Best place to invest surplus: our children

USA Today

To listen to the White House and Republicans, you'd think the biggest
choice facing the nation is whether to use projected budget surpluses to
"save Social Security," as the White House proposes, or to cut taxes
across the board, as Congressional Republicans propose.

Because the polls show most Americans want both, you can bet that
whatever emerges will be a mushy combination.

Is this really the Great Debate we ought to be having?

No. Look closely, and neither alternative makes any sense.

Social Security doesn't have to be saved because it's not heading for a
crisis. The projected bankruptcy of Social Security by 2032 is based on the
wildly pessimistic prediction that between now and then the U.S. economy
will grow only 1.8% a year. Almost all economists predict growth will be
2.4% or better. It's been 4% for the last three years.

If the economy grows by at least 2.4%, Social Security is fine for 75 years
without spending a dime of the surplus.

The White House doesn't want to tell you this, fearing it will bolster the
Republicans' case for a tax cut. But a tax cut falls of its own weight.

Cuts in income taxes or capital gains taxes make no sense. They would
mostly benefit the rich, who are already flying high in this economy.

Here's what Republicans don't want you to know: Most Americans pay
more in payroll taxes such as Medicare and Social Security than in federal
income taxes. And most states have cut state income taxes and raised
sales taxes. It's these taxes that take the big chunks out of the paychecks
of most working people.

So if Social Security isn't in crisis, and it makes no sense to cut income
taxes, what should we really be debating about the surpluses?

Today's debt or tomorrow's productivity

The Big Question, which neither the White House nor congressional
Republicans want to address, is: Should we use the surpluses to pay
down the national debt, or to shore up the productivity of all Americans --
especially our children -- by investing big-time in education, child care and

Many economists push for debt reduction. The federal debt is now 44% of
national product. If most of the surplus were used to pay off the debt, it
would be about 7% by 2014. That would mean that government would
claim less of the national economy, resulting in more private savings.

"This will free up trillions in the hands of private investors who will be able
to lend the money to businesses for investment in new plant and
equipment," according to a petition of leading economists to be unveiled
later this week.

Debt-reduction has a nice ring to it. But the better alternative is to invest
in the future productivity of our kids.

In the new economy, human capital is more important than new plant and
equipment. If we want the U.S. economy to grow even faster than the
projected 2.4% a year -- and guarantee we'll have money not just for
Social Security but also for all the doctors' bills that aging baby boomers
will rack up in Medicare, long-term home care and pharmaceuticals --
there's no better investment than in our nation's kids.

The dismal future our kids now face

It's time to face the bitter truth. America is dangerously short-changing our
kids. With almost all parents working, most pre-schoolers have lousy care.
Head Start reaches only a fraction of eligible kids. Only about half of
3-year-olds and 4-year-olds are enrolled in pre-school programs, most of
them from upper-income families. After-schoolers fare no better.

Meanwhile, the nation's school buildings are literally falling apart, even as
enrollments skyrocket. Classrooms with more than 25 kids are typical.
High-school dropouts have few vocational-education options. Surveys
show that a quarter of the children who would like to attend college still
can't afford to.

Education isn't the only way we're short-changing future generations.
More than 1 out of 6 of our children receive no health care, have no health
insurance and never see a doctor.

Neither side is addressing this problem. The president talks about some of
it, but his proposed budget barely scratches the surface. Some
Republicans talk about kids, too, but they put the onus on working or
single mothers.

This should be the Great Debate: Reduce the debt, so businesses can
invest in plant and equipment, or invest the surplus in the next
generation? Physical capital or human capital?

The politicians want to distract you from what's really at stake here. Don't
let them.

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