A BLUEPRINT FOR AMERICAN RENEWAL
A Nation Challenged
The challenges this nation faces are among the largest in its history.
For years, bad policies advanced by both political parties have contributed to an irresponsible build-up of debt in the economy, and this debt now poses a fundamental challenge to the American way of life.
This build-up of debt has manifested its effects in both the private and public sectors. In 2008, excessive leverage in the financial sector overwhelmed many banks, businesses and families. Irresponsible decisions in Washington and on Wall Street fueled a housing-price bubble that collapsed and turned mortgage-backed securities into “toxic assets.” It soon became clear that these assets, which were spread throughout the financial sector, posed a systemic risk to the economy. The resulting wave of panics bankruptcies and foreclosures brought the global financial system to the brink of collapse.
America is still living with the painful consequences of that crisis today. While some of the federal government’s emergency actions in late 2008 helped to stem the immediate financial crisis, much of its intervention in the wake of the crisis simply aggravated the underlying problems. In most cases, policymakers sought to address the symptoms of the crisis by transferring private-sector debt to the public balance sheet. Since Election Day 2008, debt held by the public has increased by roughly $4.5 trillion – an increase in excess of 70 percent in a mere four years.
This remedy didn’t just ignore the underlying cause of the problem – it made the problem far worse. In Europe, the accumulation of public-sector debt now threatens to cause an even bigger calamity than the one caused by private-sector debt in 2008. The world’s new “toxic asset” is the sovereign debt of irresponsible European governments, infecting the balance sheets of major banks and threatening the stability of the global economy. And in the United States, government debt continues to rise at a frightening pace, raising fears that a similar crisis may happen here.
The growing possibility of such a crisis is creating debilitating uncertainty about the future, hurting job creation and economic growth today. The economy has picked up in recent quarters, but overall growth and job creation remain sub-par, and unprecedented numbers of Americans have simply given up trying to find work. Real GDP grew by just 1.7 percent in 2011, and private-sector forecasters are calling for growth of 2.3 percent in 2012 – well below the 3.0 percent historical trend rate of U.S. growth and just a fraction of the growth pace observed in a typical recovery from recession. Noted economists, including Federal Reserve Chairman Ben Bernanke, have argued that enacting a credible plan to deal with America’s long-term debt build-up would have a positive effect on growth and jobs Immediately.1
Unfortunately, in the years following the meltdown, the President and his party’s leaders failed to use their full control of Washington to offer any plan to lift the debt and foster sustainable economic growth. Instead, the crisis was used as an excuse to enact unprecedented and counterproductive expansions of government power. A massive stimulus package failed to deliver promised reductions in unemployment. An unpopular health care takeover was jammed through Congress on a party-line vote. A short-sighted financial-regulatory overhaul failed to fix what was broken on Wall Street and made future bailouts more likely. And federal policymakers in thrall to a misguided form of environmental activism pushed through regulations and other policies that are making energy more expensive in the midst of a weak economy.
Through it all, the government’s fiscal position sharply deteriorated. Total federal debt has now surpassed the size of the entire U.S. economy. And the government’s non-partisan auditors have issued report after report warning of even larger debts to come, driven by health and retirement security programs that are being weakened by severe demographic and economic challenges.
Instead of taking action, the administration punted the nation’s fiscal problems to a bipartisan commission, whose recommendations it proceeded to ignore in favor of proposals filled with gimmicks instead of real solutions. And the Democratic leaders of the Senate have abandoned altogether their legal obligation to provide a budget plan – it has been three years since the Senate passed a budget.
A Choice of Two Futures
Both parties share the blame for failing to take action over the years. But while Republicans offered a budget last year that would lift the crushing burden of debt and restore economic growth, the President and his party’s leaders are still refusing to take seriously the urgent need to advance credible solutions to the looming fiscal crisis. Instead, they are still offering little more than false attacks and failed leadership.
Questioned about this disappointing reality at a recent House Budget Committee hearing, Treasury Secretary Timothy Geithner admitted, “We’re not coming before you to say we have a definitive solution to our long-term problem. What we do know is we don’t like yours.”2 The President’s strategy seems to amount to this: Let somebody else propose a path forward, and then attack them for political gain.
This budget offers a better path. The following report lays out the challenge – and the choice – that America faces in each key area of the budget. The common thread connecting them all is that a sharp and sudden debt crisis would threaten the entire American project: It would weaken national security, shred the safety net that vulnerable Americans rely on, break promises to seniors, impose massive tax increases on families, and leave all Americans with a diminished future.
This looming crisis represents an enormous challenge, but it also represents a defining choice: whether to continue down the path of debt, doubt and decline, or put the nation back on the path to prosperity. It also represents a tremendous opportunity for this generation of Americans to rise to the challenge, as previous generations have, and fulfill this nation’s unique legacy of leaving future generations with a freer, more prosperous America.
A Blueprint for American Renewal
This budget sets forth a model of government guided by the timeless principles of the American Idea: free enterprise and economic liberty; limited government and spending restraint; traditional family and community values; and a strong national defense.
The federal government has strayed from these American principles. This budget offers a set of fundamental reforms to put the nation back on the right track.
The role of the federal government is both vital and limited. When government takes on too many tasks, it usually does not do any of them very well. Limited government also means effective government. This budget recommits the federal government to the security of every American citizen’s natural right to life, liberty and the pursuit of happiness, while fostering an environment for economic growth and private-sector job creation.
1. Prioritize Defense Spending to Keep America Safe
With American men and women in uniform currently engaged with a fierce enemy and dealing with emerging threats around the world, this budget takes several steps to ensure that national security remains government’s top priority.
Providing for the common defense: This budget rejects proposals to make thoughtless, across-the-board cuts in funding for national defense. Instead, it provides $554 billion for national defense spending, an amount that is consistent with America’s military goals and strategies. This budget preserves necessary defense spending to protect vital national interests today and ensures future real growth in defense spending to modernize the armed forces for the challenges of tomorrow.
Reprioritizing sequester savings to protect the nation’s security: The defense budget is slated to be cut by $55 billion, or 10 percent, in January of 2013 through the sequester mechanism enacted as part of the Budget Control Act of 2011.3 This reduction would be on top of the $487 billion in cuts over ten years proposed in President Obama’s budget. This budget eliminates these additional cuts in the defense budget by replacing them with other spending reductions. Spending restraint is critical, and defense spending needs to be executed with effectiveness and accountability. But government should take care to ensure that spending is prioritized according to the nation’s needs, not treated indiscriminately when it comes to making cuts. The nation has no higher priority than safeguarding the safety and liberty of its citizens from threats at home and abroad.
2. End Cronyism and Restore Free Enterprise
A growing economy, increased employment and higher wages will come from traditional American ingenuity and enterprise, not from government. To achieve this end, small businesses need to be empowered, and the size and scope of Washington need to be reduced so that the hard work and enterprise of Americans can lead a strong, sustained recovery.
Ending corporate welfare: There is a growing and pernicious trend of government overreach into the private economy – a trend that stacks the deck in favor of entrenched interests and stifles growth. This budget stops Washington from picking winners and losers across the economy. It rolls back corporate subsidies in the energy sector. It ends the taxpayer bailouts of failed financial institutions, including Fannie Mae and Freddie Mac. It repeals the government takeover of health care and begins to move toward patient-centered reform. And it reduces the bureaucracy’s reach by applying private-sector realities to the federal government’s civilian workforce.
Boosting American energy resources: Too great a percentage o...