Austerity Isn’t the Solution, Economic Growth Is

By Janis Bowdler, Director of Economic Policy, NCLR

It has been three weeks since Congress managed to avoid the so-called fiscal cliff by the narrowest of margins.  The deal brokered at the eleventh hour prevented burdensome tax hikes on working- and middle-class families and generated new revenue.  This is good news for Latino families.  However, like all compromises, the deal leaves something to be desired.  The fight to protect the interest of Hispanic workers, students, and households is not over.  On the contrary, now is a critical time for Latino leaders to tell elected officials that Latino voters are not solely paying attention to the issue of immigration.

After weeks of tough negotiations, the Senate and White House were able to agree on a tax-only solution, and the issue of deep automatic spending cuts, known as sequestration, has been delayed another two months.  The upsides are clear—tax savings for most Americans while generating revenue from the top 1%—but the risks are just as stark.  First, Congress and the White House still have to grapple with the sequestration—the across-the-board automatic cuts to discretionary spending that are scheduled to take place on March 1, 2013, if they fail to act.

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Another concern is permanence of the deal.  We all expect compromise to be part of getting a bill through Congress.  While it was not unexpected that the senior Democrats gave ground on their original demand for a 45% estate tax on inheritance over $3.2 million (final negotiation was 40% on estates over $5.2 million for an individual), it is a surprise that they made these rates permanent.  On the other hand, the expansions of the working family tax credits that keep many Latinos and other Americans out of poverty such as the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit were temporarily extended for five years.  The extension is an important victory for Hispanic families, but we must continue to press Congress to treat working families the same as the wealthy by making their tax relief permanent.A final concern says much about where we need to go from here.  The deal produced roughly $600 billion in revenue, which is less than one-quarter of the $3.7 trillion that experts say is necessary to stabilize the national debt.  Meanwhile, working- and middle-class families that rely heavily on federal spending on education, job creation, and infrastructure will absorb $1.7 trillion in cuts that were put in place last year.  That’s nearly halfway (45%) to the deficit reduction target figure and exceeds the recommendations of the Simpson Bowles Commission.  In this next round of negotiations, Congress and the White House will be looking for an additional $1.3 trillion in savings.  Republicans are insisting all of the savings come from spending cuts while the White House is only slightly better positioned, angling for a 50/50 split of revenue and cuts.  If negotiations continue in this direction, the lion’s share of deficit reduction will be shouldered by working- and middle-class families.

Last fall, Hispanic voters cast their ballot with a different objective in mind.  A number of polls show that Latino voters favor a fair and balanced approach to deficit reduction as well as smart investments that grow our economy.  In fact, Latinos arguably have the most at stake in the budget battles.  Deep cuts to programs and services will come just as Hispanic students and workers are becoming a growing share of the population.  Latino children now make up nearly one in four students enrolled in America’s public schools.  Hispanics will account for 80% of the growth in the workforce between now and 2050.  Moreover, it will be our children disproportionately affected decades from now if Congress bargains away the safety nets they should be able to rely on as they age.

The voices of Hispanic voters will only be heard if the prominent leaders from our community stand up for this issue.  Many are asking whether the timing and politics of the debt debate will jeopardize our shared agenda on comprehensive immigration reform.  This is a good question and a real concern.  However, we cannot give Congress or the administration a pass on issues of economic security.  Latinos make up 16% of the population but 25% of those that are poor.  Investing in the upward mobility of Latinos is not only a community imperative, but a national necessity.

Rather than austerity, Congress should be focused on growing the economy and facilitating job creation.  Economists and business leaders alike have warned that cutting the deficit too much too soon could stymie our fledgling recovery.  This isn’t just a short-term problem.  Bankrupting programs that invest in future growth, such as skills training, education, and health care, will undermine our long-term competitiveness.  We cannot turn our back on the social compact that has existed between generations just as the nation’s fastest-growing populations need it the most.  Doing so would be mutually harmful.  Hispanic families would miss the opportunity to maximize their potential as workers, taxpayers, and contributors to the economy.  Such a blow would come at the same time as those moving into retirement would need to rely on the earnings of Latinos to support Social Security and Medicare.

Now is the time to advance policy that fosters a fair economy where hard work is rewarded and prosperity is broadly shared.  We can do this by focusing on raising revenue to make strategic investments that lead to economic mobility and growth.  The formula doesn’t have to be as complicated as Washington makes it.  Double down on education by ensuring all children who need it can access quality early childhood education.  Invest in infrastructure and clean energy jobs, and make sure local workers have access to skills training so they are able to compete.  Maintain economic ladders that lift people out of poverty, move families into the middle class, and support their retirement, such as working family tax credits and business and homeownership opportunities.  Finally, protect the vulnerable among us by ensuring kids do not go hungry and the sick are cared for.