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Getting Our Economy Working Again E CONOMY P OLICY P APER A UGUST 2014

Getting Our Economy Working Again

ECONOMY POLICY PAPER

AUGUST 2014

SUMMARY

The United States has moved past the Great Recession, yet our economic recovery has been slow and faltering. It has taken four years for the U.S. to regain the 8.7 million jobs lost during the recession, although in that same period of time 12.8 million Americans have dropped out of the labor force altogether. 1 Although post-recession economies tend to grow at faster than average rates, the U.S. economy has failed to catch up to its pre-recession output levels, remaining 5-10% below potential. 2 The projected medium-term growth rate of the U.S. economy of 2.4% is a full point below the average of the last six decades. 3

American families are still struggling to get by with stagnant wages and rising costs, from gas to groceries –– despite productivity gains over the last 35 years. Fewer Americans now identify as middle or working class than at any time in recent history. 4 Fifty million Americans fall below the poverty line, including one out of five children. In Pennsylvania’s 10 th District, 14.2% of the population fell below the poverty line in 2012. 5 And a greater share of national income is concentrating among those who are already well-off; the top 10% of Americans earned over half of all income in 2012, the highest on record. 6 At the same time, rates of mobility between social classes remains constant and lags behind other developed economies. 7

In short, our economy is increasingly benefitting those at the top, squeezing those in the middle, and leaving far too many at the bottom behind –– with the same or less ability for individuals to advance themselves up the ladder than a half-century ago. The toxic combination of rising inequality and static mobility, tethered to slower-than-average economic growth, is the central challenge to the American Dream in the 21 st century.

challenge to the American Dream in the 21 s t century. 1 Mutikani, Lucia. Reuters .

1 Mutikani, Lucia. Reuters. June 6, 2014. “US recoups jobs lost in recession as economy picks up.”

2 Summers, Lawrence H. Business Economics Vol. 49 No. 2. 2014. “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound.”

3 The Conference Board. May 2014. “Global Economic Outlook 2014.”

4 Associated Press. Fox News. April 2, 2014. “More Americans feel they're slipping from middle class after harsh recession and slow recovery.”

5 U.S. Census Bureau. 2012. “My Congressional District, PA-10.”

6 Lowrey, Annie. The New York Times. Sept. 10, 2013. “The Rich Get Richer Through the Recovery.”

7 The Economist. Feb. 1, 2014. “Mobility, measured.”

The federal government must (i) support economic growth by improving the environment for free enterprise and enhancing human and physical capital; (ii) increase opportunity for all Americans to work their way up the economic ladder by helping to build a foundation of a strong family, a good education and a well-paying job, and (iii) provide a social safety net that is oriented to helping those truly in need and getting those who are able to work back on their feet. Government’s role is not to “create jobs” or guarantee equal economic outcomes; instead, its role is to maximize the potential of our free market by understanding how it can support growth and mobility, knowing when to get out of the way, and having the wisdom to know the difference.

THE PROBLEMS

1. Growing federal regulations

There is significant evidence that the U.S. economy is overregulated, and that a gradual accumulation of rules has slowed down long-term economic growth. While it is difficult to measure the cost of regulations, every additional federal regulation forces businesses to devote time and money to compliance, government agencies to expend resources to enforcement, and individuals to bear the ultimate costs of foregone economic opportunities.

Every year, the federal government enacts thousands of new regulations, and the pace of additional regulations is only speeding up. In the 1960s, 170,325 pages were added to the Federal Register, a listing of all government regulations; in the past decade, 802,310 pages of regulations were added. In 2013 alone, federal agencies finalized 2,594 new rules, which apply to every sector of the economy. 8

new rules, which apply to every sector of the economy. 8 8 Crews, Clyde Wayne Jr.

8 Crews, Clyde Wayne Jr. Competitive Enterprise Institute. 2014. “Ten Thousand Commandments.”

Estimates from economists and government agencies reveal the striking extent of overregulation. The Office of Management and Budget (OMB) reviewed just 116 regulations of thousands issued from 2004 to 2013, finding that these provisions cost the private sector between $68.5 and $101.8 billion a year. Given the thousands of regulations that the OMB did not review in its report and the tens of thousands that have existed since before 2004, this figure represents only a fraction of the full cost of federal regulation. 9 Other estimates are even higher. A report from the Small Business Administration estimates that regulations cost the United States $1.75 trillion in 2008. 10

Federal overregulation slows down the economy in the long-term as well. Two economists found that government regulations have slowed U.S. annual economic growth by an average of two points every sixty years. 11 As the sheer amount of federal regulation has grown, so has the size and cost of enforcement. One study finds that the cost of federal regulatory enforcement grew 75.5% between 2000 and 2010, to over $59 billion. 12 This figure represents more than three times the amount the federal government spends on agriculture programs each year. 13

Examples of ill-conceived regulations abound. Recently, the Department of Energy released a set of dishwasher efficiency regulations that would cost dishwasher manufacturers $84.6 million, or 13.3% of the industry’s net present value. While the Department estimated that the provisions would ultimately save consumers money in energy costs, its calculations assumed that consumers would use their dishwashers longer than the average life span. 14 Almost 30% of professions in the U.S. fall under occupational licensing regulations, some of which are federal, which significantly impedes job creation and social mobility. 15 Finally, the recent hastily created Dodd-Frank reforms to the finance industry added thousands of pages to the regulatory code in the name of consumer protection, which may increasingly cut off credit to individuals. 16

Due to the sheer complexity of the regulatory code, it is often difficult to repeal old regulations that no longer make sense. 17 While most federal agencies review existing regulations, the process is often slow, informal, opaque, and underfunded – making it difficult to keep track of which regulations are accomplishing their objectives. 18

9 The OMB calculates that economic benefits of the regulations in question exceed costs, yet both its cost and benefit figures are drawn from calculations made before any of the regulations were actually implemented, making the benefits figure especially unreliable. OMB. 2014. “2014 Draft Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities.”

10 This report does not estimate regulatory costs directly, relying on a global index-based regression analysis. Crain, Nicole V. & W. Mark Crain. SBA, Office of Advocacy. September 2010. “The Impact of Regulatory Costs on Small Firms.”

11 The results of this study are almost certainly exaggerated, but the macroeconomic model upon which it relies captures the large scope of missed economic opportunities caused by regulation. Dawson, John W. & John J. Seater. January 2013. “Federal Regulation and Aggregate Economic Growth.”

12 Dudley, Susan & Melinda Warren. May 2010. “A Decade of Growth in the Regulators’ Budget.”

13 Boccia, R., Fraser, A.A. & E. Goff. The Heritage Foundation. Aug. 20, 2013. “Federal Spending by the Numbers, 2013: Government Spending Trends in Graphics, Tables, and Key Points.”

14 Miller, Sofie. June 12, 2012. “Setting the Wrong Standard: DOE’s Latest Appliance Efficiency Rules.”

15 Kleiner, Morris M. & Alan B. Krueger. IZA. Feb. 2011. “Analyzing the Extent and Influence of Occupational Licensing on the Labor Market.”

16 Platt, Laurence E. AEI. July 21, 2011. “Is Dodd-Frank Regulation Cutting Off Mortgage Credit?”; Katz, Diane. The Heritage Foundation. Dec.

16, 2013. “Dodd–Frank Mortgage Rules Unleash Predatory Regulators.”

17 Cowen, Tyler. The New York Times. Nov. 16, 2013. “More Freedom on the Airplane, if Nowhere Else.”

18 GAO. July 2007. “Reexamining Regulations.”; see also, GAO. March 11, 2014. “Regulatory Review Processes Could Be Enhanced.”; see also, Coglianese, Cary. RegBlog. June 10, 2013. “Institutionalizing Regulatory Lookback.”

2. Shrinking federal investments

Education, infrastructure, and technological innovation are all essential to long-term economic growth. Yet, the U.S. is falling behind in all three areas, limiting opportunities for future generations of Americans. Public investment is being crowded out by mandatory spending on consumption, mainly our health and retirement programs. According to the Office of Management and Budget, in 1969, payments to individuals and investments in the future each made up one- third of the federal budget, but in 2012 payments to individuals reached 65% of the budget and investments were only 14%. 19

65% of the budget and investments were only 14%. 1 9 Economists have consistently found a

Economists have consistently found a strong link between education and long-term economic growth, with some attributing rapid economic growth in the 20 th century largely to education. 20 However, a recent report from the Organization for Economic Cooperation and Development showed that U.S. adults scored worse than those in most other industrialized nations in literacy, numeracy, and problem solving – skills that directly impact economic output. 21 Furthermore, American students seem to be on the same track as the adult population, receiving “mediocre” scores on the latest Programme for International Student Assessment tests. 22

The economic toll of the faltering U.S. education system is already clear: about half of employers report difficulty finding qualified workers, especially in STEM (science, technology, engineering, and math) fields. 23 Meanwhile, higher education grows more expensive every year, with even modest estimates showing an average real cost growth of 1.6% at private colleges and 2.3% at public four-year colleges over the last 20 years. 24

19 Brownstein, Ronald. National Journal. April 11, 2013. “A New Budget for a New Party.”

20 Ehrlich, Isaac. NBER. Jan. 2007. “The Mystery of Human Capital as Engine of Growth, or Why the US Became the Economic Superpower in the 20th Century.”

21 OECD. 2012. “Country Note: United States.”

22 Bidwell, Allie. U.S. News. Dec. 3, 2013. “American Students Fall in International Academic Tests, Chinese Lead the Pack.”

23 Jobs Council. “Prepare the American Workforce to Compete in the Global Economy.”

24 Leonhardt, David. The New York Times. Aug. 22, 2013. “College Costs: Rising, Yet Often Exaggerated.”

Just as education provides, among other things, the human capital to drive the economy, infrastructure investment plays a key part in maintaining our nation’s physical capital. Yet, the American Society of Civil Engineers rated the quality of U.S. infrastructure a “D+” in 2013 and estimated that it would take $3.6 trillion by 2020 to raise infrastructure quality to acceptable levels. In Pennsylvania alone, there are 5,540 structurally deficient bridges and 852 high hazard dams, and 57% of roads are in poor or mediocre condition. 25

Unlike education and infrastructure spending, investment in research and development stayed generally high throughout the recent recession. 26 However, federal research and development spending has fallen every year since 2008, and is set to stagnate over the coming years and reach its lowest level on record by the end of the decade, relative to the economy. 27 In particular, the 2013 federal budget sequester reduced federal research spending to its lowest level since 2002. 28 The positive economic impact of federal research and development spending can easily be seen in programs such as DARPA, the forerunner of the modern Internet.

3. Lack of Economic Mobility

The U.S. was once considered the land of opportunity, but recent studies have found that intergenerational mobility rates in the U.S. are lower than to be expected. While many Americans believe in the power of hard work and effort to get ahead, economic studies have found that socioeconomic class is largely dependent on one’s parents’ economic position. 29

dependent on one’s parents’ economic position. 2 9 Another analysis found that this occurs more at

Another analysis found that this occurs more at the top and bottom of the earnings ladder, especially at the bottom for American males. 30 Only, 6% of Americans climb from the bottom of the ladder to the top in one generation, compared to between 11% and 14% in other countries. 31

25 ASCE. 2013. “2013 Report Card for America’s Infrastructure.”

26 Strategy &. 2008. “Despite Recession, World's Leading Corporate Innovators Increased R&D Spending in 2008, Finds New Booz & Company Study.”

27 Plumer, Brad. The Washington Post. Feb. 26, 2013. “The coming R&D crash.”

28 Wren, Kathy. AAAS. March 25, 2013. “Impacts of Sequestration Take Shape as Congress Drops R&D Spending Below 2012 Levels.”

29 Isaacs et al. The Brookings Institution. Feb. 20, 2008. “Getting Ahead or Losing Ground: Economic Mobility in America.”

30 Jäntii et al. IZA. Jan. 2006. “American Exceptionalism in a New Light: A Comparison of Intergenerational Earnings Mobility in the Nordic Countries, the U.K. and the U.S.”

31 Isaacs et al. The Brookings Institution. Feb. 20, 2008. “Getting Ahead or Losing Ground: Economic Mobility in America.”

4.

Broken Immigration System

Federal immigration laws and policies pose two divergent long-term challenges to the economy:

the cost of undocumented immigrants to federal and state budgets, as well as missed opportunities that come from turning away high-skilled immigrants.

There are an estimated 11.7 million unauthorized immigrants in the U.S. today, and studies show that the number is rising. 32 A CBO review from 2007 concluded that these immigrants pose fiscal challenges to local and state governments, as up to half may not pay taxes, while they still benefit from government education, health care, and law enforcement. 33 Attempts to reform the U.S. immigration system have failed repeatedly since at least 1986. Most recently, due to gridlock and partisan disagreements, Congress failed to pass a bill providing emergency border funding to address tens of thousands of new undocumented immigrants, mostly children.

Meanwhile, studies have shown that U.S. companies have a shortage of employees with the requisite skills in STEM fields. 34 Many of the 4.3 million individuals waiting to immigrate to the U.S. are highly skilled in STEM fields, yet with waiting lines of up to twenty-five years, are unable to contribute their talents to the U.S. economy. 35 Immigrants have been responsible for over half of new Silicon Valley tech startups and over two-thirds of patents at some companies, indicating that continuing to turn away high-skilled immigrants will create missed economic opportunities for the U.S. 36 In fact, one study found that metropolitan areas with more high-skilled immigrants who arrived in 2007 and 2008 saw less economic decline during the recession. 37

5. Ineffective Safety Net

In the long run, a faster-growing, more innovative economy will benefit all Americans; however, in the short run, economic shifts and disruptions can cause individuals to fall below basic levels of wellbeing. The recent recession has left record numbers of Americans below the poverty line, but the federal safety net, which is intended to protect society’s most vulnerable, has become inefficient and ineffective – hurting both those it was intended to serve, and the economy as a whole. 38

It has been fifty years since President Johnson declared the War on Poverty – yet, although total welfare spending has grown from 1.2% of GDP in 1964, to around 3.5% in the 1980s, to 6.1% in 2011, poverty remains more prevalent today than ever. 39 The federal government alone spends more than $700 billion every year on anti-poverty efforts, yet this total is split between 83 distinct means-tested programs, each with separate objectives and directed by different bureaucratic offices. 40

The problem is not only how much is spent on anti-poverty programs, but that the “income gap(the difference in income between not working and collecting benefits, and working and being eligible for fewer or no benefits) is too small. Currently, there are high baseline benefit levels that

32 Preston, Julia. The New York Times. Sept. 24, 2013. “Number of Illegal Immigrants in U.S. May Be on Rise Again, Estimates Say.”

33 CBO. Dec. 2007. “The Impact of Unauthorized Immigrants on the Budgets of State and Local Governments.”

34 Rothwell, Jonathan. The Brookings Institution. July 1, 2014. “Still Searching: Job Vacancies and STEM Skills.”

35 Nwosu, C., Batalova, J., & G. Auclair. MPI. April 28, 2014. “Frequently Requested Statistics on Immigrants and Immigration in the United States.”

36 Partnership for a New American Economy. “Highly Skilled Immigrants.”

37 Lind, Dara. Vox. June 4, 2014. “This study showed that high-skilled immigrants create jobs for Americans.”

38 Kneebone, Elizabeth. The Brookings Institution. July 31, 2014. “The Growth and Spread of Concentrated Poverty, 2000 to 2008-2012.”

39 Rector, Robert. The Heritage Foundation. April 17, 2012. “Examining the Means-tested Welfare State.”

40 CRS. 2012. “CRS Report: Welfare Spending The Largest Item In The Federal Budget.”

begin to fall away as recipients begin to earn income, meaning there is diminishing returns for those that start working. Our current system does not incentivize work because the lowest-income households face high marginal tax rates and receive too little take-home pay for every additional dollar they earn. For example, Pennsylvania’s secretary of public welfare found that a hypothetical single mother with no earnings might receive $45,000 in benefits, which is comparable to what she might take home if she worked a job that paid $50,000 a year. 41 Without a large enough income gap, workers might not take an entry-level job that would eventually lead to better opportunities and greater economic mobility.

There is further evidence that the net effect of federal welfare programs and tax provisions is to discourage work among low-income Americans. A 2006 study by Laurence Kotlikoff and David Rapson found that a 45-year-old Massachusetts couple with children would have the same post-tax and post-benefit income whether their salaries totaled $25,000 or $50,000, due to rising marginal tax rates and federal benefit programs with sharp income cutoffs. The authors of the study conclude that, “the U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving.” 42

reasons to limit their labor supply and saving.” 4 2 The minimum wage is an important

The minimum wage is an important tool that ensures baseline compensation for those who work. While the minimum wage has been raised several times since it was instituted in 1938, it has never been indexed to inflation, leading the value of the minimum wage to decline gradually over time. 43 Had the minimum wage risen with inflation since its peak in 1968, it would be worth $10.86 today; instead, the lowest-wage workers earn $7.25 an hour. 44

41 Cass, Oren. National Review. Oct. 14, 2013. “The Height of the Net.”

42 Kotlikoff, Laurence J. & David Rapson. NBER. Sept. 2006. “Does it pay, at the margin, to work and save?”

43 Grossman, Jonathan. U.S. Department of Labor. “Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage.”

44 Raise the Minimum Wage. “$10.90.”

NICKS PLAN

To boost economic growth and mobility, Congress should first “do no harm” by putting an end to manufactured political crises, getting its own fiscal house in order, and streamlining federal regulations. Second, Congress should enhance human and physical capital by modernizing our immigration system and making targeted investments in education, infrastructure, and research. Third, Congress should redesign our safety net to increase the effectiveness of anti-poverty programs and provide greater incentives for full-time employment.

These are the first steps, but certainly not the only ones, to get our economy working again. Congress must also work to encourage strong families, foster innovation, support small business and promote free trade.

1. Do No Harm

Getting our Fiscal House in Order

Congress should avoid unnecessary political brinksmanship. The constant lurching from crisis to crisis fuels economic uncertainty, and has had a negative impact on job creation. During the debt ceiling fight in 2011, the U.S. never added more than 100,000 jobs a month between May and August. In September, once the debt ceiling was resolved, more than 200,000 jobs were added. 45

was resolved, more than 200,000 jobs were added. 4 5 The senseless across-the-board cuts of the

The senseless across-the-board cuts of the budget sequester in the spring of 2013, which occurred as a result of Congress failing to achieve a budget deal, reduced federal outlays by over $80 billion and led to reductions in important investments, higher unemployment, and less economic activity. 46 Further, the partial government shutdown in the fall of 2013 took $24 billion out of the economy, about $1.5 billion dollars a day. 47 This includes not only federal wages and lost productivity, but also all the ripple effects and associated costs.

45 Klein, Ezra. The Washington Post. July 30, 2012. “14 reasons why this is the worst Congress ever.”

46 Bipartisan Policy Center. “From Merely Stupid to Dangerous: The Sequester’s Effects on National and Economic Security.”

47 Walshe, Shushannah. ABC. Oct. 17, 2013. “The Costs of the Government Shutdown.”

These crises can be avoided if Congress were to implement a long-term plan to deal with rising debt and return to regular order for annual budgeting and appropriations. A plan to reform major social insurance programs and the tax code –– as laid out in other campaign policy papers –– would not only restore confidence in our economy but would contribute to greater growth.

Streamline Regulation

Reducing the complex regulatory burden on U.S. businesses will allow companies to focus on growth and job creation. Nevertheless, arbitrarily eliminating federal regulations would also cut out necessary provisions that address market failures, ensure public safety, protect public goods, and hold companies accountable for fraud and misinformation.

Two main strategies exist for improving the simplicity and quality of federal regulation: ensuring that regulations are more carefully analyzed and discussed before they are implemented, and putting procedures in place to periodically review the effectiveness and necessity of regulations after they become law. Both of these approaches will be necessary to simplify the federal regulatory code, eliminate unnecessary and harmful regulations, and create a healthier economic climate for businesses and jobs.

Specifically, Congress should:

Direct federal agencies to develop several regulatory options and evaluate each for projected costs and benefits before proposing a rule to address a particular market problem. The agency must then publically justify its eventual choice.

Require greater online transparency from federal agencies by updating the Federal Advisory Committee Act and the Government in the Sunshine Act, following recent recommendations from the Administrative Conference of the United States. 48 Specifically, require agencies to:

o

Adopt uniform procedures for the public to attend open agency meetings and for summarizing agency business conducted outside of open meetings;

o

Post agendas and relevant documents online in advance of meetings;

o

Use listservs and video streaming technology to engage interested parties in agency decision-making.

Expand staffing capacity and funding for the Office of Information and Regulatory Affairs, which plays a vital role in reviewing proposed regulations – but whose budget has shrunk 27% since the 1980s and whose review times have risen accordingly. 49

Require federal agencies to periodically review each existing regulation, perform retrospective cost-benefit analyses on major rules, and modify or eliminate ineffective or unnecessary rules.

o While several legislative statutes and presidential administrations have sporadically required the review of existing regulation, retrospective analysis is relatively rare. 50

Establish an independent commission to assess the cumulative effects of regulation on various economic sectors, identify areas of regulatory overlap, assist with regulatory

48 Bull, Reeve T. Administrative Conference of the U.S. May 7, 2014. “Government in the Sunshine Act.”

49 Ellig, Jerry & James Broughel. Mercatus Center, George Mason University. Oct. 17, 2013. “OIRA Spending Falls as Agency Spending Swells.”; Copeland, Curtis W. Administrative Conference of the U.S. Dec. 3, 2013. “OIRA Review Report.”

50 McLaughlin, Patrick & Richard Williams. Mercatus Center, George Mason University. Feb. 11, 2014. “The Consequences of Regulatory Accumulation and a Proposed Solution.”

consolidation and retrospective analysis, and issue non-binding recommendations to agencies.

Include five-year “sunset clauses” in all laws that significantly expand the federal government’s regulatory authority.

2. Strengthen Physical and Human Capital

Invest in Education, Infrastructure, and Research and Development

Increasing federal investment in education, infrastructure, and R&D is a rare policy opportunity to kill two birds with one stone: First, such initiatives provide the opportunity to immediately add jobs in vital sectors of the economy. Additionally, nationwide advances in human capital, physical capital, and technology will ensure faster economic growth for decades to come.

The ability of education, infrastructure, and R&D to add jobs to the economy should not be underestimated. Out of the 55 million jobs that are projected to open by 2020, 35% will require bachelor’s degrees – demonstrating the importance of higher education in filling these positions. 51 Infrastructure jobs account for 11% of national employment, and tend to have low barriers to entry. 52 R&D investment has a strong job-creating effect. 53

Furthermore, there is evidence that all three of these areas have promise for significant long-term economic and social returns. Studies have shown that investing in education has “powerful economic effects,” and that countries with higher test scores predictably see more robust growth. 54 According to the American Society of Civil Engineers, a failure to fix America’s infrastructure could cost up to $3.1 trillion in lost economic growth over eight years. 55 Finally, two Federal Reserve economists estimate that the rate of return on federal R&D investments may range from 30% to 100%, and that the optimal level of investment might be four times the current amount – due to weak R&D incentives for individual companies. 56

Specifically, Congress should:

Increase federal support of education by:

o

Expanding early childhood education through a competitive federal grant system that holds new programs accountable for educational outcomes;

o

Supporting robust national K-12 educational standards, especially in STEM fields, but leaving the development of curricula at the local and state level;

o

Repurposing federal higher education funds to establish America’s Promise Scholarships, which would provide all academically qualified students from lower or middle-income families with up to $8,500 a year to attend a two-year or four- year college program. 57 Some elements the scholarships should include are:

51 Center on Education and the Workforce. Georgetown University. June 26, 2013. “Recovery: Job Growth And Education Requirements Through 2020.”

52 Kane, Joseph & Robert Puentes. The Brookings Institution. May 9, 2014. “Beyond Shovel-Ready: The Extent and Impact of U.S. Infrastructure Jobs.”

53 Bogliacino, Francesco & Marco Vivarelli. IZA. Jan. 2010. “The Job Creation Effect of R&D Expenditures.”

54 Hanushek, Eric A. & Ludger Woessmann. Hoover Institution, Stanford University. 2010. “Education and Economic Growth.”

55 ASCE. 2013. “Failure to Act: The Impact of Current Infrastructure Investment on America’s Economic Future.”

56 Jones, Charles I. & John C. Williams. Feb. 1997. “Measuring the Social Return to R&D.”

57 See: “Redeeming America’s Promise.”

§ A restriction of scholarship use to educational institutions that successfully control costs and tuition, to ensure the continued affordability of higher education;

§ Provisions to encourage high school students to consider attending college, particularly potential “first generation” college students;

§ An expansion of federal income-based-repayment loans, which could be used to cover living expenses.

o Continuing to promote career and technical education for those seeking jobs that do not require a traditional four-year degree;

Provide a stable, long-term source of funding for the Highway Trust Fund through user fees, to reduce uncertainty and last-minute funding crises;

Create a national infrastructure bank that would be funded by and accountable to the federal government, but would leverage additional private investments;

Restore federal research and development funding to pre-sequester levels.

Enact Immigration Reform

Comprehensive reform that is tough, fair and practical can help grow our economy, reduce the deficit and strengthen our national security. Reform can also end our current system of de facto amnesty for our nation’s 11 million undocumented immigrants by implementing a new system that would force them to take responsibility and earn a legal status, or that would deport those who remain here illegally.

Specifically, Congress should:

Secure our border, including by expanding funding for border agents and other security enhancements;

Increase enforcement of our current immigration laws, including by advancing the adoption of a strengthened employer-based e-verify system;

Modernize our immigration system to recruit and retain additional high-skilled labor and entrepreneurs, including by lifting the cap on H-1B visas;

Upon achieving the above objectives, providing opportunities to undocumented immigrants to work toward a legal status by meeting various criteria, including clearing a background check, passing a civics test, paying a fine and waiting in line.

3. Redesign the Safety Net

Several reforms of the federal safety net have the potential not only to better serve Americans living in poverty, but also to increase prosperity for the country as a whole. There are several mechanisms through which safety net reforms can strengthen the economy, including incentivizing participation in the labor force, streamlining and improving an expansive welfare bureaucracy, and strengthening consumer demand. One particularly promising approach to accomplishing all three of these objectives is for the federal government to bifurcate safety net support between those individuals and families who are employed and those who are not –– allowing more targeted and more effective support.

On one hand, the federal government can put the states in charge of administering anti-poverty programs to those who are not employed. Allowing states to design their own programs, funded by federal money, will almost certainly lead to positive innovations in how the U.S. provides for its most vulnerable, tailored to regional and local challenges. On the other hand, the federal government can boost support for the working poor through more direct, transparent and predictable means –– giving it the ability to better control the “income gap” between the working and not working, and thereby encourage greater labor force participation. 58

While the minimum wage is an important protection for workers, it is neither an effective anti- poverty or economic growth tool. Nearly two-thirds of workers earning minimum wage are second or third earners in households at twice the poverty line or above, while only 11% come from poor households. 59 An absolute raise in the minimum wage to $10.10 could cost the economy 500,000 jobs. 60 Still, the minimum wage ought to keep pace with inflation so that workers’ earnings do not depreciate over time –– and doing so would help boost consumer demand.

Specifically, Congress should:

Implement a “Flex Fundto consolidate and block grant to the states all support for eligible non-working individuals and families. The funding formula would be determined by the size of the state’s low-income population and the poverty threshold;

Consolidate all support for eligible working individuals and families and repurpose these resources as a direct wage subsidy (for example, for those below an income threshold, the SNAP program and the Earned Income Tax Credit), essentially as a “reverse payroll tax”;

Index the minimum wage to inflation.

4. Increase Economic Mobility

To enhance economic mobility, the federal government should do what it can to encourage education, employment, and marriage. Research has found that 74% of individuals who complete high school, work full time, and wait until age 21 and are married before having children are middle class or above; three-quarters of those who do none of the above are at the poverty line or below. 61 As mentioned previously, investments in education are critical, as low-income students are still almost 6 times more likely to drop out than high-income students. Education attainment is also correlated with lower fertility rates. 62

The federal government should strengthen families and marriage by continuing marriage grant programs, social marketing campaigns, and taking measures to reduce unplanned pregnancies through support for family planning. Poverty rates in single-parent households are roughly five times as high as in two-parent households, and climbed to 13.2% last year. 63

58 Cass, Oren. National Review. September 2013. “The Height of the Net.”

59 Brooks, David. The New York Times. Jan. 16, 2014. “The Inequality Problem.”

60 Congressional Budget Office. Feb. 18, 2014. “The Effects of a Minimum-Wage Increase on Employment and Family Income.”

61 Haskins, Ron & Isabel Sawhill. The Brookings Institution. Oct. 27, 2009. “Creating an Opportunity Society.”

62 Reeves, Richard V. & Kerry Searle Grannis. Center on Children and Families at Brookings. Jan. 9, 2013. “Five Strong Starts for Social Mobility.”

63 Sawhill, Isabel & Ron Haskins. The Washington Post. Nov. 1, 2009. “5 myths about our land of opportunity.”

5. Other

Foster Innovation

American power and prosperity has always been derived from our unparalleled ability to create and innovate. We must continue to spur innovation by reducing government intervention and empowering entrepreneurs to create new jobs that will increase growth and opportunity.

Specifically, Congress should:

Reform certain legal and regulatory structures in a way that allows greater market access to new participants, rather than excluding new competition as our current environment does;

Reform our patent system to expedite the process, improve quality, curb excessive litigation, and prevent monopolies;

Reform our copyright system to allow greater power to free markets, permit consumers more personal freedom, and encourage innovation and content creation.

Support Small Business

Providing greater support to American small businesses is an important step to help the economy and job growth in the short term, as the nation moves further away from the recent recession. Overall reforms to government programs such as streamlining regulations, reining in health care costs, and reforming the tax code are the most important steps the federal government can take to aid small businesses. Additionally, the federal government can help small businesses more easily navigate the federal bureaucracy and ensure that federal small business loans, loan guarantees, and grants continue to provide necessary finance for companies.

Specifically, Congress should:

Exempt small businesses from fines for first-time paperwork violations, except if public health or safety is immediately at stake or if violations are not fixed within six months;

Create a “common application” for federal grants that small businesses can use to apply for a large range of federal assistance programs;

Require the Small Business Administration to more frequently review its loan guarantee programs to prevent defaults and improper payments.

Promote Free Trade

Free trade consists of markets that cross international borders, and as our economy becomes more global we should promote free trade. Free trade makes us collectively richer and is the most powerful force for improving poverty rates around the world. 64 In 2012, world trade stalled at 2.5% growth, compared to 13.8% in 2010. 65 Free trade would allow the U.S. to stimulate its economy, while at the same time establishing a broader economic presence in Asia. Congress should pass a Trade Promotion Authority (TPA) bill that would allow any trade deal to move quickly through Congress without allowing lawmakers to amend or filibuster trade deals.

64 Wheelan, Charles. W. W. Norton & Company Ltd. 2013. “The Centrist Manifesto.”

65 Solís, Mireya & Justin Vaïsse. The Brookings Institution. Jan. 17, 2013. “Free Trade Game Changer.”