Speaking just before the Senate adjourns for the fall elections Senator Franken said “Our economy is still not yet fully recovered from a devastating recession, and the prospects for our middle class remain uncertain. Meanwhile, our budget remains sorely out of balance, and our long-term debt crisis is putting our nation’s fiscal future at risk.”
“We’re not going to get anywhere if we can’t agree that, yes, the government does have a role to play in helping the private sector create jobs. And, no, you can’t cut the deficit by cutting taxes. And, yes, we are going to have to both raise revenue and reduce spending if we want a balanced budget. And, no, asking the wealthy to pay a little more won’t drive us back into a recession.”
Two enormous challenges will await us when we return from recess.
Our economy is still not yet fully recovered from a devastating recession, and the prospects for our middle class remain uncertain. Meanwhile, our budget remains sorely out of balance, and our long-term debt crisis is putting our nation’s fiscal future at risk.
These two challenges are, of course, linked. We can’t hope to solve our long-term debt problem unless we get our economy growing again. And we can’t hope to rebuild our prosperity unless we resolve our budget problems.
So we will have big decisions to make when we come back. But in the meantime, the American people will be wrestling with the same issues.
What should we do to grow our economy and reduce our debt? What are the right investments to make? How should we pay for them? What sacrifices must be made in the name of fiscal responsibility – and who’s going to make them?
That’s the debate our nation will have over the next six weeks. Those are the questions we must be prepared to answer when we return.
So, before I go home to Minnesota to share my thoughts with my constituents, I wanted to take a few moments to share them with my colleagues.
My view of what we should do in response to these challenges is based on what we have done in response to similar challenges in the past.
We are not the first Congress, or the first generation, to struggle with these issues.
At the end of 2011, our national debt had reached 100 percent of our gross domestic product. That is frightening. But after World War II, our debt was 121 percent of GDP.
Now, to be fair, we had something to show for it: We had won World War II. And the world was a very different place in 1945 than it is today.
But the point is that we were tested.
How did we respond? We invested in things we believed would grow the economy.
We invested in education – things like the G.I. Bill, which helped my mother-in-law, widowed at age 29, go to college, and Pell Grants, which helped my wife Franni and her three sisters go to college.
We invested in infrastructure, building 40,000 miles of highways in the 1950s.
We invested in innovation – and we won the space race, which, in turn, led to the creation of entire new industries like personal computers and telecommunications.
Those investments paid off – and our economy experienced three decades of incredible growth, growth that flowed to the top, the middle, and the bottom.
Between 1947 and 1977, wages for the top fifth of workers grew by 99 percent, and wages for those in the bottom fifth rose by 116 percent. I know that’s hard to believe. The wages of the bottom fifth grew more than the wages of the top fifth. Really. That happened.
And even though we remained a nation in which many kids, like my wife Franni, grew up in poverty, we had enough to invest in a strong safety net that helped those kids work their way into the middle class.
We bounced back from World War II to build a country with a middle class that was strong, secure, and accessible to almost anyone.
And, thanks in large part to the growth generated by that thriving middle class, we were able to lower our national debt to 31 percent of GDP by 1981.
Since then, our economy has had good times and bad times. We’ve raised taxes and lowered taxes. We’ve had surpluses and deficits, and, as this chart shows, our debt relative to GDP has gone up and down. We’ve seen the results of a variety of approaches to the issues we face today.
In the 1980 election, Ronald Reagan was elected on a platform that appealed to concerns that government taxed too much and spent too much. His approach was known as “starving the beast.”
Here’s how he explained it: “There were always those who told us that taxes couldn’t be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice and breath. Or we can cure their extravagance by simply reducing their allowance.”
When he took office, he fulfilled his campaign promise and signed into law a huge tax cut. And, on cue, we began to amass enormous budget deficits almost immediately. In fact, President Reagan’s budget director, David Stockman, has explained that 1981 was when the era of large permanent deficits began.
The deficits were so bad in 1981 that President Reagan had to increase taxes in 1982, and then again in 1983. In fact, he ended up raising taxes 11 times – not because he was a socialist, I don’t think, but rather because he couldn’t ignore the arithmetic.
Still, that first tax cut was so big that, over the course of his presidency, the national debt nearly tripled. It continued to grow rapidly during President George H. W. Bush’s administration – and he handed off to President Clinton what was, at that point, the largest deficit in history.
In President Clinton’s 1993 deficit reduction package, he added two new marginal tax rates at the top end: 36 percent for income above $180,000, and 39.6 percent for income above $250,000.
Republicans objected, rather vehemently, arguing that asking the wealthiest to pay a little more would send the economy into a recession – which, of course, would be detrimental to the goal of reducing the deficit.
The bill passed without a single Republican vote. But the Republicans’ dire predictions turned out to be extremely wrong.
Between 1993 and 2001, this country experienced an unprecedented expansion of our economy. We created 22.7 million net new jobs. We decreased the number of Americans in poverty. We increased median household income. And we created more millionaires than we’d ever had before.
And not only did President Clinton’s deficit reduction plan reduce the deficit, it eliminated the deficit. President Clinton was able to hand off to President George W. Bush a record surplus – and, in fact, we were on track to completely pay off our national debt by the year 2011.
However, as we all know, President Bush chose a different course. Whether or not you agree with the two wars we entered into during his administration, the new entitlement program we created, or the two tax cuts we passed, the fact of the matter is that we didn’t pay for any of those things. They all went on our national credit card.
And while the two tax cuts tilted toward those at the top did help some at the top do extremely well during the Bush administration, it’s hard to say that the stuff we put on that credit card created the kind of durable, broad-based prosperity we saw in the 1990s – or that we built in the thirty years after World War II, for that matter.
It’s hard to say that, because, when President Obama took over for President Bush, the economy was hemorrhaging jobs at the rate of over 800,000 a month. And when the bill came for the Bush policies, we were staring at a projected $1.2 trillion deficit.
So far, I’ve talked about President Reagan and his approach of cutting revenue in order to force the government to cut spending. And we saw what happened: We couldn’t cut enough spending to keep our budget in balance, and we had huge deficits even when Reagan tried to backtrack and raise more revenue.
I’ve talked about President Clinton and his approach of raising taxes on the wealthy in order to bring the budget into balance. And we saw what happened: The economy grew, and we generated a record surplus.
I’ve talked about President Bush and his approach of cutting taxes and incurring large expenses without worrying about the ramifications on the deficit. And we saw what happened: Deficits ballooned, and when the economy crashed, it crashed hard.
What about President Obama? What has his approach been?
If you ask some people – including, unfortunately, many in this chamber – they’d tell you that President Obama’s approach was to go on a massive spending spree.
It’s just not true.
Over his four budget years, federal spending is on track to rise from $3.52 trillion to $3.58 trillion, an annual increase of 0.4 percent.
Now, you can hash these figures out a few different ways. But here’s a chart that comes from MarketWatch, a publication of Dow-Jones, which also owns the Wall Street Journal.
It uses numbers from the nonpartisan Congressional Budget Office and the Office of Management and Budget. And you can see that the growth of federal spending is lower than it was under any of the Presidents I’ve talked about.
Indeed, the article that ran with this chart concludes that the growth of federal spending under President Obama is the lowest it’s been since the Eisenhower administration during the wind-down from the Korean War.
But remember that, besides a $1.2 trillion deficit, President Obama inherited an economy that, in the month he took office, lost over 800,000 jobs.
The next month, February 2009, we lost about 700,000 jobs. But that’s also the month in which we passed the Recovery Act.
The Recovery Act, also known as the stimulus, is what people usually point to when pressed to explain why they think President Obama has increased spending. But the truth is that more than a third of the Recovery Act was tax cuts. The stimulus cut taxes for 95 percent of American families.
Another third was fiscal aid to states, which were feeling the same budget crunch as the federal government but, in most cases, didn’t have the option of running a deficit in tough years. Without the Recovery Act, imagine how many more teachers and firefighters and police officers would have had to be laid off. And imagine what that would have meant to our economy, never mind what it would have meant to our communities.
But the third that gets the most attention was the third that went to creating jobs. Did it work? Well, there are a few ways to answer that question, but the answer is the same every time: Yes.
First, we could look at our chart. You can see that, as the Recovery Act began to be implemented, we started losing fewer and fewer jobs, and then started to experience modest – but consistent – gains in employment.
In the private sector, we’ve now had 30 straight months of job growth.
Second, we could ask economists. Most reputable economists – including those at the nonpartisan Congressional Budget Office – agree that the Recovery Act created or saved anywhere from 2.5 million to 3.5 million jobs.
And in the words of Mark Zandi, Senator John McCain’s own economic advisor from his 2008 campaign, the federal policy response to the financial crisis, including the stimulus, quote, “probably averted what could have been called Great Depression 2.0.”
But we don’t have to take Mark Zandi’s word for it. We don’t have to take all the other reputable economists’ word for it. We don’t even have to take the Congressional Budget Office’s word for it – although we are Congress and the CBO sort of exists specifically so that we can take its word.
We can ask Jamie, Cecil, and Sheila.
This is Jamie, working on the Duluth Lift Bridge a couple years back. This is Cecil, who worked on a highway extension project in Brooklyn Park. This is Sheila, in front of her Bobcat, working the night shift on an I-94 improvement project.
These are people who were put back to work by the stimulus. And despite claims that the only jobs created by the stimulus went to government bureaucrats, you will notice that Jamie, Cecil, and Sheila are not, in fact, government bureaucrats. Thankfully, we don’t let government bureaucrats operate heavy machinery.
So, what can we say about President Obama’s approach so far?
He’s slowed the growth of federal spending to its lowest level since Eisenhower.
He’s cut taxes – not just in the stimulus package, but many times during his first term, to the tune of more than $850 billion.
And, when the economy was at its low point, he made investments that put people back to work in the short term and prevented things from getting even worse.
There was another road we could have taken. That approach would have involved not just cutting spending, but gutting the government. And it definitely wouldn’t have involved making investments to put people back to work.
We’ll never know whether that approach, known as austerity, would have gotten us results like the ones reflected on this chart. But we do know what happened in countries where they tried this alternate approach.
This is a chart showing changes in the GDP from 2008 to 2012 of the United States and some of the European countries that pursued a policy of austerity like the one many wanted to pursue here. The evidence here tells us that our way worked – President Obama’s way worked – and theirs did not.
Of course, while we’re better off than we were four years ago, and better off than we would be if we’d tried austerity instead of President Obama’s approach, we’re not yet where we want to be – either in terms of our economy or in terms of our deficit.
So what’s the right approach going forward?
First, let’s talk about deficit reduction. It’s clear to me that any solution that doesn’t include both increased revenue and decreased spending simply isn’t going to work. The hole’s too big for us to tax our way out of it or cut our way out of it. We have to do both.
But the hole is, in fact, so big that we can’t even get out of it just by taxing and cutting. We have to grow our way out of it, too.
That’s why I think we need to invest in education, infrastructure, and innovation.
That means early childhood education and workforce training, roads and bridges and rural broadband, clean energy and health care technology.
I don’t think that only the government can create jobs. But I know that only the government can make those critical investments that will help the private sector create jobs. And I know it works when we do. It worked after World War II. It worked under President Clinton. It worked in the Recovery Act.
Those investments, however, cost money. And we won’t be able to afford them unless we reduce our deficits.
I think people who talk about cutting spending should say what spending they want to cut. I want to cut spending. So let me tell you what spending I want to cut.
I want to cut the billions of dollars in subsidies we give to oil companies that simply don’t need them.
I want to let Medicare negotiate for pharmaceuticals under Part D, just like the VA does, because prohibiting Medicare from doing so amounts to a subsidy for pharmaceutical companies – one that, again, they don’t need.
And I want to make cuts in our military budget – because as the comprehensive defense review begun under Secretary Gates and completed under Secretary Panetta found, we can make hundreds of billions of dollars in cuts to the defense budget without compromising our fundamental security and military interests.
Of course, we can’t only cut the things we think are easy calls to cut. We’re going to have to cut some things we don’t want to cut. And, speaking personally I’ve already had to vote for some of those hard cuts. It wasn’t fun.
But there simply aren’t enough cuts to make. So it’s clear to me that, if we’re going to protect our most vulnerable Americans and make the investments that will grow our middle class and our economy, we are going to have to raise revenue. And, like President Reagan, but unlike some of today’s Republicans, I know that you don’t raise revenue by cutting taxes.
That’s why I support raising the top marginal rate back to where it was under President Clinton. I know that, just like they did in 1993, people will argue that doing so will hurt the economy. But I’m equally confident that, just like they were in 1993, they will be wrong.
I know that we all come to the debate about our nation’s challenges with different philosophies and different convictions. I respect that many of my colleagues feel they’d be betraying their own political core by asking the wealthy to pay a little more or investing taxpayer dollars in job creation. I didn’t feel great about all the cuts I’ve had to vote for over the last couple of years, either.
But I don’t think we’re going to get anywhere if we’re so invested in following our own ideologies that we refuse to acknowledge the lessons of where we’ve been, or the truth about where we are and where we’re headed.
We’re not going to get anywhere if we can’t agree that, yes, the government does have a role to play in helping the private sector create jobs. And, no, you can’t cut the deficit by cutting taxes. And, yes, we are going to have to both raise revenue and reduce spending if we want a balanced budget. And, no, asking the wealthy to pay a little more won’t drive us back into a recession.
We’ve debated these issues a lot this year. And we haven’t resolved the argument. Now we’re going home, and it’s the American people who get to have their say.
So I hope that, over the next six weeks, we lead them in a debate worthy of the challenges we face, a debate rooted in the facts and mindful of our history.
And I hope that, when we come back, we’re ready to have that kind of worthy debate ourselves, and then make the tough calls just as our constituents will in November.
I wish my colleagues well over the break, and I look forward to getting back to our important work when we return.