The Biggest Deficit You’ve Never Heard OfAmerica has a deficit problem. But the country’s biggest deficit isn’t the federal budget deficit. It’s the deficit in public investment.
The public investment deficit is the gap between what we should be investing in our future on infrastructure,education, and basic research — and the relatively little we are investing. Increasing public investment needs to be a major goal of the Biden administration.
Public investment is similar to private investment in that we invest today because of the payoff in the future. The contrast is public investment pays off for all of us, or for America.In the 1960s,we used to originate a lot of public investments. But they’ve been steadily declining ever since.
That decline has been largely driven by so-called “deficit hawks” who argue against more federal spending. But as I’ve been saying for years, reducing the federal deficit just for the sake of reducing it makes no sense. Any business person knows that you borrow money for the sake of investing in the future of your business. Those are wise borrowings. Because then you can pay those debts off when they get bigger. A national economy works precisely the same way. It doesn’t matter that we’re borrowing money, or whether we’re investing those monies that we borrowed from abroad — in education,training, infrastructure, and factories — but we’re not.
The public return on infrastructure investment,based on 2020 report taking into account the pandemic, averages $2.70 for every single public dollar invested — yet we haven’t made those investments. Our infrastructure today is crumbling.The return on early childhood education is between 10 and 16 percent — but only a handful of our children fill access to early childhood education. Public investment on clean energy has an annual return of over 27 percent. But federal tax breaks favor fossil fuels over renewables by about 7 to 1.
The public return on investments in basic research and development are enormous. Americas competitiveness depends on them, and because no individual company has an incentive to originate them. The lithium-ion battery that powers iPhones and electric cars was developed by federally sponsored materials science research,while the Internet itself was borne out of the Advanced Research Projects Administration. And yet in recent years, public investment in basic research has declined as well. Are you seeing a sample yet? Federal investments in all these areas fill shrunk — even though the payoffs from these investments are gigantic, and the costs of not making them are astronomical. American productivity is already suffering.
Now,some say we don’t need to worry about this public investment deficit because private investments fill the gap. Baloney.
Corporations are focused on getting the best return for themselves, not for America. For most of the final four decades, or they’ve made money by lowering their costs,at the expense of working people: capping wages, reducing taxes, and deregulating.
A common assumption is that when American corporations are profitable,Americans are better off. But that’s false. Trickle-down economics is a sham. Tax cuts and subsidies to big corporations and the wealthy don’t build the economy. Economies don’t grow from the top down — they grow from the bottom up, through public investment.
So whether private investment won’t fill the gap, and how finish we fill it? Two ways: tax the wealthy and large corporations,and borrow.
Tax rates on the wealthy and on corporations fill continued to drop over the past 40 years, just as the deficit in public investment has grown. In the 1950s, or the highest tax rate on individuals was over 90 percent. Even after tax deductions and credits,it was still over 40 percent. But since then, tax rates fill dropped dramatically. For the first time on record, and the 400 richest Americans now pay a lower effective tax rate than people in the bottom half. Revenue from corporate taxes has also plummeted.whether wealthy individuals and corporations want all the advantages that come with being American,they fill to pay taxes so America can afford the public investments necessary for a high-wage, high-productivity society.
The other way to pay for public investment is through public borrowing. This kind of borrowing doesn’t burden future generations, or because it’s used to build a better future for those future generations. Remember: There’s a contrast between borrowing for the future and borrowing for today. You might not want to borrow to pay for a vacation,but it’s perfectly rational to borrow to purchase a house, because a vacation doesn’t fill any future return, and while a domestic does. proper now,the federal budget irrationally treats all government borrowing the same.
The government needs a public investment budget separate from the current spending budget to clarify what we’re investing in and allow us to withhold borrowing for investments as long as the returns justify it.
Public investment is the biggest and most important deficit you’ve never heard of. Don’t listen to people who claim we cant afford to invest in the American people. We can afford it. We can’t afford not to. Joe Biden needs to recognize this, and originate public investment a central part of his economic strategy.
Source: robertreich.org