The BargainOur agenda presumes that what is missing most is not an exhaustive list of public policy ideas but a common framework in which to forge a set of grand economic bargains. Thus, our growth plan asks first and foremost for both congressional Republicans and Democrats to update their ideas and orthodoxies for a new century, and it offers a path to compromise that does not forsake core party values.Absent such a set of policy compacts in which both sides recede from their rigid ideological positions, neither party will be able to deliver on the one imperative that is non-negotiable for American voters in any era: sustained, robust growth.Third WayTW_ee79c65c-26cf-11e1-8cb7-fd627a64ea2aThird Way is a think tank that answers America’s challenges with modern ideas aimed at the center. We advocate for private-sector economic growth, a tough and smart centrist security strategy, a clean energy revolution, and progress on divisive social issues, all through moderate-led U.S. politics.Jim KesslerAuthorJon CowanAuthorEd GerwinAuthorMiddle ClassCongressional RepublicansCongressional Democrats... economic activity [at] a sustainable and non-inflationary 3.3% level_3d3b565c-30d9-11e2-8e31-b952e5cf9241To provide a roadmap for a series of bipartisan grand bargains which, taken together, would modernize our economy for a new and fierce era of global economic competition._3d3b5b66-30d9-11e2-8e31-b952e5cf9241GrowthFINDING #1: The U.S. “Default Growth Rate” will be 2.3% over the coming decades -- Mainstream economists now project substantially lower post-recovery growth for the United States compared to previous generations in the nation’s modern history. The Congressional Budget Office predicts 2.3% annual, post-recovery growth for America, assuming that public policies default to the current path. This rate of growth is a full point less than the annual growth America enjoyed in the 60 years following the conclusion of World War II. Consensus projections of America’s slower growth are driven by a number of trends, most notably America’s aging population and the absence of an aggressive policy response to America’s economic challenges, including long-term federal budget deficits, an outdated infrastructure, an overly complex tax code, and a leveling off of educational attainment.Middle ClassFINDING #2: Adding one point to sustainable growth offers immense benefits for America and the middle class -- Increasing America’s long-term growth by one percent would make a tremendous difference to our nation, our place in the world, and to the lives of average Americans. A Third Way economic analysis performed by Steve East, senior economist at Height Securities, LLC, finds that increasing our projected, post-recovery growth by one-point starting in 2018 would add: * $901 billion in new, real economic output in 2022 and $2.877 trillion in new output in 2030. * $792 billion in additional personal income in 2022 and $2.530 trillion in 2030. * $233 billion in lower deficit levels in 2022 (simply through higher revenue) and $866 billion in new revenue in 2030 alone. * Nearly 2 million additional jobs by 2022 and roughly 5.3 million new jobs in 2030. Ultimately, this one point means average incomes for Americans that are several thousand dollars higher; a middle class that is on a trajectory toward success rather than one in search of an elusive economic security; and the difference between a nation’s economy that is surpassed by China in two decades, and one that is larger than China’s through the middle of the century and, perhaps, beyond.Balanced BudgetRe-Balance our budget. _3d3b5ce2-30d9-11e2-8e31-b952e5cf92411DemocratsSummary: Democrats must accept a substantial reduction in our long-range federal deficits that is based significantly on entitlement reforms. Democrats must accept reconfiguring the budget so that, in relative terms, the amount of spending on health care and income supports is reduced compared to public investments. -- Democrats must accept that without a meaningful reduction in our longrange spending on the principal entitlements for the elderly of Medicare, Medicaid, and Social Security, the working age middle class of the future will be saddled by a withering tax and deficit burden. They must accept that there is no realistic path to shoring up Social Security and financing ever-increasing expenditures for Medicare and Medicaid by simply taxing the wealthy. They must also accept that, absent entitlement reforms that pare spending on Medicare, Medicaid, Social Security, as well as federal pensions, there will be little room to spend on infrastructure, education, research, housing aid, overseas food aid, and public safety. In relative terms, Democrats must accept that we must reduce federal consumption spending on health care and income supports to make room for new public investments in growth areas. There are several workable plans that solve the Social Security solvency problem with modest, gradual changes that trim benefits and increase flows into the Trust Fund. We have one of them. There are various ideas that we and others have proposed to reduce Medicare and Medicaid outlays through discreet measures that do not alter the guaranteed nature of health care to the elderly and poor and that increase quality -- creating exchanges for Medicare and Medicaid, ending first dollar coverage for Medigap policies, better managing of end of life care, a medical inflation fee, medical malpractice reform, among others. RepublicansSummary: Republicans must accept selected tax increases that meaningfully narrow the gulf between spending and revenue. Republicans must accept that investments in young people, emerging industries, new ideas, breakthrough research, old roads, and new broadband are important and must increase. -- Republicans must accept that, in a complex and global world in which the United States faces existential national security challenges, glaring public investment needs, and an aging population that is expensive to care for adequately, we cannot remotely afford their "all or nothing" approach to fiscal responsibility. They must accept that increased tax revenue is part of any serious budget deal that brings deficits to a reasonable level. Selected tax increases must meaningfully narrow the gulf between spending and revenue because a cuts-only approach is economically harmful and not politically achievable. They must also accept that not all government spending is bad and that investments in young people, emerging industries, new ideas, breakthrough research, old roads, and new broadband are worthy and should increase. Some ideas that Republicans must abandon are the preservation of the Bush tax cuts for those earning more than $250,000, opposition to the use of chain-weighted CPI across all government programs including tax brackets, and steadfast support for even the most narrowly tailored tax loopholes and expenditures. Republicans must also accept an increase in domestic discretionary caps dedicated only to growth investments.Entitlement ReformReform entitlements_3d3b5dd2-30d9-11e2-8e31-b952e5cf92411.1Health Care & Income SupportsReduce spending on health care and income supports compared to public investments._3d3b5eb8-30d9-11e2-8e31-b952e5cf92411.2Tax IncreasesSelectively increase taxes to narrow the gulf between spending and revenue. _3d3b5f9e-30d9-11e2-8e31-b952e5cf92411.3InvestmentsIncrease investments in young people, emerging industries, new ideas, breakthrough research, old roads, and new broadband._3d3b607a-30d9-11e2-8e31-b952e5cf92411.4ExportsBecome an export giant. _3d3b6160-30d9-11e2-8e31-b952e5cf92412DemocratsSummary: Democrats must accept that expanding U.S. exports comes primarily through aggressive new trade measures like the Trans Pacific Partnership. -- Democrats must accept that America’s future economic growth hinges almost entirely on our engagement with overseas trading partners. Expanding U.S. exports is contingent upon trade agreements. In the 17 countries in which the United States has bilateral trade agreements, we have a manufacturing trade surplus—in contrast to our massive manufacturing deficit in countries where we don’t have an agreement. Our biggest trade deficit is with China -- a country with which we have no agreement. Democrats must also accept that there is value in imports that goes beyond consumers’ ability to purchase inexpensive goods. There are entire industries and millions of jobs that are related to transporting, selling, and assembling imports. Part of our trade deficit has little to do with unfair practices abroad, but the unwillingness of American business and labor to agree to a modern cost structure (particularly as it pertains to non-wage benefits) that allow us to compete on price. Some ideas Democrats should support include the conclusion of a trans-Pacific trade pact that addresses tariff and non-tariff barriers to regional trade and creates a new architecture for high-standard trade agreements; an international services agreement that helps open export markets for financial products, insurance, and other services; renewed efforts to reduce health care costs for employers, such as the Cadillac tax on high cost plans; and a continued ratcheting down of formal and informal trade barriers on all sides of the border. RepublicansSummary: Republicans must accept that more must be spent on enforcing unfair trade practices and on displaced workers who need help and training due to their exposure to trade. -- Republicans must accept that even the most Schumpetarian economist knows that trade will create winners and losers in the United States. Disruption through creative destruction accelerated through global trade has very real costs despite the important net benefits it creates for society. They must accept that we are in an especially dynamic period of global transition in which enormous labor economies that were previously outside of the free market world are now inside and have created a glut of low-cost labor. Helping people cope and come through this disruption should not be a grudging concession to win a couple of trade deals, but a national priority to make trade work better for more Americans. They must accept that more must be spent on enforcing unfair trade practices, helping U.S. businesses navigate international markets, and promoting American products. In an earlier Third Way report, we identified 8 specific trade barriers that America must force China to address beyond currency. Nearly every export problem -- dealing with standards, quotas, intellectual property theft, and non-tariff barriers -- is at its worst in China and none can be solved without greater resources devoted to rules-based trade. Some ideas Republicans should embrace include full support for Trade Assistance Act efforts for displaced workers; support for continuing education for adults; aggressive funding of the President’s new Interagency Trade Enforcement Center as well as other enforcement efforts across industrial sectors; and new investments in effective export promotion programs modeled on Germany’s successful system.New Trade MeasuresExpand U.S. exports comes through aggressive new trade measures like the Trans Pacific Partnership._3d3b623c-30d9-11e2-8e31-b952e5cf92412.1Trans Pacific PartnershipUnfair Trade Practices & Displaced WorkersSpend more on enforcing unfair trade practices and on displaced workers who need help and training due to their exposure to trade._3d3b6336-30d9-11e2-8e31-b952e5cf92412.2Displaced WorkersCorporate Taxes & Business RegulationsReform corporate taxes and business regulations. _3d3b6444-30d9-11e2-8e31-b952e5cf92413CorporationsBusinessesDemocrats Summary: Democrats must accept that a simpler tax code with a low corporate rate and a streamlined regulatory regime that helps businesses grow is good for America. -- Democrats must accept that private sector job growth is the linchpin of American economic success, and a simpler tax code with a low rate and a streamlined regulatory regime that helps businesses grow is good for America. While startups and small businesses are the seedlings of future job growth, one-fourth of U.S. labor works at a firm that employs more than 10,000 people. And the dream of nearly every small business and start-up is to be a contractor for a large and successful firm. They must realize that while we want businesses to start and expand in America, there are legitimate reasons for businesses to expand and open facilities overseas; overseas operations that create profits for U.S. corporations have benefits to Americans as well. And though business must absolutely be regulated to prevent abuses, people don’t hate their employers and don’t see themselves as victims of arbitrary and capricious work rules and bosses. Ideas that Democrats should embrace include revenue-neutral corporate tax reform that lowers the rate and broadens the base; a sensible transition toward a more territorial international tax system; and a top-to-bottom review of business regulations to end redundancies, red tape, and economically harmful rules.RepublicansSummary: Republicans must accept that corporate tax reform will not add to the deficit and that regulatory agencies must be fully staffed to prevent corporate abuse. -- Republicans must accept that capitalism and free markets are theories, not theologies. Markets are, as economist John McMillan says, "not an end in itself but an imperfect means to raising living standards." Thus, they must accept that there is an appropriate tax and regulatory role for government with regard to business. Unbridled business success does not automatically spell American success. The fundamental purpose of business and financial institutions is to provide value to customers from which profits flow. The role of government isn’t just to help businesses succeed, but to help them succeed here. New businesses and nascent industries often need government help to reach adulthood. Republicans should embrace (like Democrats) corporate tax reform that does not add to the deficit and lowers the rate and broadens the base; selected broad-based tax breaks that promote research, business formation, and American production; and full funding and balanced regulations for regulatory watchdog agencies from the EPA to the SEC.Tax Simplification & Corporate RateSimplify the tax code with a low corporate rate._3d3b653e-30d9-11e2-8e31-b952e5cf92413.1RegulationStreamline the regulatory regime._3d3b664c-30d9-11e2-8e31-b952e5cf92413.2Regulatory StaffingFully staff regulatory agencies._3d3b67aa-30d9-11e2-8e31-b952e5cf92413.3WorkforceIncrease the productivity and educational attainment of the American workforce. _3d3b68b8-30d9-11e2-8e31-b952e5cf92414American WorkforceRepublicansSummary: Republicans must accept that we need further investments in education and there must be a federal role in raising performance among students and schools. -- Republicans must accept that the path to a successful workforce runs through public schools. They must accept that public schools are attended by seven of eight children and that private schools will always represent a minority of students. They must accept further investments in education. There is a federal role in increasing standards of achievement in public education and that increasing educational attainment is a national priority. The federal government has an interest in making college education available and affordable to middle class families and to help make continuing education a viable and productive option for those who have already entered the workforce. Republicans should support increased federal aid to middle-income public schools; better coordination of high school curriculum with college and technical school requirements; a federal role in evaluating objective measures of success or failure of public schools, as well as colleges and universities; preservation and expansion of existing college tax credits; and additional resources for individuals in the workforce who seek to further their career through education. DemocratsSummary: Democrats must accept that education funding comes with a commitment to reform that puts student performance above all else. -- Democrats must accept that education funding comes with a commitment to reform that puts student performance above all else. They must accept that it is virtually impossible to reform and improve education without restructuring the way teachers are hired, promoted, and dismissed. No business could improve under such a structure; schools are no exception. A high school degree should no longer be considered a benchmark of success for a school system, rather completing a twoor four-year degree must become the new standard. Schools should be measured on the number of students who earn post-secondary degrees, not on diplomas. Curriculum must be reformed to not only raise test scores, but to also prepare students to succeed in a modern work environment. Far more must be expected of parents to prepare children for school and to make the home a learning environment. Democrats should support school reforms to increase competition and performance within public schools; merit-based performance measures to attract, retain, promote, and dismiss teachers; charter models and incentives for public schools; a restructuring of teacher contracts to lower the cost of non-wage benefits; and measures to promote parental responsibility.EducationMake additional investments in education._3d3b69d0-30d9-11e2-8e31-b952e5cf92414.1PerformanceRaise performance among students and schools._3d3b6b1a-30d9-11e2-8e31-b952e5cf92414.2StudentsSchoolsTalentBecome a global magnet for talent. _3d3b6c3c-30d9-11e2-8e31-b952e5cf92415RepublicansSummary: Republicans must accept that the United States must increase legal immigration levels and use immigration policy to become a global magnet for talent. -- Republicans must accept that our current level of legal immigration is not sufficient to make up for our modest native birthrates or to create enough economic activity to afford the retirement of the Baby Boom. They must accept that deportation of 11 million undocumented immigrants is expensive and impractical, and that efforts to keep them outside of the legal structure of employment are counterproductive for the economy. Policies Republicans should embrace include increasing the level of legal immigration by at least 100,000 per year; allowing undocumented immigrants who came here as children to earn citizenship through educational attainment; providing an avenue for other undocumented immigrants to attain permanent legal status; and recruiting and retaining high-skilled immigrants who come to our colleges and universities through pathways to citizenship.DemocratsSummary: Democrats must accept that legislation must tilt future immigration flows into the country decidedly in the direction of skills and education. -- Democrats must accept that perpetually allowing illegal immigrants to earn citizenship only encourages more illegal immigration. They must accept that citizenship is not a commodity but a treasured credential. Our current legal immigration system is tilted too heavily toward family migration and not skills. U.S. immigration policy should be designed, first and foremost, to solve America’s economic needs. Policies Democrats should embrace include a more skills-based immigration policy by reserving all new immigration slots for high-skilled entrants; curtailing some future familybased immigration; and accepting permanent legality that is short of citizenship for much of the 11 million.ImmigrationIncrease legal immigration levels and use immigration policy to become a global magnet for talent._3d3b6d5e-30d9-11e2-8e31-b952e5cf92415.1ImmigrantsSkills & EducationTilt immigration flows in the direction of skills and education._3d3b6ebc-30d9-11e2-8e31-b952e5cf92415.2ImmigrantsInfrastructureImprove infrastructure. _3d3b6ff2-30d9-11e2-8e31-b952e5cf92416RepublicansSummary: Republicans must accept increased funding and innovative financing for new investments in projects that move people, products, ideas, and power better, faster, and cheaper than the rest of the world. -- Republicans must accept the correlation between public investment and private sector growth. They should accept substantially higher funding and innovative financing for new investments that move people, products, ideas, and power better, faster, and cheaper than the rest of the world. They must accept that to grow, we have to invest in cutting-edge infrastructure -- including broadband, smart electric grids, intelligent logistics, and satellite-based air traffic management. Our funding mechanisms for infrastructure projects are becoming as obsolete as the buggy whip. Ideas Republicans should embrace include higher spending on capital budget items like highways, broadband construction, and power grid improvement; leveraging public spending with private capital through such financing structures as a National Infrastructure Bank; and an increase in the revenue stream that funds infrastructure projects through a modest carbon tax, or some other revenue generating measure. Democrats Summary: Democrats must accept that cost overruns from the past have hurt public support for capital projects and they must scale up Obama Administration reforms that are working effectively to reduce waste and encourage economically beneficial projects only. -- Democrats must accept that past cost overruns damage the public perception of capital projects. In a 2007 report of 27,000 U.S. federal government funded construction projects completed between 2001 and 2005, researchers found that 82% of projects with a price tag above $5 million ran over budget -- and 30% ran at least 10% over budget. To turn this around and show that government can deliver on time and on budget, the Obama Administration has embraced sweeping reforms to prevent cost overruns -- changes that, according to the Government Accountability Office, have brought many highway and capital projects in under budget.93 Democrats must strongly support continued reforms, including those that ensure that projects are awarded for economic reasons, not constituent reasons. Ideas Democrats should embrace and bring to scale include the transparency and compliance measures used by the Administration to monitor capital projects from the Recovery Act; further contracting reform so that contractors and government are in agreement on who bears the burden of cost overruns; additional reforms to eliminate moral hazards in lowestpriced bidding; requiring complete project designs before a contract to build is awarded; and innovative financing measures like independently funded toll roads and the President’s proposed National Infrastructure Bank. Funding & FinancingIncrease funding and innovative financing for new investments in projects that move people, products, ideas, and power better, faster, and cheaper than the rest of the world._3d3b713c-30d9-11e2-8e31-b952e5cf92416.1Waste & BenefitsScale up capital projects reforms to reduce waste and encourage economically beneficial projects only._3d3b72b8-30d9-11e2-8e31-b952e5cf92416.2InnovationSpur breakthrough innovation. _3d3b740c-30d9-11e2-8e31-b952e5cf92417RepublicansSummary: Republicans must accept a sustained and generous commitment to public sector-led investments in pure research, energy innovation, science, and technology to lead the knowledge economy of the 21st century. -- Republicans must accept a sustained and generous commitment to public sector-led investments in pure research, energy innovation, science, and technology so that America leads the knowledge economy of the 21st Century. They must accept that science is valued and that scientific research should be shielded as much as possible from the culture or climate wars. They should acknowledge that not all public investments work out. Ideas Republicans should embrace include higher funding for the National Science Foundation, NASA, and other select research agencies; creating “entrepreneur” visas to allow individuals with exceptional talent and breakthrough entrepreneurial ideas to emigrate to the U.S.; and making the federal government a market for innovative technologies by, for example, expanding the Defense Department’s Operational Energy project that moves the military from traditional to alternative energy -- reducing the huge cost of fuel in both dollars and mortality in the field of battle. DemocratsSummary: Democrats must accept that breakthrough innovations are virtually meaningless without large, vibrant, and innovative private sector-led capital markets to seek out, finance, and promote new ideas. -- Democrats must accept that breakthrough innovations only lead to enormous opportunities when healthy capital markets are able to finance new ideas to make them grow. There is nothing wrong when corporations make “enormous profits.” Capital markets are as important to the development of new ideas as oxygen is to the bloodstream. Ideas include relaxing Sarbanes-Oxley rules for small IPOs; allowing for crowd-sourcing to let start-ups raise capital from small and medium investors; continuing favorable tax rates for venture capital and other investments that finance the growth of ideas and business; providing certainty in financial markets regulation; and consolidating all energy research into a National Institutes on Energy modeled after NIH.Capital MarketsPure Research, Energy, Science & TechnologyCommit to public sector-led investments in pure research, energy innovation, science, and technology_3d3b7560-30d9-11e2-8e31-b952e5cf92417.1Capital MarketsRely upon private sector-led capital markets to seek out, finance, and promote new ideas._3d3b76fa-30d9-11e2-8e31-b952e5cf92417.22012-11-17http://content.thirdway.org/publications/613/Third_Way_Report_-_The_Bargain.pdfOwenAmburOwen.Ambur@verizon.net