It is tempting to act as if the long-run budget imbalance
could be fixed by just cutting wasteful government spending or raising
taxes on the wealthy. But the facts belie such easy answers. …
To be sure, we don’t all support every proposal here. Each
one of us could probably come up with a deficit reduction plan we like
better. Some of us already have. Many of us might prefer one of the
comprehensive alternative proposals offered in recent months.
Yet we all strongly support prompt consideration of the
commission’s proposals. The unsustainable long-run budget outlook is a
growing threat to our well-being. Further stalemate and inaction would
be irresponsible.
We know the measures to deal with the long-run deficit are
politically difficult. The only way to accomplish them is for members
of both parties to accept the political risks together. That is what
the Republicans and Democrats on the commission who voted for the
bipartisan proposal did.
We urge Congress and the president to do the same. Martin N. Baily, Martin S. Feldstein, R. Glenn Hubbard, Edward P. Lazear, N. Gregory Mankiw, Christina D. Romer, Harvey S. Rosen, Charles L. Schultze, Laura D. Tyson, Murray L. Weidenbaum,
Reading the names on the list, and noting the staunch opposition to tax increases by some, this came to mind: Back in 2000, the U.S. government's long-term budget was out
of balance–although not by all that much. The government had, you
see, made promises–very popular promises–for Medicare, Medicaid, and
Social Security without proposing sufficient funding streams to pay for
those promises. So back in 2000, looking forward, we had a choice:
raise taxes, or "bend the curve" by cutting the growth of spending. Instead of doing either of these, we elected George W. Bush.
Two wars. A big (and ill-advised) defense buildup that is very
unsuited to protecting us from Al Qaeda and company. A huge unfunded
expansion of Medicare. Plans for the unfunded expansion of Social
Security that came to nothing. However, instead of raising taxes George
W. Bush reduced them. Taxes are going up over the next decade–barring cuts of 1/3
to Medicare, etc. They can either go up smartly or we can pretend they
don't have to go up, in which case they go up stupidly. The argument
for small government was lost long ago, and was lost again and anew in
the past decade with Medicare Part D and the wars of George W. Bush. The time to stand up to the budget busting was when it happened, and
when members of the list had the power to affect policy, not many years
later in an article at Politico. Many on the list were either part of
the decision making team in the 2000s that opened the hole in the
budget, or supported what the team did. I suppose it's possible to argue
things were different in 2000 — there was a wide expectation that
budget surpluses would be the "problem" at that time. But if the
forecasts by members of the list were so bad then — and they were —
why should we listen now? The long-run budget problem does need to be addressed, but the
standing of some on the list to make this claim can certainly be called
into question.
So much for Thoma's analysis, Each CEA Chair is an intellectual power house in his/her own right. In the other corner are two nobel laureates (Stiglitz and Krugman) to create alively debate:
Why I didn't sign deficit letter, by Joseph E. Stiglitz: I was asked to sign the letter
from a bipartisan group of former chairmen and chairwomen of the
Council of Economic Advisers that stresses the importance of deficit
reduction and urges the use of the Bowles Simpson Deficit Commission’s
recommendations as the basis for compromise. … I did not sign. I believe the Bowles Simpson recommendations represent, to
too large an extent, a set of unprincipled political compromises that
would lead to a weaker America — with slower growth and a more divided
society. Deficit reduction is important. But it is a means to
an end — not an end in itself. We need to think about what kind of
economy, and what kind of society, we want to create; and how tax and
expenditure programs can help achieve those goals.Bowles-Simpson confuses means with ends, and would take us off in
directions which would likely be counterproductive. Fortunately, there
are alternatives that could do more for deficit reduction, more for
putting America back to work now and more for creating the kind of
economy and society we should be striving for in the future. There's quite a bit more in the link.
Jon Chait takes another look at Bowles-Simpson, this time with numbers from the Tax Policy Center, and is disillusioned. As I surmised,
it redistributes income upward: the bottom 80 percent of families
would pay higher taxes than they did in the Clinton years, while the
top 20 percent — and especially the top 5 percent — would pay less; not
what you’d call shared sacrifice. The only twist here is that the ultra-rich, the top 0.1
percent, who get a lot of their income from dividends and capital
gains, would be hit by having these gains taxed as ordinary income.
Even so, they would face a smaller tax increase than the bottom 60
percent.This wasn’t the plan we’ve been looking for; on taxes, what on earth were they thinking? One third of of the deficit reduction under Bowles-Simpson is from
revenue increases, and two thirds is from spending cuts. The above is
about tax cuts, but the spending cuts will, in the end, likely hit lower income households harder and end up being regressive as well. Here is Krugma's summary of the Pain Caucuses shortcomings:
I wrote about this back in 2005, but Governor Gregoir at the time had no interest in addressing the issue.
