Introduction and summary
The U.S. economy finds itself at a crossroads of overlapping challenges. Long-term productivity and economic growth are low, while income and wealth inequality are high. Meanwhile, the country faces a series of challenges: from collapsing economic security for middle- and working-class Americans to climate change and more.1 Addressing these challenges will undoubtedly require the deployment of significant federal resources since the private sector has failed to do so.
The good news is that the economic evidence suggests there is indeed room for the government to address the country’s current challenges. And the economic research shows ways this can be accomplished by using spending and tax policy more effectively than how it has been used in the past. The content of those investments is crucial: smart investments that boost competitiveness and secure economic stability for working families will yield returns, while wasteful tax cuts will create massive, long-term deficits without clear, tangible benefits. In short, America still can do big things—and it can do those more effectively than it has in the past. Each dollar spent on smarter, more effective government programs and tax policy will then go a lot further in boosting the economy and strengthening a struggling middle class.
To be clear, the deficit-busting 2017 tax cuts show that policymakers fighting for working families should not fall for letting the debt and deficit be used as a heads-I-win-tails-you-lose political trick deployed against only working families’ economic priorities. But the tax cuts also revealed the depth of their own flawed approach to debt. Yes, policymakers still need to take seriously how to budget for economically appropriate and sustainable levels of debt and deficits. But a large economic literature shows that debt incurred in a smarter way translates into faster growth, which, in turn, makes repaying that debt far easier than the wasteful, inefficient, and ineffective supply-side tax cuts that have dominated fiscal policy of the past two decades. With such a smarter approach, guided by economic evidence, policymakers will be able to confidently say that America can build an economy that works for all, while also meeting its financial obligations for the future.