As the state of the economy continues to disappoint us, Congressional Republicans and the Administration are proposing a large package of tax cuts whose goal is to help promote recovery.
But this package has come under attack both from the right and from the left. In other words, the policy is controversial: it conflicts with deep philosophic goals of both sides. Meanwhile solutions that both parties could support – and that would actually work – continue to be ignored. But we’ll come back to that.
While it the current proposal may address the need for more consumer spending in the short term, it fails to provide a long term boost to the economy; this is the one idea in common between the leftist and the rightist critiques cited here.
The leftist critiques argue that it does not provide the level of stimulus that the economy needs on a continuing basis. A more assertive left-wing critique argues that the evidence on tax cuts shows that they do not help the economy, but rather harm it. I have looked without success for any factual evidence that tax cuts make the economy grow; the evidence I have seen all suggests, as this analysis does, that they are ineffective or even counter-productive.
The right-wing criticism is, in part, that the compromise increases the government debt, which is an undisputed problem.
But lost in this debate is the fact that there are solutions that address not just one or two causes of the current economic slump, but just about all of them. These solutions focus on energy efficiency, a source of well over a trillion dollars a year of continuing and growing economic stimulus that reduces government deficits rather than increasing them. Here’s how:
- Efficiency promotes American energy security by cutting energy prices and reducing the flow of money to regimes hostile to America, such as Iran.
- It makes our economy more competitive by reducing the cost of living and of doing business.
- It cuts the risk of inflation, which has only been a problem during periods when energy prices are high. Efficiency cuts demand and keeps these price spikes in check. Low inflation reduces the need to raise interest rates in the future and also cuts the future obligation for Social Security benefits, a major cause of worries about the federal deficit.
- And it does this not by creating big government programs, but by enhancing market forces.
By any measure, energy efficiency should be a basis for bipartisan support.
NRDC and our partners are working on advancing a package of consensus legislation that includes tax incentives for building efficiency—incentives that pay for themselves and have a track record of success—grants and tax credits for retrofitting homes and business buildings, and mortgage lending reform that will increase consumer housing choice while reducing the risk of more defaults.
We hope that new and returning members of Congress will look seriously at these policies—policies with clear evidence that they work and ones that do not just reignite the usual partisan rancor—while debating the ones that are continuing sources of dispute.