imposing payment limits for high-income farmers, dramatically reducing pork-barrel projects, ending no-bid contracting and eliminating unnecessary and duplicative programs.
Mr. Obama also plans to overhaul our tax code - reducing taxes to less than 18.2 percent of the economy, lower than the rate when Ronald Reagan was president. He will cut taxes for 95 percent of workers and their families, saving the average working couple $1,000. He will eliminate tax cuts for seniors making up to $50,000 and cut taxes for education, health care and retirement savings. And he will cut taxes for small businesses, exempting them from capital-gains taxes and providing a 50 percent tax credit to help them pay for health care.
To help pay for these tax cuts, Mr. Obama will ask those families making more than $250,000 annually to give up a portion of the windfall tax cuts President Bush has given them over the past eight years. They will still face tax rates that are lower than the 1990s - including dividend rates that are 39 percent lower than what President Bush proposed in his 2001 tax cut. And Mr. Obama will end tax breaks for oil companies, shut down international tax shelters and reform the corporate tax code to eliminate loopholes for special interests. Under Mr. Obama’s plan, families making less than $250,000 a year will not see a single penny in tax increases. Middle-class families will get a tax cut. And over the next few years, we will reduce the deficit and increase our investments in families.
But we know that the biggest fiscal challenges America will face will emerge not during the next few years, but over the next few decades. Thanks to medical and scientific advances, more people are living longer than ever before, straining programs like Social Security and Medicare. That is why Mr. Obama will work together with both parties in Congress to strengthen Social Security, asking those making more than $250,000 a year to pay their fair share in taxes, in the neighborhood of 2 percent to 4 percent in combined employer and employee payments starting more than a decade from now. This is an approach that Republican Sen. Lindsey Graham floated and that Mr. McCain previously said he could support.
The most pressing threat to our economic future, however, is not demography, but the rapid rise in national health spending. Singling out Medicare and Medicaid for cuts and leaving seniors and our most vulnerable families to fend for themselves simply is not the answer. Instead, Mr. Obama plans to implement dramatic reforms to lower the cost of health care in the public and private sectors, including investments in health information technology to save administrative costs, and improve insurance market competition and preventative care to help people avoid serious - and costly - illnesses.
America needs a new economic strategy - a strategy that is both pro-growth and pro-family. We need a leader who understands that in order to truly invest in our families, we need to cut our deficit - and that in order to give middle-class families the tax cuts they deserve, we need to cut unnecessary government spending. And we need a president willing and able to make the tough decisions to turn ideas into plans and plans into policies. Barack Obama will be that president.
Jason Furman is the economic policy director for Obama for America.