Opinion: How Obama can fix the economy in his second term

This election, the American people gave a vote of confidence in President Barack Obama. But by no means was this an easy victory.  Mitt Romney was a more formidable opponent than John McCain. While Democrats expanded their majority in the Senate, the Republicans kept their majority in the House.

Obama had many accomplishments during his first term. However, he faces many challenges on the road ahead. The economy is growing, but at a slower rate than most would like. The American people will not tolerate for much longer the bitter partisanship that has plagued Washington the past two years. Unfortunately, with a divided Congress, this could very well continue.

Obama must take the initiative to forge compromises and find solutions to our economic woes that both sides of the aisle can get behind. This new plan, which Obama has called “economic patriotism” on the campaign trail,  is essential not just for the legacy of Obama, or the Democratic Party’s future electoral chances, but for the future of America itself.  First, Obama must forge a deal with Congress to…

Reduce the deficit. Now, the deficit is not going to disappear overnight, and I doubt that we will have a surplus by the time Obama leaves office in 2016. However, we are fast approaching the metaphorical fiscal cliff. The only way to prevent us from falling off is a combination of spending cuts and revenue increases.

Photo courtesy of realclearworld.com

 

 

As the Afghanistan War is winding down, military spending is a logical place to cut.  The U.S. currently spends more on its military than the next 13 countries combined (in the graph beside). This is both a product of the massive military-industrial complex and two costly wars in the Middle East that have left us borrowing more and more money, putting us heavily in debt. Liberals, along with traditional conservatives and libertarians, would support these cuts. However, in any deficit-cutting deal, Obama must hold steadfast to his principles and…

 

Preserve Social Security and Medicare in their current forms. By voting for Obama, the American people have made it abundantly clear that they reject the Romney-Ryan plan of transforming Medicare into a voucher system and privatizing Social Security. Granted, some reforms are indeed necessary to preserve both of these popular programs. Medicare and Social Security must be publicly-run to ensure their continued existence, and in no way should the promise of a secure retirement after a lifetime of work and paying into the system ever be broken. At the same time, both political sides need to agree to…

Reform the tax code. This goes for corporations and individuals. Both Obama and Romney proposed cutting the corporate tax rate to 25 percent, and this should have broad bipartisan support in Congress. However, ending subsidies for oil companies and closing loopholes for companies that outsource jobs overseas, plus taxing those overseas profits, is a necessity. As for the individual rates, maybe a deal could be worked out where the Buffett Rule is enacted, capital gains taxes stay the same, and the estate tax is repealed. In addition, the tax code should be adjusted to account for inflation and cost of living in different areas of the country.

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That is all hypothetical and pure speculation on my part, but it shows that haggling, negotiation, and compromise need to happen. Maybe all the individual rates could be lowered by 5 percent or so if the federal government could…

Implement a system of tariffs. Until 1913, when the income tax was enacted, the federal government derived most of its revenue from a system of tariffs. Since America has repealed the vast majority of these tariffs, this revenue stream has been lost. In addition, countless jobs have been outsourced because the cost of production is much less overseas than it is in America and that other countries, such as China, subsidize industry at a high rate. China in particular is guilty of grossly undervaluing its currency to boost its exports. This puts America at a competitive disadvantage, especially when it does not impose tariffs on goods from countries that impose tariffs on its goods.

 

 

 

 

 

 

 

 

As the above charts show, America has a negative balance of trade with the rest of the world, and has a massive trade deficit with China. This can be fixed in several ways. First, for any country that imposes a tariff on American goods, we should put tariffs on its goods at an equal rate. Second, any country that we have a negative balance of trade with of more than 10 percent should have its goods tariffed at the same percentage as our trade deficit. This will no doubt be an incentive for other countries to import more American goods and balance their trade with us.  According to the economist Peter Morici, cutting the trade deficit with China in half alone will create at least 5 million new American jobs. In addition, the tariffs will create a new revenue stream that can be used to pay down our deficit, and combined with…

Tax incentives for companies that create jobs in America, unemployment will come down, and the economy will boom again. Obama has already worked to implement these tax incentives to meet his goal of one million new manufacturing jobs created in America by 2016. Theses goals were also a part of the Democratic Party platform this year.

America is a 310 million strong market. In order to reach this huge market for its goods, companies don’t want to face high tariffs on their goods imported here from overseas. The tax incentives should cover the increase in production and start-up costs that are incurred in America, so that these costs are not passed on to the consumer. These tax incentives, in conjunction with the system of tariffs, will lead to companies creating more well-paying jobs in America. This will boost demand throughout the economy because a stronger, more vibrant middle class will have more disposable capital, leading to a positive feedback cycle perpetuating further economic growth. Another way to boost employment and the economy is…

Invest in infrastructure projects. In his State of the Union in January, Obama expressed a desire to “do some nation-building right here at home.” This is accomplished primarily through the rebuilding of our nation’s crumbling infrastructure. This is essential for safe travel and economic growth. Roads and bridges need to be repaired, and one of Obama’s goals from his first-term, the creation of high-speed rail lines (HSRs), can be brought back to the forefront. This will stimulate a stagnant construction industry, and this new infrastructure, once completed, will generate revenue through toll collection.

Photo courtesy of whitehouse.gov

 

There is certainly a lot on Obama’s to-do list for his second term that goes beyond economic policy. By no means is the list above complete. It should, however, serve as a blueprint for Obama’s “economic patriotism." This should be Obama’s core focus during the next four years: to restore America as the greatest economic power in the world.

 

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