By Matt Miller, Tuesday, August 21, 6:23 AM
As Republicans head toward next week’s convention something extraordinary has come into view now that their ticket is complete.
Mitt Romney came from wealth and went on to build his own quarter-of-a-billion dollar fortune. Paul Ryan, who has never worked a day in the private sector (outside a few months in the family firm) reports a net worth of as much as $7 million, thanks to trusts and inheritances from his and his wife’s family.
Wealthy political candidates are nothing new, of course. But we’ve never had two wealthy candidates on a national ticket whose top priority is to reduce already low taxes on the well-to-do while raising taxes on everyone else — even as they propose to slash programs that serve the poor, or that (like college aid) create chances for the lowly born to rise.
Call them the Drawbridge Republicans. As the moniker implies, these are wealthy Republicans who have no qualms about pulling up the drawbridge behind them. Such sentiments used to be reserved for the political fringe. The most prominent example was Steve Forbes, whose twin obsessions during his vanity presidential runs in 1996 and 2000 — marginal tax rates and inflation — were precisely what you’d expect from an heir in a cocoon.
(In case you were wondering, Ronald Reagan wasn’t a Drawbridge because he entered office when marginal rates, at 70 percent, were truly damaging to the economy. But as GOP business leaders now tell me privately, the Clinton-era top rate of 39.6 percent, let alone today’s 35 percent, are hardly a barrier to work or investment).
Most rich Republicans who champion regressive tax plans find it necessary to at least pretend they’re doing something to help average folks. John McCain, who’s lived large for decades thanks to his wife’s inheritance, famously had trouble keeping track of how many homes he owned — but McCain also tried bravely to create a path to citizenship for illegal immigrants. George W. Bush campaigned as a “compassionate conservative,” and touted education initiatives that made this claim plausible.
Today’s Drawbridge Republicans can’t be bothered. Yes, when their political back is to the wall — as Romney’s increasingly is — they’ll slap together a page of bullet points and dub it “a plan for the middle class.” But this is only under duress. The rest of the time they seem blissfully unaware of how off-key they sound. As the humorist Andy Borowitz tweeted the other day, “As a general matter, it’s a bad idea to talk about austerity if you just had a horse lose in the Olympics.”
Contrast conservative Prime Minister (and heir) David Cameron’s decision to defer his plans to lower the top 50 percent marginal rate in the UK. “When you’re taking the country through difficult times and difficult decisions,” Cameron said, “you’ve got to take the country with you. That means permanently trying to make the argument that what you’re doing is fair and seen to be fair.” As his spokesman added: “We need to ask those with the broadest shoulders to contribute the most.”
Now that’s a conservative ruling class with a conscience! Can anyone imagine Romney and Ryan saying the same?
The interesting question concerns psychology. Drawbridge Republicans are flesh and blood human beings peddling indefensible priorities. How do they manage it and still feel good about themselves? One possibility is that they’re simply missing the genes for empathy and self-awareness. (Steve Forbes always did seem a bit like a bubble boy whose inheritance left him impervious).
But for today’s GOP ticket that explanation feels off. Romney, for all his awkwardness, campaigned and governed in a liberal state, and he enacted a pioneering universal health care law that’s helped many of modest means achieve health security. Ryan is equally mysterious — the boy-next-door who pays lip service to “upward mobility” yet seems to have no notion his plans would likely produce what liberal analyst Robert Greenstein calls “the largest redistribution of income from the bottom to the top in modern U.S. history.”
My hunch is that extreme forms of rationalization and other defense mechanisms help Drawbridge Republicans cope with the cognitive dissonance. The growth of partisan media makes it easy to tune out disquieting dissenting views.
Whatever lies behind it, the rise of the Drawbridge Republicans makes the stakes of this election even higher. If Romney and Ryan actually win on their Drawbridge agenda, the United States will have crossed a scary new Rubicon for a supposedly advanced democracy. For years, whenever I’ve heard people criticize “limousine liberals,” I’ve always thought, well, at least that’s better than being a “limousine jerk.” Now it turns out that’s exactly what a Drawbridge Republican is.
Matt Miller is a senior fellow at the Center for American Progress and co-host of public radio’s “Left, Right & Center.” He writes a weekly online column for The Post.
Showing posts with label Budget. Show all posts
Showing posts with label Budget. Show all posts
Tuesday, August 21, 2012
Thursday, August 16, 2012
Recognizing Paul Ryan’s ‘tell’ when he is trying to avoid something
By Matt Miller, Published: August 16
In poker a “tell” is the physical giveaway or tic that lets you know someone is lying about his or her hand. In politics it’s the mode of evasion a politician chooses to sidestep a truth he or she doesn’t want to admit or to avoid saying something against self-interest. In his debut interview with Fox News’ Brit Hume Tuesday, Rep. Paul Ryan’s “tells” were audacious and revealing. They suggest an opening Democrats would be wise to pursue.
Ryan (R-Wis.) tried to cloak himself in his supposedly charming “wonky-ness” to sidestep two simple questions from Hume: When does Mitt Romney’s budget reach balance, and when does Ryan’s own budget plan do the same? Ryan pirouetted because Hume’s queries threatened to expose his famed “fiscal conservatism” as a fraud.
It’s worth parsing Ryan’s tactics in this exchange because it shows the brand of disingenuousness we’re dealing with. So let’s go to the videotape. Have a look at the relevant two-minute portion of the clip (excerpted on this CNN video) and then we’ll dissect it.
Okay, you’re back. Hume started with a simple question: “The budget plan that you’re now supporting would get to balance when?”
Now, for context, recall that in the last era of epic budget smackdowns, 1995 and 1996, Newt Gingrich would have had an equally simple answer: in seven years. President Bill Clinton’s failure to embrace the goal of a balanced budget at all was a major political liability that Clinton finally (and shrewdly) erased when he came out with his own 10-year plan in mid-1995. (It’s worth underscoring that a 10-year path to balance was viewed then as the outer limit of credibility — pledging to end the red ink any further than a decade out didn’t pass the laugh test.)
Since Ryan knows that Romney’s bare sketch of a plan never reaches balance, he stumbles momentarily before trying to move the conversation to his comfortable talking points about Romney’s goal of reducing spending to historic norms as a share of gross domestic product.
But Hume grows quietly impatient. He practically cuts Ryan off.
“I get that,” Hume says. “But what about balance?”
You can see Ryan flinch. He doesn’t know, he says. Why not? “I don’t want to get wonky on you,” he says, recovering, “because we haven’t run the numbers on that specific plan.” But that’s not “getting wonky” at all. As common sense (and the Gingrich/Clinton approach) suggests, there’s nothing arcane about this subject. You decide on a sensible path to balance as a goal and come up with policies that achieve it. All this means is that Romney hasn’t done what a fiscally conservative leader would do. Trying to evade this as a matter of not “getting wonky” is Ryan’s tell. He’s betting Hume is too dumb, uninterested or short on time to press the point.
Ryan then adds that “the plan that we’ve offered in the House balances the budget.” But he immediately stops short of saying when — you see his eyes dart to the right at that moment, his next tell — because that would mean admitting it reaches balance in the 2030s. And Ryan wants to get through this interview without saying that, because he knows it doesn’t sound good. After all, what kind of “fiscal conservative” has a 25-year plan to balance the budget? Instead, in a practiced maneuver signaled by his telltale sideways glance, he moves to a contrast with President Obama, who he says has never offered a budget that ever reaches balance.
This is true — but is a plan to balance the budget when Ryan is nearly 70 really different enough to make Ryan the “deficit hawk”? Please.
Meanwhile, Hume’s quiet baritone presses on.
“Your own budget . . . when does that contemplate reaching balance?” Hume asks.
There’s no exit. Not until the 2030s, Ryan finally admits, looking uncomfortable — but then he quickly adds, making a face, that’s only under the Congressional Budget Office’s scoring rules, implying that they’re silly constraints every Fox News viewer would agree are ridiculous (instead of sensible rules meant to credit politicians only for policy proposals that are real). Ryan adds that “we believe” if we get the economy growing, “it would balance in 10 years.” But that’s supply-side faith-based budgeting again — exactly what we ran an empirical test on in the 1980s. (And the truth is, if Ryan’s big tax cuts were properly accounted for, his plan’s real date of balance would push well beyond 2040).
Why am I harping on this? Because it’s impossible to overstate how central the unjustified label of “fiscal conservative” is to the Ryan brand and the GOP’s strategy. As Clinton understood in the 1990s, “fiscal responsibility” is a values issue important to the voters who decide modern presidential elections.
The point: Democrats can’t afford to let Ryan/Romney’s phony image as superior fiscal stewards survive. And Hume’s interview shows how swiftly this charade can be exposed if Democrats and the press zero in on simple questions like Hume’s. If the press is primed to cover this more intelligently, such queries will also expose the big Republican lie — the idea that you can balance the budget as the baby boomers age without taxes rising.
Let me be clear. The most important issue facing the country isn’t when we’re going to balance the budget. It’s how to get growth and jobs reignited in the near term and how to renew the country’s promise and competitiveness after that (an agenda in which long-term budget sanity is just the ante). But if Democrats spend all their energy on Medicare — and don’t knock out the GOP ticket’s undeserved reputation for fiscal responsibility — they’ll find themselves in unexpected peril as the race heads to the fall.
In poker a “tell” is the physical giveaway or tic that lets you know someone is lying about his or her hand. In politics it’s the mode of evasion a politician chooses to sidestep a truth he or she doesn’t want to admit or to avoid saying something against self-interest. In his debut interview with Fox News’ Brit Hume Tuesday, Rep. Paul Ryan’s “tells” were audacious and revealing. They suggest an opening Democrats would be wise to pursue.
Ryan (R-Wis.) tried to cloak himself in his supposedly charming “wonky-ness” to sidestep two simple questions from Hume: When does Mitt Romney’s budget reach balance, and when does Ryan’s own budget plan do the same? Ryan pirouetted because Hume’s queries threatened to expose his famed “fiscal conservatism” as a fraud.
It’s worth parsing Ryan’s tactics in this exchange because it shows the brand of disingenuousness we’re dealing with. So let’s go to the videotape. Have a look at the relevant two-minute portion of the clip (excerpted on this CNN video) and then we’ll dissect it.
Okay, you’re back. Hume started with a simple question: “The budget plan that you’re now supporting would get to balance when?”
Now, for context, recall that in the last era of epic budget smackdowns, 1995 and 1996, Newt Gingrich would have had an equally simple answer: in seven years. President Bill Clinton’s failure to embrace the goal of a balanced budget at all was a major political liability that Clinton finally (and shrewdly) erased when he came out with his own 10-year plan in mid-1995. (It’s worth underscoring that a 10-year path to balance was viewed then as the outer limit of credibility — pledging to end the red ink any further than a decade out didn’t pass the laugh test.)
Since Ryan knows that Romney’s bare sketch of a plan never reaches balance, he stumbles momentarily before trying to move the conversation to his comfortable talking points about Romney’s goal of reducing spending to historic norms as a share of gross domestic product.
But Hume grows quietly impatient. He practically cuts Ryan off.
“I get that,” Hume says. “But what about balance?”
You can see Ryan flinch. He doesn’t know, he says. Why not? “I don’t want to get wonky on you,” he says, recovering, “because we haven’t run the numbers on that specific plan.” But that’s not “getting wonky” at all. As common sense (and the Gingrich/Clinton approach) suggests, there’s nothing arcane about this subject. You decide on a sensible path to balance as a goal and come up with policies that achieve it. All this means is that Romney hasn’t done what a fiscally conservative leader would do. Trying to evade this as a matter of not “getting wonky” is Ryan’s tell. He’s betting Hume is too dumb, uninterested or short on time to press the point.
Ryan then adds that “the plan that we’ve offered in the House balances the budget.” But he immediately stops short of saying when — you see his eyes dart to the right at that moment, his next tell — because that would mean admitting it reaches balance in the 2030s. And Ryan wants to get through this interview without saying that, because he knows it doesn’t sound good. After all, what kind of “fiscal conservative” has a 25-year plan to balance the budget? Instead, in a practiced maneuver signaled by his telltale sideways glance, he moves to a contrast with President Obama, who he says has never offered a budget that ever reaches balance.
This is true — but is a plan to balance the budget when Ryan is nearly 70 really different enough to make Ryan the “deficit hawk”? Please.
Meanwhile, Hume’s quiet baritone presses on.
“Your own budget . . . when does that contemplate reaching balance?” Hume asks.
There’s no exit. Not until the 2030s, Ryan finally admits, looking uncomfortable — but then he quickly adds, making a face, that’s only under the Congressional Budget Office’s scoring rules, implying that they’re silly constraints every Fox News viewer would agree are ridiculous (instead of sensible rules meant to credit politicians only for policy proposals that are real). Ryan adds that “we believe” if we get the economy growing, “it would balance in 10 years.” But that’s supply-side faith-based budgeting again — exactly what we ran an empirical test on in the 1980s. (And the truth is, if Ryan’s big tax cuts were properly accounted for, his plan’s real date of balance would push well beyond 2040).
Why am I harping on this? Because it’s impossible to overstate how central the unjustified label of “fiscal conservative” is to the Ryan brand and the GOP’s strategy. As Clinton understood in the 1990s, “fiscal responsibility” is a values issue important to the voters who decide modern presidential elections.
The point: Democrats can’t afford to let Ryan/Romney’s phony image as superior fiscal stewards survive. And Hume’s interview shows how swiftly this charade can be exposed if Democrats and the press zero in on simple questions like Hume’s. If the press is primed to cover this more intelligently, such queries will also expose the big Republican lie — the idea that you can balance the budget as the baby boomers age without taxes rising.
Let me be clear. The most important issue facing the country isn’t when we’re going to balance the budget. It’s how to get growth and jobs reignited in the near term and how to renew the country’s promise and competitiveness after that (an agenda in which long-term budget sanity is just the ante). But if Democrats spend all their energy on Medicare — and don’t knock out the GOP ticket’s undeserved reputation for fiscal responsibility — they’ll find themselves in unexpected peril as the race heads to the fall.
Wednesday, July 20, 2011
The GOP’s fuzzy math By Matt Miller
The GOP’s fuzzy math By Matt Miller, Wednesday, July 20, 8:40 AM
It’s one thing for a political party to lose its moral bearings – after all, community values evolve, and large swaths of people and their elected representatives can end up on the wrong side of history on such questions as slavery, suffrage, and civil rights. But when a party loses its mathematical bearings – well, that’s a little shocking.
Yet that’s what’s happened to the Republican Party. The debt ceiling endgame has exposed the denial gripping the GOP in the face of the inevitable loss of “lower taxes” as the core of the party’s identity. You can feel the Republicans’ pain; tax cuts have been the party’s defining issue since Ronald Reagan rode them to power in 1980. But in an aging America, the numbers no longer work, and Republicans have failed to develop a new conservative vision to replace their fading mantra.
The “cap, cut and balance” plan passed by the House Tuesday night captures Republican denial perfectly. The plan would cap federal spending at 19.9 percent of GDP by 2018, with the goal of lowering it to18 percent over time. Similar caps have been endorsed by most of the GOP’s presidential candidates.
You’d never know from listening to Republicans that these goals are mathematically and politically unattainable.
But they are. Why? If there’s one fact you need to emblazon in your mind to make sense of the current debate, it is that Ronald Reagan ran the federal government at 22 percent of GDP back when our population was much younger. (Under President Obama, the extraordinary measures enacted to fight the recession – plus a collapse in the denominator, GDP -- have boosted spending to around 24 percent, while revenue has dropped to 15 percent from its 18-19 percent longtime average).
It is simply not plausible to argue that as we double the number of seniors on Social Security and Medicare, Uncle Sam will be able to operate at spending levels 10 to 20 percent below those over which America’s modern conservative icon presided. (Though, as my colleague Dana Milbank notes, Reagan agreed to raise taxes 11 times.) Today there’s no question: Taxes must rise.
Republican “thinking” about these facts is telling. According to the Wall Street Journal, House leaders picked 19.9 percent as their cap “because it is in line with the average spending level over the last thirty years.”
Well, sorry, GOP: The average spending levels of the last 30 years are irrelevant because we weren’t retiring 76 million baby boomers over the last 30 years. And decades ago per capita health costs for seniors were far smaller than they are today.
Let me pause so there’s no caricaturing of these views as belonging to some “tax and spend liberal.” I’ve advocated more “conservative” changes to Social Security than Paul Ryan did in his budget or his prior “roadmap.” I’ve urged progressives to realize that if we don’t slow Medicare’s outsized growth, there will be no money left for poor children, infrastructure, or R&D. And I’ve said we need to learn from countries like Singapore that get outstanding results in health care while spending a fraction of what we spend. So count me as a longtime entitlement reformer who has the arrows from my friends on the left to prove it.
Here’s the point: Even if we enacted the platonic ideal of sane entitlement reform, and trimmed defense (as we need to), Republican budget math still doesn’t come close to adding up. Instead, as my colleagues at the Center for American Progress have shown, shrinking spending to sub-Reagan levels while retiring the boomers would involve dramatic cuts in everything else Americans think of as government – from national parks to NASA to the FBI to cancer research to student loans.
So why does the GOP pretend otherwise? Because acknowledging mathematical reality is too politically painful. Because uttering this simple phrase – “to accommodate the retirement of the baby boomers, taxes will need to rise” – is forbidden by official Republican doctrine.
Because official Republican doctrine has banned honest math.
Aversion to honest math explains why the Ryan budget embraced by the GOP doesn’t balance the budget — even after Medicare changes that may prove fatal to the party -- until the 2030s and racks up at least $14 trillion in debt between now and then.
That’s because the Ryan budget cuts taxes. Balanced budget math in an aging America doesn’t work without higher taxes.
This doesn’t mean we shouldn’t cut taxes in the near-term to goose the economy. But when it comes to a long-term fiscal fix, the GOP’s math anxiety has produced months of debt ceiling charades instead of framing the debate we really need, which is this: Once the economy has more fully recovered, how do we lift taxes to fund the boomers’ retirement in ways least harmful to economic growth?
My own view is that this means slashing payroll taxes and corporate income taxes, while more than offsetting those tax cuts with higher taxes on consumption and dirty energy. But we can’t even get to this conversation until Republicans relinquish the fantasy that we can keep cutting overall taxes as America ages.
At bottom, this fantasy masks fear. Republicans’ refusal to let go of the old time religion shows how little work the party has done to craft an agenda equal to America’s current challenges. The party has abandoned problem-solving for brand preservation. If tax cuts aren’t our defining issue, Republican pols ask themselves, what distinguishes us from Democrats? Why should voters choose us?
Maybe the Gang of Six can end the GOP’s war on math, but I’m skeptical. For now, if it’s a choice between defying math and staring into this policy and political abyss, Republicans choose defiance.
It’s one thing for a political party to lose its moral bearings – after all, community values evolve, and large swaths of people and their elected representatives can end up on the wrong side of history on such questions as slavery, suffrage, and civil rights. But when a party loses its mathematical bearings – well, that’s a little shocking.
Yet that’s what’s happened to the Republican Party. The debt ceiling endgame has exposed the denial gripping the GOP in the face of the inevitable loss of “lower taxes” as the core of the party’s identity. You can feel the Republicans’ pain; tax cuts have been the party’s defining issue since Ronald Reagan rode them to power in 1980. But in an aging America, the numbers no longer work, and Republicans have failed to develop a new conservative vision to replace their fading mantra.
The “cap, cut and balance” plan passed by the House Tuesday night captures Republican denial perfectly. The plan would cap federal spending at 19.9 percent of GDP by 2018, with the goal of lowering it to18 percent over time. Similar caps have been endorsed by most of the GOP’s presidential candidates.
You’d never know from listening to Republicans that these goals are mathematically and politically unattainable.
But they are. Why? If there’s one fact you need to emblazon in your mind to make sense of the current debate, it is that Ronald Reagan ran the federal government at 22 percent of GDP back when our population was much younger. (Under President Obama, the extraordinary measures enacted to fight the recession – plus a collapse in the denominator, GDP -- have boosted spending to around 24 percent, while revenue has dropped to 15 percent from its 18-19 percent longtime average).
It is simply not plausible to argue that as we double the number of seniors on Social Security and Medicare, Uncle Sam will be able to operate at spending levels 10 to 20 percent below those over which America’s modern conservative icon presided. (Though, as my colleague Dana Milbank notes, Reagan agreed to raise taxes 11 times.) Today there’s no question: Taxes must rise.
Republican “thinking” about these facts is telling. According to the Wall Street Journal, House leaders picked 19.9 percent as their cap “because it is in line with the average spending level over the last thirty years.”
Well, sorry, GOP: The average spending levels of the last 30 years are irrelevant because we weren’t retiring 76 million baby boomers over the last 30 years. And decades ago per capita health costs for seniors were far smaller than they are today.
Let me pause so there’s no caricaturing of these views as belonging to some “tax and spend liberal.” I’ve advocated more “conservative” changes to Social Security than Paul Ryan did in his budget or his prior “roadmap.” I’ve urged progressives to realize that if we don’t slow Medicare’s outsized growth, there will be no money left for poor children, infrastructure, or R&D. And I’ve said we need to learn from countries like Singapore that get outstanding results in health care while spending a fraction of what we spend. So count me as a longtime entitlement reformer who has the arrows from my friends on the left to prove it.
Here’s the point: Even if we enacted the platonic ideal of sane entitlement reform, and trimmed defense (as we need to), Republican budget math still doesn’t come close to adding up. Instead, as my colleagues at the Center for American Progress have shown, shrinking spending to sub-Reagan levels while retiring the boomers would involve dramatic cuts in everything else Americans think of as government – from national parks to NASA to the FBI to cancer research to student loans.
So why does the GOP pretend otherwise? Because acknowledging mathematical reality is too politically painful. Because uttering this simple phrase – “to accommodate the retirement of the baby boomers, taxes will need to rise” – is forbidden by official Republican doctrine.
Because official Republican doctrine has banned honest math.
Aversion to honest math explains why the Ryan budget embraced by the GOP doesn’t balance the budget — even after Medicare changes that may prove fatal to the party -- until the 2030s and racks up at least $14 trillion in debt between now and then.
That’s because the Ryan budget cuts taxes. Balanced budget math in an aging America doesn’t work without higher taxes.
This doesn’t mean we shouldn’t cut taxes in the near-term to goose the economy. But when it comes to a long-term fiscal fix, the GOP’s math anxiety has produced months of debt ceiling charades instead of framing the debate we really need, which is this: Once the economy has more fully recovered, how do we lift taxes to fund the boomers’ retirement in ways least harmful to economic growth?
My own view is that this means slashing payroll taxes and corporate income taxes, while more than offsetting those tax cuts with higher taxes on consumption and dirty energy. But we can’t even get to this conversation until Republicans relinquish the fantasy that we can keep cutting overall taxes as America ages.
At bottom, this fantasy masks fear. Republicans’ refusal to let go of the old time religion shows how little work the party has done to craft an agenda equal to America’s current challenges. The party has abandoned problem-solving for brand preservation. If tax cuts aren’t our defining issue, Republican pols ask themselves, what distinguishes us from Democrats? Why should voters choose us?
Maybe the Gang of Six can end the GOP’s war on math, but I’m skeptical. For now, if it’s a choice between defying math and staring into this policy and political abyss, Republicans choose defiance.
Wednesday, November 17, 2010
Another Deficit Plan Targets Taxes By DAMIAN PALETTA
Another Deficit Plan Targets Taxes By DAMIAN PALETTA
A panel of Democrats, Republicans, economists and other experts said Wednesday that a complete overhaul of the U.S. tax code is the best way to address the nation's fiscal problems—a new and likely controversial idea aimed at tackling the growing deficit.
John Bussey discusses a new plan to reduce the deficit from a group led by Democrat Alice Rivlin and Republican Pete Domenici. The group envisions a complete overhaul of the U.S. tax code.
Journal Community
The report, co-authored by Democratic budget veteran Alice Rivlin and former Sen. Pete Domenici (R., N.M.), follows a separate proposal last week by the two chairmen of President Barack Obama's deficit commission. The many similarities between the two offer a window into the types of proposals that might win backing as Washington launches into what is likely to be a protracted debate on deficit cutting.
The most recent report, put together by a group called the Bipartisan Policy Center, calls for a one-year payroll-tax holiday in 2011 that it says will create between 2.5 million and 7 million jobs.
The plan would lower income and corporate tax rates and offset them with a 6.5% national sales, or "consumption," tax as well as an excise tax on sugar drinks like soda.
The Bipartisan Policy Center was created in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell with the aim of finding solutions to major national issues.
Last week's proposal, from Democrat Erskine Bowles and Republican former Sen. Alan Simpson, also called for an overhaul of tax and spending programs. Other similarities include:
View Full Image
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Getty Images
Alice Rivlin and Pete Domenici in January speaking about the U.S. debt.
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• Changing the formula for social-security taxes so that they are levied against 90% of all wages, compared with the current system, which caps the tax at a certain income level.
• Major cuts in discretionary spending. Both singled out a government policy that allows military retirees to collect full benefits after 20 years.
• Cuts to farm subsidies and either eliminating or limiting certain politically popular tax breaks, such as the mortgage-interest tax deduction.
Democrats and Republicans are largely in agreement that the U.S. debt is on an unsustainable path, and ideas are pouring in from both sides. Rep. Jan Schakowsky (D., Ill.), a member of Mr. Obama's commission, offered her own proposal Tuesday, calling for $110.7 billion in defense spending cuts in 2015 and raising $132.2 billion in revenue by closing certain tax loopholes for companies that she said ship jobs overseas.
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Mr. Domenici, in an interview, said, "In some ways, [the debt] is a silent killer, eating away at our future,"
Because the proposals touch so many key parts of the economy, from taxes to spending, they have triggered opposition. The latest came Tuesday, when Defense Secretary Robert Gates said the proposal by Messrs. Bowles and Simpson to cut $100 billion from defense spending would have a "catastrophic" impact on national security.
Those cuts are "math, not strategy," he said at The Wall Street Journal's CEO Council in Washington.
Mr. Domenici, who spent 36 years in the Senate, called for a four-year freeze on defense spending as part of his report and said Pentagon officials should be less resistant. "Everybody must sacrifice, and our military leaders...must bear their share to get [the debt] under control," he said.
The Rivlin/Domenici proposal is likely to attract the most attention for its proposed 6.5% Debt Reduction Sales Tax, which some will liken to a value-added tax that exists in some parts of Europe.
Rep. Eric Cantor (R., Va.), who is likely to become House majority leader in January, said Tuesday that many lawmakers wouldn't support VAT-type tax because its ties to Europe might make it politically poisonous in Washington.
"I don't think any of us want us to go the direction of the social welfare states around the world," Mr. Cantor said at the CEO Council.
Journal Community
* discuss
“ Changing the tax structure without controlling federal spending first is a waste of time. ”
—Edward Neis
Ms. Rivlin said the national sales tax was necessary to bring in revenue lost by cutting income and corporate tax rates and putting in the one-year payroll-tax holiday. A "consumption tax was a good way to go rather than try to put more burden on an income tax," she said.
Another change in the proposal would affect health-care costs. The proposal would, starting in 2018, encourage people to purchase private insurance plans by charging higher premiums for Medicare if costs rise faster than certain limits.
Treasury Secretary Timothy Geithner said at the CEO Council Tuesday that the administration was waiting to see what the specific proposals looked like before it weighs in on specifics. He said the ideal situation would combine short-term fiscal policies that help sustain growth with medium and long-term policies that cut the debt.
Write to Damian Paletta at damian.paletta@wsj.com
Bean Counters to the Rescue! By DAVID BROOKS AND GAIL COLLINS In The Conversation, David Brooks and Gail Collins talk between columns every Wednesday
NOVEMBER 17, 2010, 12:31 PM
Bean Counters to the Rescue! By DAVID BROOKS AND GAIL COLLINS In The Conversation, David Brooks and Gail Collins talk between columns every Wednesday.
Tags:
budget, federal deficit, Politics
The New York Times
Gail Collins: David, did you do the budget puzzle in The Times on Sunday? I really enjoyed seeing if I could eliminate all the shortfalls for the next 20 years. (Thank you, David Leonhardt and Co.) The first time I did it, about two-thirds of my savings came from increased tax revenue rather than spending cuts. But in the end, I got it down to 50-50. How about you?
David Brooks: Boy was I excited when I saw that chart. There I was with my cognac and slippers spending another leisurely morning brunching with Bill and Melinda, Sergey and Larry, Bruce and Bono, Kanye and Taylor when my eyes alighted on that chart. Well, of course, we threw back a few shots and played pin the tail on the deficit.
As I told Denzel when he arrived, you don’t want to be anywhere near a 50-50 spending-cuts-to-taxes split. That’s because international studies have shown repeatedly that higher tax revenues inevitably get spent whereas spending cuts really do go to reduce the deficit.
I was aiming for 70-30. Raising taxes on employer health benefits does double duty because it gets you revenue and it gives the health care system some cost control. Other than that, I was all over the mortgage interest deduction, agriculture subsidies, reducing our nuclear arsenal, raising the retirement age and the Social Security cost-of-living adjustment.
I was going to shelve the mortgage deduction but the housing market is in such a mess now that it seemed like a bad moment.
Gail Collins: Look, I had a glamorous weekend, too. After the dog threw up there were several hours of unmitigated excitement involving a mouse in the garbage can. But about that budget. Obviously, some of the options were of the meat-cleaver variety. For instance, I happily eliminated farm subsidies with my mind on big agribusiness, but if the ones to help small farmers practice better land conservation are in there, I want some of that money back.
David Brooks: My big personal hit was the mortgage interest deduction. I bought a house counting on it, but now I figure I have to give it up for the good of the country. I’m willing.
Gail Collins: This is why you are known among your friends as David the Celebrity Patriot. I was going to shelve the mortgage deduction but the housing market is in such a mess now that it seemed like, um, a bad moment. And I’m such a pessimist I suspect that particular bad moment could still be with us in 2030.
But we part company on this business of raising the Social Security retirement age. It sounds seductive. (Push it to 70 and get $247 billion by 2030.) The much-made argument is that people are living longer so they should retire later. But the longevity is skewed to the high-income earners, and if there’s one thing we already have enough of in this country it’s government programs to make the rich richer.
Sorry, we’ve got to raise the retirement age. There’s no way young people can subsidize the oldsters for nearly a quarter of their lives.
David Brooks: Sorry, we’ve got to raise the retirement age. If you are 60 right now, you can expect to live another 22.4 years. There’s no way young people can subsidize the oldsters for nearly a quarter of their lives. Especially when children today will be getting a negative net return on the money they put into the system. The whole thing will go kablooie if we ask people to surrender to a program that makes them worse off.
Gail Collins: We will agree to disagree on that one. On the positive side, there were some things I really did enjoy hitting the computer to delete. Cancel or delay some weapons programs: Yes! No more contracts for two different engines for the very same F-35. Return the estate tax to Clinton era levels! Get rid of the Bush tax cuts for the wealthy! And if Mitch McConnell’s ready to get rid of earmarks now, you aren’t going to see me standing in his way.
David Brooks: I’m actually with you on those weapons systems. I’m for keeping some earmarks though. They’re useful for getting legislation passed and they make congressmen so happy! I would repeal all the Bush tax cuts too, including the middle-class ones.
Gail Collins: There are some proposed cuts that I don’t really agree with but I’m tired of fighting about them. I don’t think medical malpractice reform is going to save any money — and even in this puzzle it’s only $13 billion over the next 25 years. But every time we start talking about health care costs there’s this shrieking about malpractice suits, and it just cuts off the conversation and gives people who don’t want to do anything an easy out. So I’ll concede malpractice reform, but I want an asterisk there saying we have to do it very, very carefully. Also, if foregoing the next 1.4 percent raise for federal civil service workers will get the Republicans to stop talking about laying them off, I concede.
David Brooks: In the spirit of compromise, I’m willing to give you the consumption tax if you’re willing to lower corporate taxes, to improve competitiveness.
Gail Collins: I’ll totally sign on to lowered corporate taxes if we get rid of all the loopholes, too.
Did you notice that at the beginning of the exercise, when the options were all discretionary domestic spending, the savings were $12 billion here, $14 billion there. Then you get to health care, and capping Medicare growth saves you $562 billion by 2030! It’s far and away the biggest single option.
Many of the same people who spent the last campaign wringing their hands over earmarks ($14 billion) were also warning the voters that Obamacare is going to cut Medicare or, in their parlance “get between you and your doctor.” They poisoned the well on the one issue that would actually solve the budget crisis they claim to be so worried about. Not that I’m bitter or anything.
David Brooks: I guess I also keep coming back to the biggest square on that page, Medicare. If we don’t cut that, nothing else matters.
I bet between us we could come up with a package in about five minutes. The problem is never with the policy substance. The problem is finding a political strategy to get it passed. Maybe next Sunday, David Leonhardt and his team could put together a chutes and ladders type game. Roll the dice and try to move your piece through the legislative process. Pass a bill and get re-elected!
That game would be really hard.
Bean Counters to the Rescue! By DAVID BROOKS AND GAIL COLLINS In The Conversation, David Brooks and Gail Collins talk between columns every Wednesday.
Tags:
budget, federal deficit, Politics
The New York Times
Gail Collins: David, did you do the budget puzzle in The Times on Sunday? I really enjoyed seeing if I could eliminate all the shortfalls for the next 20 years. (Thank you, David Leonhardt and Co.) The first time I did it, about two-thirds of my savings came from increased tax revenue rather than spending cuts. But in the end, I got it down to 50-50. How about you?
David Brooks: Boy was I excited when I saw that chart. There I was with my cognac and slippers spending another leisurely morning brunching with Bill and Melinda, Sergey and Larry, Bruce and Bono, Kanye and Taylor when my eyes alighted on that chart. Well, of course, we threw back a few shots and played pin the tail on the deficit.
As I told Denzel when he arrived, you don’t want to be anywhere near a 50-50 spending-cuts-to-taxes split. That’s because international studies have shown repeatedly that higher tax revenues inevitably get spent whereas spending cuts really do go to reduce the deficit.
I was aiming for 70-30. Raising taxes on employer health benefits does double duty because it gets you revenue and it gives the health care system some cost control. Other than that, I was all over the mortgage interest deduction, agriculture subsidies, reducing our nuclear arsenal, raising the retirement age and the Social Security cost-of-living adjustment.
I was going to shelve the mortgage deduction but the housing market is in such a mess now that it seemed like a bad moment.
Gail Collins: Look, I had a glamorous weekend, too. After the dog threw up there were several hours of unmitigated excitement involving a mouse in the garbage can. But about that budget. Obviously, some of the options were of the meat-cleaver variety. For instance, I happily eliminated farm subsidies with my mind on big agribusiness, but if the ones to help small farmers practice better land conservation are in there, I want some of that money back.
David Brooks: My big personal hit was the mortgage interest deduction. I bought a house counting on it, but now I figure I have to give it up for the good of the country. I’m willing.
Gail Collins: This is why you are known among your friends as David the Celebrity Patriot. I was going to shelve the mortgage deduction but the housing market is in such a mess now that it seemed like, um, a bad moment. And I’m such a pessimist I suspect that particular bad moment could still be with us in 2030.
But we part company on this business of raising the Social Security retirement age. It sounds seductive. (Push it to 70 and get $247 billion by 2030.) The much-made argument is that people are living longer so they should retire later. But the longevity is skewed to the high-income earners, and if there’s one thing we already have enough of in this country it’s government programs to make the rich richer.
Sorry, we’ve got to raise the retirement age. There’s no way young people can subsidize the oldsters for nearly a quarter of their lives.
David Brooks: Sorry, we’ve got to raise the retirement age. If you are 60 right now, you can expect to live another 22.4 years. There’s no way young people can subsidize the oldsters for nearly a quarter of their lives. Especially when children today will be getting a negative net return on the money they put into the system. The whole thing will go kablooie if we ask people to surrender to a program that makes them worse off.
Gail Collins: We will agree to disagree on that one. On the positive side, there were some things I really did enjoy hitting the computer to delete. Cancel or delay some weapons programs: Yes! No more contracts for two different engines for the very same F-35. Return the estate tax to Clinton era levels! Get rid of the Bush tax cuts for the wealthy! And if Mitch McConnell’s ready to get rid of earmarks now, you aren’t going to see me standing in his way.
David Brooks: I’m actually with you on those weapons systems. I’m for keeping some earmarks though. They’re useful for getting legislation passed and they make congressmen so happy! I would repeal all the Bush tax cuts too, including the middle-class ones.
Gail Collins: There are some proposed cuts that I don’t really agree with but I’m tired of fighting about them. I don’t think medical malpractice reform is going to save any money — and even in this puzzle it’s only $13 billion over the next 25 years. But every time we start talking about health care costs there’s this shrieking about malpractice suits, and it just cuts off the conversation and gives people who don’t want to do anything an easy out. So I’ll concede malpractice reform, but I want an asterisk there saying we have to do it very, very carefully. Also, if foregoing the next 1.4 percent raise for federal civil service workers will get the Republicans to stop talking about laying them off, I concede.
David Brooks: In the spirit of compromise, I’m willing to give you the consumption tax if you’re willing to lower corporate taxes, to improve competitiveness.
Gail Collins: I’ll totally sign on to lowered corporate taxes if we get rid of all the loopholes, too.
Did you notice that at the beginning of the exercise, when the options were all discretionary domestic spending, the savings were $12 billion here, $14 billion there. Then you get to health care, and capping Medicare growth saves you $562 billion by 2030! It’s far and away the biggest single option.
Many of the same people who spent the last campaign wringing their hands over earmarks ($14 billion) were also warning the voters that Obamacare is going to cut Medicare or, in their parlance “get between you and your doctor.” They poisoned the well on the one issue that would actually solve the budget crisis they claim to be so worried about. Not that I’m bitter or anything.
David Brooks: I guess I also keep coming back to the biggest square on that page, Medicare. If we don’t cut that, nothing else matters.
I bet between us we could come up with a package in about five minutes. The problem is never with the policy substance. The problem is finding a political strategy to get it passed. Maybe next Sunday, David Leonhardt and his team could put together a chutes and ladders type game. Roll the dice and try to move your piece through the legislative process. Pass a bill and get re-elected!
That game would be really hard.
Tuesday, November 16, 2010
One Way to Trim Deficit: Cultivate Growth
By DAVID LEONHARDT
We look back on the late 1990s as a rare time when the federal government ran budget surpluses. We tend to forget that those surpluses came as a surprise to almost everybody.
As late as 1998, the Congressional Budget Office was predicting a deficit for 1999. In fact, Washington ran its biggest surplus in five decades.
What happened? Above all, economic growth. And that may be a big part of the answer to our current problems.
Yes, the government became more fiscally conservative in the 1990s. Both President George H. W. Bush (who doesn’t get enough credit) and President Bill Clinton, working with Congress, raised taxes to attack the 1980s deficits.
But those tax increases were the second most important reason for the surpluses that followed. The most important was the fact that the economy grew more rapidly than expected. The faster growth pushed up incomes and caused more tax revenue to flow into the Treasury.
Today’s looming deficits are almost surely too large to be closed exclusively with growth. The baby boom generation is too big, and the rise in Medicare costs continues to be too steep. Yet growth could still make an enormous difference.
If the economy grew one half of a percentage point faster than forecast each year over the next two decades — no easy feat, to be fair — the country would have to do roughly 40 to 50 percent less deficit-cutting than it now appears, based on my reading of budget data from the economists Alan Auerbach and William Gale.
To get a concrete sense for what this would mean, you can play around with the The Times’s online deficit puzzle. It asks you to find almost $1.4 trillion in annual spending cuts and tax increases by the year 2030. If growth were a half point faster than expected, the needed savings would instead drop to less than $700 billion. That would mean many fewer painful choices, be they tax increases or Medicare cuts.
So arguably the single best way to cut the deficit is to make sure that any deficit-cutting plan does not also cut economic growth. Ideally, it will lift growth.
There are two main ways to do so. First, we shouldn’t plunge ourselves back into another economic slump by raising taxes and cutting spending too quickly. President Franklin Roosevelt made that mistake in 1937, and this time (one hopes) the country won’t be able to rely on war mobilization spending to undo the error.
In the short term, we should actually spend more. “Some politicians and economists present a false choice: reduce unemployment or stabilize the debt,” argues a new bipartisan deficit plan that will be released Wednesday, the second such plan to come out in the last week. As Alice Rivlin, a Democrat who oversaw the writing of the plan with Pete Domenici, a Republican, put it: “We can do both. We can put money in people’s pockets in the short run and trim government spending in the long run.” .
The plan calls for a one-year payroll tax holiday for employers and workers, costing $650 billion. But remember that’s a one-time sum, while the needed deficit cuts will be hundreds of billions of dollars a year. Relative to those cuts, a payroll tax holiday — or more spending on roads and bridges, as President Obama favors — is a rounding error. And, of course, putting people back to work has its own benefits.
Even more important than the next couple of years is the second part of a pro-growth strategy: the long term. A good deficit plan doesn’t simply make across-the-board cuts for years on end. It cuts funding for programs that do not spur economic growth and increases funding for those relatively few that do. Likewise, it raises tax rates that do not have a clear record of promoting growth and cuts those that do.
This task is not an easy one, because advocates and lobbyists inevitably claim that their idea, whatever it is, will help the larger economy. Just look at farm subsidies, a form of welfare for agribusiness that is supposedly crucial to the American economy. Or look at President George W. Bush’s tax cuts, which, after being sold as an economic elixir, were followed by the slowest decade of growth since before World War II.
The two bipartisan deficit proposals that have come out over the last week each do a pretty good job, but not quite good enough, of focusing on economic growth. The most pro-growth part of both proposals — the Domenici-Rivlin plan and the one from Erskine Bowles and Alan Simpson — is their emphasis on tax reform.
Today’s tax code is a thicket of deductions, credits and loopholes that force people to change their behavior and waste time trying to avoid too large of a tax bill. A tax code with fewer deductions and lower rates — which, to be clear, is not the same thing as a tax cut — would instead let businesses and households focus on being as productive as possible. The potential to make good money would drive more decisions, and the ability to qualify for a tax break would drive fewer.
Beyond tax reform, both deficit plans mention the importance of making investments that will lead to future growth. In particular, the Bowles-Simpson plan calls for a gradual 15-cents-a-gallon increase in the federal gasoline tax to pay for highways, mass transit and other projects. The plans also urge the government to prioritize education and science.
These are clearly among the best ways to promote growth. The United States created the world’s most prosperous economy last century in large measure because it was the world’s most educated country. It no longer is. Federal science dollars, meanwhile, led to the creation of the intercontinental railroad, the airline industry, the microchip, the personal computer, the Internet and numerous medical breakthroughs. Yet science funding is scheduled to decline as stimulus money runs out.
Unfortunately, the plans don’t get more specific than saying that education and science are important. The only dedicated money for specific investments in either plan is the infrastructure fund financed by the gas tax. And, realistically, exhorting a future Congress to avoid wasteful spending and prioritize growth has about as much chance of success as exhorting it to find the political will to revamp Medicare.
The two bipartisan deficit groups deserve a lot of credit for starting to move the debate beyond vagaries. There is one more step they can take, though: making sure we remember that cutting the deficit is not only about making cuts.
By DAVID LEONHARDT
We look back on the late 1990s as a rare time when the federal government ran budget surpluses. We tend to forget that those surpluses came as a surprise to almost everybody.
As late as 1998, the Congressional Budget Office was predicting a deficit for 1999. In fact, Washington ran its biggest surplus in five decades.
What happened? Above all, economic growth. And that may be a big part of the answer to our current problems.
Yes, the government became more fiscally conservative in the 1990s. Both President George H. W. Bush (who doesn’t get enough credit) and President Bill Clinton, working with Congress, raised taxes to attack the 1980s deficits.
But those tax increases were the second most important reason for the surpluses that followed. The most important was the fact that the economy grew more rapidly than expected. The faster growth pushed up incomes and caused more tax revenue to flow into the Treasury.
Today’s looming deficits are almost surely too large to be closed exclusively with growth. The baby boom generation is too big, and the rise in Medicare costs continues to be too steep. Yet growth could still make an enormous difference.
If the economy grew one half of a percentage point faster than forecast each year over the next two decades — no easy feat, to be fair — the country would have to do roughly 40 to 50 percent less deficit-cutting than it now appears, based on my reading of budget data from the economists Alan Auerbach and William Gale.
To get a concrete sense for what this would mean, you can play around with the The Times’s online deficit puzzle. It asks you to find almost $1.4 trillion in annual spending cuts and tax increases by the year 2030. If growth were a half point faster than expected, the needed savings would instead drop to less than $700 billion. That would mean many fewer painful choices, be they tax increases or Medicare cuts.
So arguably the single best way to cut the deficit is to make sure that any deficit-cutting plan does not also cut economic growth. Ideally, it will lift growth.
There are two main ways to do so. First, we shouldn’t plunge ourselves back into another economic slump by raising taxes and cutting spending too quickly. President Franklin Roosevelt made that mistake in 1937, and this time (one hopes) the country won’t be able to rely on war mobilization spending to undo the error.
In the short term, we should actually spend more. “Some politicians and economists present a false choice: reduce unemployment or stabilize the debt,” argues a new bipartisan deficit plan that will be released Wednesday, the second such plan to come out in the last week. As Alice Rivlin, a Democrat who oversaw the writing of the plan with Pete Domenici, a Republican, put it: “We can do both. We can put money in people’s pockets in the short run and trim government spending in the long run.” .
The plan calls for a one-year payroll tax holiday for employers and workers, costing $650 billion. But remember that’s a one-time sum, while the needed deficit cuts will be hundreds of billions of dollars a year. Relative to those cuts, a payroll tax holiday — or more spending on roads and bridges, as President Obama favors — is a rounding error. And, of course, putting people back to work has its own benefits.
Even more important than the next couple of years is the second part of a pro-growth strategy: the long term. A good deficit plan doesn’t simply make across-the-board cuts for years on end. It cuts funding for programs that do not spur economic growth and increases funding for those relatively few that do. Likewise, it raises tax rates that do not have a clear record of promoting growth and cuts those that do.
This task is not an easy one, because advocates and lobbyists inevitably claim that their idea, whatever it is, will help the larger economy. Just look at farm subsidies, a form of welfare for agribusiness that is supposedly crucial to the American economy. Or look at President George W. Bush’s tax cuts, which, after being sold as an economic elixir, were followed by the slowest decade of growth since before World War II.
The two bipartisan deficit proposals that have come out over the last week each do a pretty good job, but not quite good enough, of focusing on economic growth. The most pro-growth part of both proposals — the Domenici-Rivlin plan and the one from Erskine Bowles and Alan Simpson — is their emphasis on tax reform.
Today’s tax code is a thicket of deductions, credits and loopholes that force people to change their behavior and waste time trying to avoid too large of a tax bill. A tax code with fewer deductions and lower rates — which, to be clear, is not the same thing as a tax cut — would instead let businesses and households focus on being as productive as possible. The potential to make good money would drive more decisions, and the ability to qualify for a tax break would drive fewer.
Beyond tax reform, both deficit plans mention the importance of making investments that will lead to future growth. In particular, the Bowles-Simpson plan calls for a gradual 15-cents-a-gallon increase in the federal gasoline tax to pay for highways, mass transit and other projects. The plans also urge the government to prioritize education and science.
These are clearly among the best ways to promote growth. The United States created the world’s most prosperous economy last century in large measure because it was the world’s most educated country. It no longer is. Federal science dollars, meanwhile, led to the creation of the intercontinental railroad, the airline industry, the microchip, the personal computer, the Internet and numerous medical breakthroughs. Yet science funding is scheduled to decline as stimulus money runs out.
Unfortunately, the plans don’t get more specific than saying that education and science are important. The only dedicated money for specific investments in either plan is the infrastructure fund financed by the gas tax. And, realistically, exhorting a future Congress to avoid wasteful spending and prioritize growth has about as much chance of success as exhorting it to find the political will to revamp Medicare.
The two bipartisan deficit groups deserve a lot of credit for starting to move the debate beyond vagaries. There is one more step they can take, though: making sure we remember that cutting the deficit is not only about making cuts.
Monday, November 15, 2010
The Party of No By ROSS DOUTHAT
November 14, 2010
The Party of No By ROSS DOUTHAT
By offering up their joint recommendation last week for balancing the budget, the co-chairmen of Barack Obama’s fiscal commission didn’t solve our deficit problem once and for all, or clear a path through the political thickets facing would-be budget cutters. But Erskine Bowles and Alan Simpson performed a valuable public service nonetheless: the reaction to their proposals demonstrated that when it comes to addressing the long-term challenges facing this country, the Democrats, too, can play the Party of No.
Last week’s media coverage sometimes made it sound as if Bowles and Simpson were taking the same amount of fire from left and right. But the reaction from Republican lawmakers and the conservative intelligentsia was muted, respectful and often favorable; the right-wing griping mostly came from single-issue activists and know-nothing television entertainers. The liberal attacks, on the other hand, came fast and furious, from pundits and leading Democratic politicians alike — starting with the speaker of the House, Nancy Pelosi, who pronounced the recommendations “simply unacceptable” almost immediately after their release.
Liberals defended this knee-jerk response on the grounds that the commissioners’ vision, ostensibly bipartisan, was actually tilted toward Republican priorities. And it’s true that Bowles and Simpson proposed more spending cuts than tax increases over all. But most of the programs and tax breaks that they suggested trimming — from farm subsidies to Defense Department bloat and the home-mortgage tax deduction — represent the American welfare state at its absolute worst. And the duo went out of their way to avoid balancing the budget on the backs of the poor. (Social Security, for instance, would be strengthened through a mix of tax increases and benefit cuts for wealthier seniors; retirees close to the poverty line would see their benefits increase.)
Their proposals certainly weren’t flawless, but they did manage to include good ideas from right and left alike. And it’s illuminating, and very depressing, that Democrats were so immediately outraged by a plan that reduces corporate welfare, makes Social Security more progressive, slashes the defense budget, raises the tax rate on millionaires’ summer homes — and does all of this while capping the government’s share of gross domestic product, not at some Scrooge-like minimum but at the highest level in modern American history.
Needless to say, none of the liberal lawmakers attacking the Simpson-Bowles proposals offered alternative blueprints for restoring America’s solvency. The Democratic Party has plans for many things, but a balanced budget isn’t one of them.
But pondering what Nancy Pelosi and her compatriots are rejecting gives us a pretty good sense of what they’re for. It’s a world where the government perpetually warps the real estate and health care marketplaces, subsidizing McMansions and gold-plated insurance plans to the tune of billions every year. It’s a world where federal jobs are sacrosanct, but the private sector has to labor under one of the higher corporate tax rates in the developed West. It’s a world where the Social Security retirement age never budges, no matter how high average life expectancy climbs. And it’s a world where federal spending rises inexorably to 25 percent of G.D.P. and beyond, and taxes rise with it.
Liberals sometimes justify this vision by arguing that government has to permanently subsidize the middle class and affluent in order to maintain public support for any safety net at all. (Most voters won’t support a system of basic social insurance for the poor, the theory goes, unless they’re getting something out of it as well.) And they defend the ever-rising tax rates required to finance these ever-expanding entitlements by noting that America thrived economically in the wake of World War II, when income-tax rates were much higher than they are today.
The first argument ignores the lessons of liberalism’s usual teacher, Western Europe, where governments have successfully reduced spending on their pension and entitlement systems without compromising their commitment to their neediest citizens. The second argument ignores the fact that the postwar United States didn’t have any serious economic competitors (the rest of the globe having been brought to its knees by total war), whereas today, an overtaxed America would struggle to compete with China and India and Brazil.
But the deeper problem is that the entire approach treats Americans as moral midgets, incapable of providing for the elderly and indigent without being bribed with giveaways and propped up with subsidies. The alternative sketched by Bowles and Simpson last week has its weaknesses, but it has this great virtue: It treats Americans not as clients but as citizens, and not as children but as adults.
The Party of No By ROSS DOUTHAT
By offering up their joint recommendation last week for balancing the budget, the co-chairmen of Barack Obama’s fiscal commission didn’t solve our deficit problem once and for all, or clear a path through the political thickets facing would-be budget cutters. But Erskine Bowles and Alan Simpson performed a valuable public service nonetheless: the reaction to their proposals demonstrated that when it comes to addressing the long-term challenges facing this country, the Democrats, too, can play the Party of No.
Last week’s media coverage sometimes made it sound as if Bowles and Simpson were taking the same amount of fire from left and right. But the reaction from Republican lawmakers and the conservative intelligentsia was muted, respectful and often favorable; the right-wing griping mostly came from single-issue activists and know-nothing television entertainers. The liberal attacks, on the other hand, came fast and furious, from pundits and leading Democratic politicians alike — starting with the speaker of the House, Nancy Pelosi, who pronounced the recommendations “simply unacceptable” almost immediately after their release.
Liberals defended this knee-jerk response on the grounds that the commissioners’ vision, ostensibly bipartisan, was actually tilted toward Republican priorities. And it’s true that Bowles and Simpson proposed more spending cuts than tax increases over all. But most of the programs and tax breaks that they suggested trimming — from farm subsidies to Defense Department bloat and the home-mortgage tax deduction — represent the American welfare state at its absolute worst. And the duo went out of their way to avoid balancing the budget on the backs of the poor. (Social Security, for instance, would be strengthened through a mix of tax increases and benefit cuts for wealthier seniors; retirees close to the poverty line would see their benefits increase.)
Their proposals certainly weren’t flawless, but they did manage to include good ideas from right and left alike. And it’s illuminating, and very depressing, that Democrats were so immediately outraged by a plan that reduces corporate welfare, makes Social Security more progressive, slashes the defense budget, raises the tax rate on millionaires’ summer homes — and does all of this while capping the government’s share of gross domestic product, not at some Scrooge-like minimum but at the highest level in modern American history.
Needless to say, none of the liberal lawmakers attacking the Simpson-Bowles proposals offered alternative blueprints for restoring America’s solvency. The Democratic Party has plans for many things, but a balanced budget isn’t one of them.
But pondering what Nancy Pelosi and her compatriots are rejecting gives us a pretty good sense of what they’re for. It’s a world where the government perpetually warps the real estate and health care marketplaces, subsidizing McMansions and gold-plated insurance plans to the tune of billions every year. It’s a world where federal jobs are sacrosanct, but the private sector has to labor under one of the higher corporate tax rates in the developed West. It’s a world where the Social Security retirement age never budges, no matter how high average life expectancy climbs. And it’s a world where federal spending rises inexorably to 25 percent of G.D.P. and beyond, and taxes rise with it.
Liberals sometimes justify this vision by arguing that government has to permanently subsidize the middle class and affluent in order to maintain public support for any safety net at all. (Most voters won’t support a system of basic social insurance for the poor, the theory goes, unless they’re getting something out of it as well.) And they defend the ever-rising tax rates required to finance these ever-expanding entitlements by noting that America thrived economically in the wake of World War II, when income-tax rates were much higher than they are today.
The first argument ignores the lessons of liberalism’s usual teacher, Western Europe, where governments have successfully reduced spending on their pension and entitlement systems without compromising their commitment to their neediest citizens. The second argument ignores the fact that the postwar United States didn’t have any serious economic competitors (the rest of the globe having been brought to its knees by total war), whereas today, an overtaxed America would struggle to compete with China and India and Brazil.
But the deeper problem is that the entire approach treats Americans as moral midgets, incapable of providing for the elderly and indigent without being bribed with giveaways and propped up with subsidies. The alternative sketched by Bowles and Simpson last week has its weaknesses, but it has this great virtue: It treats Americans not as clients but as citizens, and not as children but as adults.
Sunday, November 14, 2010
Safer Social Security By PETER ORSZAG
November 14, 2010
Safer Social Security By PETER ORSZAG
Social Security is not the key fiscal problem facing the nation. Payments to its beneficiaries amount to 5 percent of the economy now; by 2050, they’re projected to rise to about 6 percent. Over the same period, federal health care costs will increase six times as much.
Nevertheless, Social Security does face an actuarial deficit. Current projections suggest that, after 2037, benefits would need to be reduced by more than 20 percent to match revenue. Measured over the next 75 years, the deficit in Social Security is expected to amount to 0.7 percent of the economy — not a huge amount, but a deficit nonetheless.
So it would be desirable to put the system on sounder financial footing. And that is precisely what the co-chairmen of President Obama’s bipartisan commission on reducing the national debt have bravely proposed to do. It’s too bad their proposal has been greeted with so much criticism, especially from progressives — who really should look at it as an opportunity to fix Social Security without privatizing it. Although the plan leans too much on future benefit reductions and not enough on revenue increases, it still offers a good starting point for reform.
The proposal put forward last week by Alan Simpson, the former Senate Republican leader, and Erskine Bowles, who was a White House chief of staff under President Bill Clinton, has four main elements.
First, it would make the payroll tax more progressive by increasing the maximum earnings level to which it applies. Over the past several decades, as higher earners have enjoyed particularly rapid wage gains, a growing share of their wages has escaped the tax because they have been above the maximum taxable level. Today, about 15 percent of total wages are not taxed. The chairmen recommend gradually raising the maximum threshold so that, by 2050, only 10 percent of total wages wouldn’t be taxed — decreasing the 75-year Social Security deficit by more than a third.
Second, Mr. Simpson and Mr. Bowles recommend indexing the age at which full Social Security benefits can be received to increases in life expectancy. This age is already increasing to 67, and under the proposal the gradual rise would continue, to 68 by 2050. A better approach would be to leave the full benefit age alone and instead directly reduce the monthly benefits as life expectancy rises, to keep average lifetime benefits roughly constant. But the chairmen’s approach would by itself narrow the Social Security gap by about a fifth.
The third suggested change is to make the formula for determining Social Security benefits more progressive, by reducing future payments to high earners while increasing them for people at the bottom. These adjustments would close at least another third of the projected deficit. And they would also help offset a little-noticed trend: affluent Americans are increasingly living longer than others. This pushes the Social Security system toward being less progressive, as higher earners collect benefits for more years.
Finally, Mr. Bowles and Mr. Simpson would have Congress adjust the cost-of-living index that’s used to determine annual increases in Social Security benefits so that it would measure inflation more accurately. Making this switch would fill in more than a quarter of the long-term deficit, because the new index would grow more slowly.
If Congress were to take all four of these recommended steps, it could not only eliminate the long-term deficit in Social Security but also make the system much more progressive. Even compared with the benefits promised by the current system, the recommended benefits for the poorest 20 percent of recipients would increase by about 5 percent, while those for the wealthiest retirees would fall by almost 20 percent.
Furthermore, the plan would not create private accounts within Social Security — the most controversial issue that came up when reform was last debated in 2005. Why not lock in a reform when private accounts are off the table? (Note to progressives: the Social Security plan put forward by Paul Ryan of Wisconsin, the expected new chairman of the House Budget Committee, does include private accounts.)
The main flaw in the proposed Social Security plan is that it relies too little on revenue increases and too much on future benefit reductions. A reasonable objective would be a 50-50 balance between changes in benefits and changes in revenues. But the way to bring reform into better proportion is to adjust the components of this proposal, not to fundamentally remodel it.
Finally, even though Social Security is not a major contributor to our long-term deficits, reforming it could help the federal government establish much-needed credibility on solving out-year fiscal problems — which in turn could improve the political prospects for providing additional short-term stimulus for the economy. All of which suggests that Democrats in Congress should support the basic construct of the Bowles-Simpson proposal, while arguing for some changes to improve it. That has not, however, been their reaction thus far.
It is therefore crucial that the Obama administration recognize the opportunity and respond to it more positively. The White House has been handed a highly progressive reform plan for Social Security that could attract Republican support as well.
Peter Orszag, the director of the White House Office of Management and Budget from 2009 to 2010 and a distinguished visiting fellow at the Council on Foreign Relations, is a contributing columnist for The Times.
Safer Social Security By PETER ORSZAG
Social Security is not the key fiscal problem facing the nation. Payments to its beneficiaries amount to 5 percent of the economy now; by 2050, they’re projected to rise to about 6 percent. Over the same period, federal health care costs will increase six times as much.
Nevertheless, Social Security does face an actuarial deficit. Current projections suggest that, after 2037, benefits would need to be reduced by more than 20 percent to match revenue. Measured over the next 75 years, the deficit in Social Security is expected to amount to 0.7 percent of the economy — not a huge amount, but a deficit nonetheless.
So it would be desirable to put the system on sounder financial footing. And that is precisely what the co-chairmen of President Obama’s bipartisan commission on reducing the national debt have bravely proposed to do. It’s too bad their proposal has been greeted with so much criticism, especially from progressives — who really should look at it as an opportunity to fix Social Security without privatizing it. Although the plan leans too much on future benefit reductions and not enough on revenue increases, it still offers a good starting point for reform.
The proposal put forward last week by Alan Simpson, the former Senate Republican leader, and Erskine Bowles, who was a White House chief of staff under President Bill Clinton, has four main elements.
First, it would make the payroll tax more progressive by increasing the maximum earnings level to which it applies. Over the past several decades, as higher earners have enjoyed particularly rapid wage gains, a growing share of their wages has escaped the tax because they have been above the maximum taxable level. Today, about 15 percent of total wages are not taxed. The chairmen recommend gradually raising the maximum threshold so that, by 2050, only 10 percent of total wages wouldn’t be taxed — decreasing the 75-year Social Security deficit by more than a third.
Second, Mr. Simpson and Mr. Bowles recommend indexing the age at which full Social Security benefits can be received to increases in life expectancy. This age is already increasing to 67, and under the proposal the gradual rise would continue, to 68 by 2050. A better approach would be to leave the full benefit age alone and instead directly reduce the monthly benefits as life expectancy rises, to keep average lifetime benefits roughly constant. But the chairmen’s approach would by itself narrow the Social Security gap by about a fifth.
The third suggested change is to make the formula for determining Social Security benefits more progressive, by reducing future payments to high earners while increasing them for people at the bottom. These adjustments would close at least another third of the projected deficit. And they would also help offset a little-noticed trend: affluent Americans are increasingly living longer than others. This pushes the Social Security system toward being less progressive, as higher earners collect benefits for more years.
Finally, Mr. Bowles and Mr. Simpson would have Congress adjust the cost-of-living index that’s used to determine annual increases in Social Security benefits so that it would measure inflation more accurately. Making this switch would fill in more than a quarter of the long-term deficit, because the new index would grow more slowly.
If Congress were to take all four of these recommended steps, it could not only eliminate the long-term deficit in Social Security but also make the system much more progressive. Even compared with the benefits promised by the current system, the recommended benefits for the poorest 20 percent of recipients would increase by about 5 percent, while those for the wealthiest retirees would fall by almost 20 percent.
Furthermore, the plan would not create private accounts within Social Security — the most controversial issue that came up when reform was last debated in 2005. Why not lock in a reform when private accounts are off the table? (Note to progressives: the Social Security plan put forward by Paul Ryan of Wisconsin, the expected new chairman of the House Budget Committee, does include private accounts.)
The main flaw in the proposed Social Security plan is that it relies too little on revenue increases and too much on future benefit reductions. A reasonable objective would be a 50-50 balance between changes in benefits and changes in revenues. But the way to bring reform into better proportion is to adjust the components of this proposal, not to fundamentally remodel it.
Finally, even though Social Security is not a major contributor to our long-term deficits, reforming it could help the federal government establish much-needed credibility on solving out-year fiscal problems — which in turn could improve the political prospects for providing additional short-term stimulus for the economy. All of which suggests that Democrats in Congress should support the basic construct of the Bowles-Simpson proposal, while arguing for some changes to improve it. That has not, however, been their reaction thus far.
It is therefore crucial that the Obama administration recognize the opportunity and respond to it more positively. The White House has been handed a highly progressive reform plan for Social Security that could attract Republican support as well.
Peter Orszag, the director of the White House Office of Management and Budget from 2009 to 2010 and a distinguished visiting fellow at the Council on Foreign Relations, is a contributing columnist for The Times.
Wednesday, November 10, 2010
Editorial Some Fiscal Reality
November 10, 2010 Editorial Some Fiscal Reality
The draft proposal by the chairmen of President Obama’s deficit-reduction commission was a welcome antidote to the low-minded debate that dominated the midterm elections, in which politicians all vowed to reduce the deficit but offered no credible plans.
The proposal, released Wednesday, comes from Erskine Bowles, formerly the chief of staff for President Bill Clinton, and Alan Simpson, the former Republican senator from Wyoming. It frankly acknowledges what most politicians are too cowardly to admit — that deficit reduction will require shared sacrifice.
It lays out sensible principles, prominent among them that deficit reduction should start gradually, beginning in 2012, to avoid disrupting the fragile economic recovery. It also affirms the need to protect the most vulnerable Americans and to invest in education, infrastructure and research and development.
Then it does what any successful deficit reduction plan must do: It puts everything on the table, including tax reform to raise revenue and cuts in spending on health care and defense. It even dares to mention the need to find significant savings in Social Security, Medicare and other mandatory programs.
In a misguided provision, it assumes that spending and revenues should not exceed 21 percent of gross domestic product — a numeric limit that could make it impossible to meet future national needs. In all, however, the proposal is both broad and deep.
It is not clear what the commission’s final report will say. It is even doubtful that this plan would garner the 14 votes from the 18-member commission that are required to send the package to Congress for a vote in December.
At a time when good ideas are depressingly scarce in the political and economic debate, and bipartisan agreement even scarcer, this is a commendable start.
Some first impressions:
TAXES The proposal includes three options for tax reform, two of which would simplify the code by reducing income tax rates while modifying or repealing many tax deductions and other tax breaks. The third calls on Congress to undertake tax reform, while putting in place automatic tax increases if it fails to act by 2013.
The sensible aim is to raise more money — roughly $1 trillion over 10 years — than under the current system. We wish the co-chairmen had come right out and said directly that the country needs to raise taxes. Instead, the proposal says coyly that the tax changes would “reduce the deficit.”
Tax simplification is a benefit in itself. A tax code that is easier to understand is also one that is more likely to be perceived as fair, without which it would be impossible to get public support for reform.
The reforms should go farther. Raising enough revenue in a global economy driven by trade, finance, services and spending will require new sources, such as energy taxes, a financial transactions tax or a value-added tax. A value-added tax that doesn’t fall most heavily on lower-income Americans could be a significant spur to growth, because it doesn’t tax savings.
THE MILITARY The Pentagon, which accounts for half of all discretionary spending, got virtually all it wanted after 9/11. Since the recession, Defense Secretary Robert Gates has cut back several dozen unneeded weapons programs for a long-term savings of $330 billion. He has called for $100 billion in administrative cuts and efficiencies over five years. But he would plow the savings into troops and weapons modernization, maintaining modest growth in overall spending.
The new proposal would go far beyond that, anticipating $100 billion in military budget cuts in 2015 alone — and would put the savings into deficit reduction.
It calls for freezing salaries and bonuses for the Pentagon’s civilian work force and noncombat military pay, cutting weapons procurement by 15 percent and slashing military personnel at bases in Europe and Asia by one-third. All ideas well worth debating.
The most politically volatile suggestion may be to tackle military health care costs, which rose from $19 billion to an unsustainable $50 billion over the last decade. The commission blueprint would raise premiums and co-payments on military retirees who now pay no premiums and very low deductibles. Many of these retirees work in the private sector but opt for much cheaper government health insurance. Their employers would be required to reimburse the government for the employer share of the retiree’s health cost, eliminating what the chairmen say is a government subsidy for a normal business expense.
SOCIAL SECURITY To ensure the system’s solvency over 75 years, the proposal would reduce benefits to most future retirees. It would also subject higher levels of income to the payroll taxes that support the program, while building in safeguards for both low-income and long-lived beneficiaries.
The cuts to middle-class benefits are too large — a function of the fact that the proposal tilts too heavily toward cuts in benefits rather than increases in revenue.
What is important is that the proposal preserves the system’s basic character and successful design: the young support the old via payroll taxes and the rich help the poor via a benefits formula that favors the neediest.
HEALTH CARE The proposals for reducing federal health care costs include some worthy ideas that are usually ducked or weakened because of political or interest-group opposition.
In some cases, the chairmen would go beyond the new health care reform law by strengthening some of the most important cost-cutting provisions that were watered down in the struggle to pass the legislation. It would strengthen a Medicare payment advisory board and cap tax exclusions for employer-sponsored plans at a lower level than the law does.
The chairmen would spread the pain in both ideological directions. They propose caps on malpractice awards that can drive up costs, which is anathema to Democratic-leaning trial lawyers, and, if costs rise faster than targets, they back the introduction of a public plan on the new insurance exchanges, which is anathema to Republicans. All of this is described so sketchily that it is hard to predict the impact.
As we read the chairmen’s proposal, we had one very strong reaction: We hoped the Republicans would pause long enough in their gleeful planning of President Obama’s final defeat, and the Democrats would stop wringing their hands, long enough to read this important document — and then act on it.
The draft proposal by the chairmen of President Obama’s deficit-reduction commission was a welcome antidote to the low-minded debate that dominated the midterm elections, in which politicians all vowed to reduce the deficit but offered no credible plans.
The proposal, released Wednesday, comes from Erskine Bowles, formerly the chief of staff for President Bill Clinton, and Alan Simpson, the former Republican senator from Wyoming. It frankly acknowledges what most politicians are too cowardly to admit — that deficit reduction will require shared sacrifice.
It lays out sensible principles, prominent among them that deficit reduction should start gradually, beginning in 2012, to avoid disrupting the fragile economic recovery. It also affirms the need to protect the most vulnerable Americans and to invest in education, infrastructure and research and development.
Then it does what any successful deficit reduction plan must do: It puts everything on the table, including tax reform to raise revenue and cuts in spending on health care and defense. It even dares to mention the need to find significant savings in Social Security, Medicare and other mandatory programs.
In a misguided provision, it assumes that spending and revenues should not exceed 21 percent of gross domestic product — a numeric limit that could make it impossible to meet future national needs. In all, however, the proposal is both broad and deep.
It is not clear what the commission’s final report will say. It is even doubtful that this plan would garner the 14 votes from the 18-member commission that are required to send the package to Congress for a vote in December.
At a time when good ideas are depressingly scarce in the political and economic debate, and bipartisan agreement even scarcer, this is a commendable start.
Some first impressions:
TAXES The proposal includes three options for tax reform, two of which would simplify the code by reducing income tax rates while modifying or repealing many tax deductions and other tax breaks. The third calls on Congress to undertake tax reform, while putting in place automatic tax increases if it fails to act by 2013.
The sensible aim is to raise more money — roughly $1 trillion over 10 years — than under the current system. We wish the co-chairmen had come right out and said directly that the country needs to raise taxes. Instead, the proposal says coyly that the tax changes would “reduce the deficit.”
Tax simplification is a benefit in itself. A tax code that is easier to understand is also one that is more likely to be perceived as fair, without which it would be impossible to get public support for reform.
The reforms should go farther. Raising enough revenue in a global economy driven by trade, finance, services and spending will require new sources, such as energy taxes, a financial transactions tax or a value-added tax. A value-added tax that doesn’t fall most heavily on lower-income Americans could be a significant spur to growth, because it doesn’t tax savings.
THE MILITARY The Pentagon, which accounts for half of all discretionary spending, got virtually all it wanted after 9/11. Since the recession, Defense Secretary Robert Gates has cut back several dozen unneeded weapons programs for a long-term savings of $330 billion. He has called for $100 billion in administrative cuts and efficiencies over five years. But he would plow the savings into troops and weapons modernization, maintaining modest growth in overall spending.
The new proposal would go far beyond that, anticipating $100 billion in military budget cuts in 2015 alone — and would put the savings into deficit reduction.
It calls for freezing salaries and bonuses for the Pentagon’s civilian work force and noncombat military pay, cutting weapons procurement by 15 percent and slashing military personnel at bases in Europe and Asia by one-third. All ideas well worth debating.
The most politically volatile suggestion may be to tackle military health care costs, which rose from $19 billion to an unsustainable $50 billion over the last decade. The commission blueprint would raise premiums and co-payments on military retirees who now pay no premiums and very low deductibles. Many of these retirees work in the private sector but opt for much cheaper government health insurance. Their employers would be required to reimburse the government for the employer share of the retiree’s health cost, eliminating what the chairmen say is a government subsidy for a normal business expense.
SOCIAL SECURITY To ensure the system’s solvency over 75 years, the proposal would reduce benefits to most future retirees. It would also subject higher levels of income to the payroll taxes that support the program, while building in safeguards for both low-income and long-lived beneficiaries.
The cuts to middle-class benefits are too large — a function of the fact that the proposal tilts too heavily toward cuts in benefits rather than increases in revenue.
What is important is that the proposal preserves the system’s basic character and successful design: the young support the old via payroll taxes and the rich help the poor via a benefits formula that favors the neediest.
HEALTH CARE The proposals for reducing federal health care costs include some worthy ideas that are usually ducked or weakened because of political or interest-group opposition.
In some cases, the chairmen would go beyond the new health care reform law by strengthening some of the most important cost-cutting provisions that were watered down in the struggle to pass the legislation. It would strengthen a Medicare payment advisory board and cap tax exclusions for employer-sponsored plans at a lower level than the law does.
The chairmen would spread the pain in both ideological directions. They propose caps on malpractice awards that can drive up costs, which is anathema to Democratic-leaning trial lawyers, and, if costs rise faster than targets, they back the introduction of a public plan on the new insurance exchanges, which is anathema to Republicans. All of this is described so sketchily that it is hard to predict the impact.
As we read the chairmen’s proposal, we had one very strong reaction: We hoped the Republicans would pause long enough in their gleeful planning of President Obama’s final defeat, and the Democrats would stop wringing their hands, long enough to read this important document — and then act on it.
Thursday, October 07, 2010
The End of the Tunnel By PAUL KRUGMAN
October 7, 2010
The End of the Tunnel By PAUL KRUGMAN
The Erie Canal. Hoover Dam. The Interstate Highway System. Visionary public projects are part of the American tradition, and have been a major driver of our economic development.
And right now, by any rational calculation, would be an especially good time to improve the nation’s infrastructure. We have the need: our roads, our rail lines, our water and sewer systems are antiquated and increasingly inadequate. We have the resources: a million-and-a-half construction workers are sitting idle, and putting them to work would help the economy as a whole recover from its slump. And the price is right: with interest rates on federal debt at near-record lows, there has never been a better time to borrow for long-term investment.
But American politics these days is anything but rational. Republicans bitterly opposed even the modest infrastructure spending contained in the Obama stimulus plan. And, on Thursday, Chris Christie, the governor of New Jersey, canceled America’s most important current public works project, the long-planned and much-needed second rail tunnel under the Hudson River.
It was a destructive and incredibly foolish decision on multiple levels. But it shouldn’t have been all that surprising. We are no longer the nation that used to amaze the world with its visionary projects. We have become, instead, a nation whose politicians seem to compete over who can show the least vision, the least concern about the future and the greatest willingness to pander to short-term, narrow-minded selfishness.
So, about that tunnel: with almost 1,200 people per square mile, New Jersey is the most densely populated state in America, more densely populated than any major European nation. Add in the fact that many residents work in New York, and you have a state that can’t function without adequate public transportation. There just isn’t enough space for everyone to drive to work.
But right now there’s just one century-old rail tunnel linking New Jersey and New York — and it’s running close to capacity. The need for another tunnel couldn’t be more obvious.
So last year the project began. Of the $8.7 billion in planned funding, less than a third was to come from the State of New Jersey; the rest would come, in roughly equal amounts, from the independent Port Authority of New York and New Jersey and from the federal government. Even if costs were to rise substantially, as they often do on big projects, it was a very good deal for the state.
But Mr. Christie killed it anyway.
News reports suggest that his immediate goal was to shift funds to local road projects and existing rail repairs. There were, however, much better ways to raise those funds, such as an increase in the state’s relatively low gasoline taxes — and bear in mind that whatever motorists gain from low gas taxes will be at least partly undone by pain from the canceled project in the form of growing congestion and traffic delays. But, no, in modern America, no tax increase can ever be justified, for any reason.
So this was a terrible, shortsighted move from New Jersey’s point of view. But that’s not the whole cost. Canceling the tunnel was also a blow to national hopes of recovery, part of a pattern of penny-pinching that has played a large role in our continuing economic stagnation.
When people ask why the Obama stimulus didn’t accomplish more, one good response is to ask, what stimulus? Leaving aside the cost of financial rescues and safety-net programs like unemployment insurance, federal spending has risen only modestly — and this rise has been largely offset by cutbacks at the state and local level. Many of these cuts were forced by Congress, which has refused to approve adequate aid to the states. But as Mr. Christie is demonstrating, local politicians are also doing their part.
And the ideology that has led Mr. Christie to undermine his state’s future is, of course, the same ideology that has led almost all Republicans and some Democrats to stand in the way of any meaningful action to revive the nation’s economy. Worse yet, next month’s election seems likely to reward Republicans for their obstructionism.
So here’s how you should think about the decision to kill the tunnel: It’s a terrible thing in itself, but, beyond that, it’s a perfect symbol of how America has lost its way. By refusing to pay for essential investment, politicians are both perpetuating unemployment and sacrificing long-run growth. And why not? After all, this seems to be a winning electoral strategy. All vision of a better future seems to have been lost, replaced with a refusal to look beyond the narrowest, most shortsighted notion of self-interest.
I wish I could say something optimistic at this point. But at least for now, I don’t see any light at the end of this tunnel.
The End of the Tunnel By PAUL KRUGMAN
The Erie Canal. Hoover Dam. The Interstate Highway System. Visionary public projects are part of the American tradition, and have been a major driver of our economic development.
And right now, by any rational calculation, would be an especially good time to improve the nation’s infrastructure. We have the need: our roads, our rail lines, our water and sewer systems are antiquated and increasingly inadequate. We have the resources: a million-and-a-half construction workers are sitting idle, and putting them to work would help the economy as a whole recover from its slump. And the price is right: with interest rates on federal debt at near-record lows, there has never been a better time to borrow for long-term investment.
But American politics these days is anything but rational. Republicans bitterly opposed even the modest infrastructure spending contained in the Obama stimulus plan. And, on Thursday, Chris Christie, the governor of New Jersey, canceled America’s most important current public works project, the long-planned and much-needed second rail tunnel under the Hudson River.
It was a destructive and incredibly foolish decision on multiple levels. But it shouldn’t have been all that surprising. We are no longer the nation that used to amaze the world with its visionary projects. We have become, instead, a nation whose politicians seem to compete over who can show the least vision, the least concern about the future and the greatest willingness to pander to short-term, narrow-minded selfishness.
So, about that tunnel: with almost 1,200 people per square mile, New Jersey is the most densely populated state in America, more densely populated than any major European nation. Add in the fact that many residents work in New York, and you have a state that can’t function without adequate public transportation. There just isn’t enough space for everyone to drive to work.
But right now there’s just one century-old rail tunnel linking New Jersey and New York — and it’s running close to capacity. The need for another tunnel couldn’t be more obvious.
So last year the project began. Of the $8.7 billion in planned funding, less than a third was to come from the State of New Jersey; the rest would come, in roughly equal amounts, from the independent Port Authority of New York and New Jersey and from the federal government. Even if costs were to rise substantially, as they often do on big projects, it was a very good deal for the state.
But Mr. Christie killed it anyway.
News reports suggest that his immediate goal was to shift funds to local road projects and existing rail repairs. There were, however, much better ways to raise those funds, such as an increase in the state’s relatively low gasoline taxes — and bear in mind that whatever motorists gain from low gas taxes will be at least partly undone by pain from the canceled project in the form of growing congestion and traffic delays. But, no, in modern America, no tax increase can ever be justified, for any reason.
So this was a terrible, shortsighted move from New Jersey’s point of view. But that’s not the whole cost. Canceling the tunnel was also a blow to national hopes of recovery, part of a pattern of penny-pinching that has played a large role in our continuing economic stagnation.
When people ask why the Obama stimulus didn’t accomplish more, one good response is to ask, what stimulus? Leaving aside the cost of financial rescues and safety-net programs like unemployment insurance, federal spending has risen only modestly — and this rise has been largely offset by cutbacks at the state and local level. Many of these cuts were forced by Congress, which has refused to approve adequate aid to the states. But as Mr. Christie is demonstrating, local politicians are also doing their part.
And the ideology that has led Mr. Christie to undermine his state’s future is, of course, the same ideology that has led almost all Republicans and some Democrats to stand in the way of any meaningful action to revive the nation’s economy. Worse yet, next month’s election seems likely to reward Republicans for their obstructionism.
So here’s how you should think about the decision to kill the tunnel: It’s a terrible thing in itself, but, beyond that, it’s a perfect symbol of how America has lost its way. By refusing to pay for essential investment, politicians are both perpetuating unemployment and sacrificing long-run growth. And why not? After all, this seems to be a winning electoral strategy. All vision of a better future seems to have been lost, replaced with a refusal to look beyond the narrowest, most shortsighted notion of self-interest.
I wish I could say something optimistic at this point. But at least for now, I don’t see any light at the end of this tunnel.
Sunday, March 22, 2009
When ‘Deficit’ Isn’t a Dirty Word By ROBERT H. FRANK
March 22, 2009
Economic View
When ‘Deficit’ Isn’t a Dirty Word By ROBERT H. FRANK
ARE you confused about whether large federal budget deficits matter?
No wonder, when disagreement about deficits is popping up everywhere. Even among Republicans, there is no unity on this basic issue. Defending his recent proposal to freeze government spending, Representative John A. Boehner, the House minority leader, said, “We simply cannot afford to mortgage our children and grandchildren’s future to pay for this big government spending spree.” But Martin Feldstein, the Harvard economist, disagrees. An adviser to the past three Republican presidents, Professor Feldstein warns that failure to run large deficits would prolong the current economic downturn.
Because important policy decisions hinge on whether deficits matter, this is an opportune moment to take stock of what we know. The good news is that there is little disagreement among economists who have studied the issue. The consensus is that short-run deficits help end recessions, and that whether long-run deficits matter depends entirely on how government spends the borrowed money. If failure to borrow meant forgoing productive investments, bigger long-run deficits would actually be better than smaller ones.
In 1929, President Herbert Hoover thought that the best response to a collapsing economy was to balance the federal budget. With incomes and tax receipts falling sharply, that meant cutting federal spending. But as almost all economists now recognize, President Hoover was profoundly mistaken.
When a downturn throws people out of work, they spend less, causing still others to be thrown out of work, and so on, in a downward spiral. Failure to use short-run deficits to stimulate spending amplifies that spiral, causing further declines in tax receipts and even bigger deficits. That this path makes no sense is a settled issue.
But what about long-run deficits? To think more clearly about them, we must recognize that carrying debt is costly. The government can pay just the interest on its debt each year, or it can pay interest plus some additional amount to reduce the principal. The yearly payment is clearly greater in the second case, just as a homeowner’s monthly payment is larger with a 10-year mortgage than with a 30-year one. But the total burden of the various repayment options (in technical terms, their “present value”) is exactly the same. It’s a simple trade-off between intensity of burden and duration of burden.
No matter which option we choose, money spent to service debt can’t be spent for other things we value. But that doesn’t mean we should always borrow less. The main issue is what we do with the borrowed money.
If we simply use the money to buy bigger houses and cars, deficits make us unambiguously worse off in the long run. That’s why the explosive increase in the national debt during the Bush administration was a grave misstep.
Trillions of dollars, many of them borrowed from China, financed tax cuts for the wealthy, who spent much of their added wealth on things like bigger mansions. But beyond a certain point, when everyone builds bigger, the primary effect is merely to raise the bar that defines the size of home that people feel they need. Much of the interest we’ll pay on debt incurred during the Bush years is thus money down the drain.
In contrast, borrowing for well-chosen investments doesn’t make us poorer. Road maintenance is a case in point. Failure to repair roads in a timely way could mean eventually spending two to four times as much for the work. Even ignoring the fact that timely repairs would reduce the substantial vehicle damage from potholes, it would be much cheaper to borrow the money and do maintenance on schedule.
It’s also useful to put the nation’s debt burden into perspective. Over the last eight years, Bush administration deficits raised the national debt by almost $5 trillion. Given the current crisis, it’s easy to imagine a similar increase during the next four years. At recent interest rates, servicing $10 trillion of extra debt costs about $400 billion annually — a big amount, to be sure, but less than 3 percent of the economy’s full-employment output. We’ll still be the richest country on the planet even after paying all that interest.
Once the downturn ends, there should be no need to incur additional debt. Indeed, there are many ways to pay down debt without requiring painful sacrifices. A $2 tax on each gallon of gasoline, for example, would generate more than $100 billion in additional revenue a year. Europeans, who pay more than $2 a gallon in gasoline taxes, have adapted by choosing more efficient cars — and they appear no less satisfied with them.
We could also levy a progressive consumption surtax, which would not only generate additional revenue to pay down debt or finance additional public investment, but would also stimulate private savings by diverting money from those over-the-top coming-of-age parties that the wealthy stage for their children.
Notwithstanding the neo-Hooverite talk from stimulus-program opponents, the current deficit isn’t too large. If anything, it may need to be even larger to revive the economy. In the long run, new sources of tax revenue could keep deficits from growing and could even pay down existing debt. But if the political system cannot figure out how to pay for productive investments with tax revenue, we’d still end up richer, on balance, by making those investments with borrowed money.
Robert H. Frank, an economist at Cornell, is a visiting faculty member at the Stern School of Business at New York University.
Economic View
When ‘Deficit’ Isn’t a Dirty Word By ROBERT H. FRANK
ARE you confused about whether large federal budget deficits matter?
No wonder, when disagreement about deficits is popping up everywhere. Even among Republicans, there is no unity on this basic issue. Defending his recent proposal to freeze government spending, Representative John A. Boehner, the House minority leader, said, “We simply cannot afford to mortgage our children and grandchildren’s future to pay for this big government spending spree.” But Martin Feldstein, the Harvard economist, disagrees. An adviser to the past three Republican presidents, Professor Feldstein warns that failure to run large deficits would prolong the current economic downturn.
Because important policy decisions hinge on whether deficits matter, this is an opportune moment to take stock of what we know. The good news is that there is little disagreement among economists who have studied the issue. The consensus is that short-run deficits help end recessions, and that whether long-run deficits matter depends entirely on how government spends the borrowed money. If failure to borrow meant forgoing productive investments, bigger long-run deficits would actually be better than smaller ones.
In 1929, President Herbert Hoover thought that the best response to a collapsing economy was to balance the federal budget. With incomes and tax receipts falling sharply, that meant cutting federal spending. But as almost all economists now recognize, President Hoover was profoundly mistaken.
When a downturn throws people out of work, they spend less, causing still others to be thrown out of work, and so on, in a downward spiral. Failure to use short-run deficits to stimulate spending amplifies that spiral, causing further declines in tax receipts and even bigger deficits. That this path makes no sense is a settled issue.
But what about long-run deficits? To think more clearly about them, we must recognize that carrying debt is costly. The government can pay just the interest on its debt each year, or it can pay interest plus some additional amount to reduce the principal. The yearly payment is clearly greater in the second case, just as a homeowner’s monthly payment is larger with a 10-year mortgage than with a 30-year one. But the total burden of the various repayment options (in technical terms, their “present value”) is exactly the same. It’s a simple trade-off between intensity of burden and duration of burden.
No matter which option we choose, money spent to service debt can’t be spent for other things we value. But that doesn’t mean we should always borrow less. The main issue is what we do with the borrowed money.
If we simply use the money to buy bigger houses and cars, deficits make us unambiguously worse off in the long run. That’s why the explosive increase in the national debt during the Bush administration was a grave misstep.
Trillions of dollars, many of them borrowed from China, financed tax cuts for the wealthy, who spent much of their added wealth on things like bigger mansions. But beyond a certain point, when everyone builds bigger, the primary effect is merely to raise the bar that defines the size of home that people feel they need. Much of the interest we’ll pay on debt incurred during the Bush years is thus money down the drain.
In contrast, borrowing for well-chosen investments doesn’t make us poorer. Road maintenance is a case in point. Failure to repair roads in a timely way could mean eventually spending two to four times as much for the work. Even ignoring the fact that timely repairs would reduce the substantial vehicle damage from potholes, it would be much cheaper to borrow the money and do maintenance on schedule.
It’s also useful to put the nation’s debt burden into perspective. Over the last eight years, Bush administration deficits raised the national debt by almost $5 trillion. Given the current crisis, it’s easy to imagine a similar increase during the next four years. At recent interest rates, servicing $10 trillion of extra debt costs about $400 billion annually — a big amount, to be sure, but less than 3 percent of the economy’s full-employment output. We’ll still be the richest country on the planet even after paying all that interest.
Once the downturn ends, there should be no need to incur additional debt. Indeed, there are many ways to pay down debt without requiring painful sacrifices. A $2 tax on each gallon of gasoline, for example, would generate more than $100 billion in additional revenue a year. Europeans, who pay more than $2 a gallon in gasoline taxes, have adapted by choosing more efficient cars — and they appear no less satisfied with them.
We could also levy a progressive consumption surtax, which would not only generate additional revenue to pay down debt or finance additional public investment, but would also stimulate private savings by diverting money from those over-the-top coming-of-age parties that the wealthy stage for their children.
Notwithstanding the neo-Hooverite talk from stimulus-program opponents, the current deficit isn’t too large. If anything, it may need to be even larger to revive the economy. In the long run, new sources of tax revenue could keep deficits from growing and could even pay down existing debt. But if the political system cannot figure out how to pay for productive investments with tax revenue, we’d still end up richer, on balance, by making those investments with borrowed money.
Robert H. Frank, an economist at Cornell, is a visiting faculty member at the Stern School of Business at New York University.
Sunday, March 15, 2009
Finding Messages in a Blueprint By N. GREGORY MANKIW
March 15, 2009
Economic View
Finding Messages in a Blueprint By N. GREGORY MANKIW
PRESIDENTIAL candidates campaign with soaring rhetoric, but presidents and their advisers make actual policy with spreadsheets. So for policy wonks like me, there is no better place to learn what President Obama really believes than the budget proposal released late last month.
Here are four lessons we can learn from the budget documents about the president and his economic team:
THEY ARE ECONOMIC OPTIMISTS Like everyone else, the president’s economists expect 2009 to be a grim year of falling national income and rising unemployment. But despite all the talk about the worst crisis since the Great Depression, they expect their policies to bring the recession to a swift conclusion. For the next four years, they forecast an average growth rate of 4 percent. The unemployment rate is projected to fall to 5.2 percent in 2013.
Not everyone is so sanguine. The administration forecast is “way too optimistic,” said Nariman Behravesh, chief economist at IHS Global Insight and author of the excellent primer “Spin-Free Economics.”
Let’s hope that the administration is right. But if I had to bet, I’d put my money on Mr. Behravesh.
THEY LIKE TO SPEND In light of the economic downturn, the stimulus package and all the bailouts coming out of Washington, it is no surprise government spending is skyrocketing. According to the president’s budget, federal outlays will be 27.7 percent of gross domestic product in 2009 and 24.1 percent in 2010 — levels not reached since World War II.
But more telling about the president’s priorities is what happens to spending after the crisis is well behind us, at least according to the administration’s forecast. In a second term for Mr. Obama, with the economy recovered and unemployment stabilized at 5 percent, federal outlays would be 22.2 percent of G.D.P. — well above the average of 20.2 percent over the last 50 years.
It is also well above levels in recent history. Before the financial crisis hit in 2008, federal outlays under President George W. Bush never exceeded 20.4 percent of G.D.P. That includes spending from the Iraq war. President Obama is counting on that conflict being over, and no new money-draining military commitment taking its place. Yet federal spending still remains high.
To be sure, part of the increase in government spending is driven by the aging of the population. As more baby boomers retire and become eligible for Social Security and Medicare, spending rises automatically. But President Obama’s focus on universal health insurance suggests that he is more interested in expanding the benefits that Americans can claim than in reining in the unfunded entitlements already on the books.
THEY ARE SERIOUS ABOUT CLIMATE CHANGE President Obama’s budget makes clear that he wants to address the problem of global climate change. This commitment stands in stark contrast to policy during the previous two administrations.
President Bill Clinton offered the Kyoto Protocol, but the policy ended up more symbolic than real. The treaty was overwhelmingly rejected by both parties in Congress, in part because it left out China, now the world’s largest emitter of carbon. President Bush rejected the Kyoto principles as well, but he never made finding an alternative approach to climate change a major priority.
For the new administration, climate change is not only an environmental issue but a budgetary one as well. Under the proposed cap-and-trade system, the government would auction off a limited number of carbon allowances. The cost would be passed on to consumers as higher energy prices, encouraging conservation. According to President Obama’s budget projections, the system would also raise more government revenue than his much-discussed tax increases on upper-income households.
The thrust of the policy makes sense, but several questions remain. First, why not instead impose a more transparent and administratively simpler tax on carbon emissions? Is it merely because the phrase “climate revenues” used in the budget is more politically palatable than the word “tax”? More important, how will the president get China on board? Without China’s participation, any climate policy, along with the associated revenue, may be a political nonstarter.
THEY ARE DEFICIT DOVES Few economists would blame either the Bush administration or the Obama administration for running budget deficits during an economic downturn. What is more telling is what happens to the deficit during normal economic times. From that perspective, the Obama budget policy looks surprisingly similar to the Bush version.
From 2005 to 2007, before the current crisis, unemployment in the United States hovered around 5 percent. During those years, the budget deficit averaged just under 2 percent of G.D.P.
In the Obama administration’s forecast, unemployment again reaches 5 percent in 2014 and remains at that level thereafter. But despite that rosy prediction, the budget does not get close to balance. The Obama team calculates that under its proposed policies, the budget deficit will average a bit over 3 percent of G.D.P.
So if you are a deficit hawk who lamented the Bush budget deficits, the new president’s budget should not make you feel much better. President Obama offers different fiscal priorities than President Bush did: less military spending, more domestic spending and higher marginal tax rates to “spread the wealth around.” But the borrowing and debt imposed on future generations will not be very different, at least if the numbers in the Obama administration’s own budget document can be trusted.
N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.
Economic View
Finding Messages in a Blueprint By N. GREGORY MANKIW
PRESIDENTIAL candidates campaign with soaring rhetoric, but presidents and their advisers make actual policy with spreadsheets. So for policy wonks like me, there is no better place to learn what President Obama really believes than the budget proposal released late last month.
Here are four lessons we can learn from the budget documents about the president and his economic team:
THEY ARE ECONOMIC OPTIMISTS Like everyone else, the president’s economists expect 2009 to be a grim year of falling national income and rising unemployment. But despite all the talk about the worst crisis since the Great Depression, they expect their policies to bring the recession to a swift conclusion. For the next four years, they forecast an average growth rate of 4 percent. The unemployment rate is projected to fall to 5.2 percent in 2013.
Not everyone is so sanguine. The administration forecast is “way too optimistic,” said Nariman Behravesh, chief economist at IHS Global Insight and author of the excellent primer “Spin-Free Economics.”
Let’s hope that the administration is right. But if I had to bet, I’d put my money on Mr. Behravesh.
THEY LIKE TO SPEND In light of the economic downturn, the stimulus package and all the bailouts coming out of Washington, it is no surprise government spending is skyrocketing. According to the president’s budget, federal outlays will be 27.7 percent of gross domestic product in 2009 and 24.1 percent in 2010 — levels not reached since World War II.
But more telling about the president’s priorities is what happens to spending after the crisis is well behind us, at least according to the administration’s forecast. In a second term for Mr. Obama, with the economy recovered and unemployment stabilized at 5 percent, federal outlays would be 22.2 percent of G.D.P. — well above the average of 20.2 percent over the last 50 years.
It is also well above levels in recent history. Before the financial crisis hit in 2008, federal outlays under President George W. Bush never exceeded 20.4 percent of G.D.P. That includes spending from the Iraq war. President Obama is counting on that conflict being over, and no new money-draining military commitment taking its place. Yet federal spending still remains high.
To be sure, part of the increase in government spending is driven by the aging of the population. As more baby boomers retire and become eligible for Social Security and Medicare, spending rises automatically. But President Obama’s focus on universal health insurance suggests that he is more interested in expanding the benefits that Americans can claim than in reining in the unfunded entitlements already on the books.
THEY ARE SERIOUS ABOUT CLIMATE CHANGE President Obama’s budget makes clear that he wants to address the problem of global climate change. This commitment stands in stark contrast to policy during the previous two administrations.
President Bill Clinton offered the Kyoto Protocol, but the policy ended up more symbolic than real. The treaty was overwhelmingly rejected by both parties in Congress, in part because it left out China, now the world’s largest emitter of carbon. President Bush rejected the Kyoto principles as well, but he never made finding an alternative approach to climate change a major priority.
For the new administration, climate change is not only an environmental issue but a budgetary one as well. Under the proposed cap-and-trade system, the government would auction off a limited number of carbon allowances. The cost would be passed on to consumers as higher energy prices, encouraging conservation. According to President Obama’s budget projections, the system would also raise more government revenue than his much-discussed tax increases on upper-income households.
The thrust of the policy makes sense, but several questions remain. First, why not instead impose a more transparent and administratively simpler tax on carbon emissions? Is it merely because the phrase “climate revenues” used in the budget is more politically palatable than the word “tax”? More important, how will the president get China on board? Without China’s participation, any climate policy, along with the associated revenue, may be a political nonstarter.
THEY ARE DEFICIT DOVES Few economists would blame either the Bush administration or the Obama administration for running budget deficits during an economic downturn. What is more telling is what happens to the deficit during normal economic times. From that perspective, the Obama budget policy looks surprisingly similar to the Bush version.
From 2005 to 2007, before the current crisis, unemployment in the United States hovered around 5 percent. During those years, the budget deficit averaged just under 2 percent of G.D.P.
In the Obama administration’s forecast, unemployment again reaches 5 percent in 2014 and remains at that level thereafter. But despite that rosy prediction, the budget does not get close to balance. The Obama team calculates that under its proposed policies, the budget deficit will average a bit over 3 percent of G.D.P.
So if you are a deficit hawk who lamented the Bush budget deficits, the new president’s budget should not make you feel much better. President Obama offers different fiscal priorities than President Bush did: less military spending, more domestic spending and higher marginal tax rates to “spread the wealth around.” But the borrowing and debt imposed on future generations will not be very different, at least if the numbers in the Obama administration’s own budget document can be trusted.
N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.
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