I feel like I’ve been dodging trial balloons for almost the whole of the Obama presidency, but here we go again. We know that the President is giving a speech tomorrow at George Washington University that will deliver a broad outline for deficit reduction. There’s some question over what that speech will entail.
Before we get to any of that, it’s important to state clearly that any speech focusing on deficit and debt reduction right now, when unemployment is high, the recovery is fragile and borrowing costs are low is quite literally insane. The fear of the bond market from excessive debt is not in place at the moment. We are squandering a golden opportunity to get ourselves out of the jobs crisis with a minimal long-term cost, and we are extending the suffering of tens of millions of Americans who cannot find work. We’re literally ruining their futures and refusing to deal with idle capacity and depressed demand everywhere to please phantoms.
So now that I’ve cleared my throat, as long as the nation is focused on the wrong issue we’ll pay a little attention to it. Depending on who you believe, the President tomorrow will either embrace the Bowles-Simpson cat food commission report and the Gang of Six negotiations that are proceeding from it; offer a completely contrasting vision from the Republicans and Paul Ryan, with an emphasis on tax cuts for the wealthy and lifting the payroll tax cap; or do something unspecified in between that will “make more sense tomorrow.”
Well, I know what the expectation here is. The President created the cat food commission, reviving it after it failed in the Senate. The Ryan blueprint, with its design to deliberately tweak programs liberals hold dear, was clearly going to be something that turned the Bowles-Simpson plan, which did not get a passing vote from the commission, as the bipartisan baseline. There’s certainly enough to read into Chris Van Hollen’s tacit approval to suggest that this will happen tomorrow. Yet this would be a pre-emptive surrender, and a needless one at that.
The Bowles-Simpson plan has its virtues. Among other things, it would reduce agriculture subsidies and defense spending. It would impose a new gasoline tax, in order to finance the building of infrastructure. It boosts Social Security payments for the some of the very poorest retirees. All of these make it far, far preferable to Ryan’s plan.
But the Bowles-Simpson plan also has major flaws. Chief among them: It would limit federal spending to 21 percent of gross domestic product. The only way to do that is to rely more heavily on reducing spending than on raising revenue. Sure enough, spending cuts in the Bowles-Simpson plan outnumber tax increases by about two-to-one. Among the cuts would be a $100 billion reduction in discretionary spending that would affect a wide range of programs for the poor, as well as entitlement reductions (via Social Security, Medicare, and Medicaid) that could take a serious toll on disabled and elderly of modest incomes.
It’s not like there aren’t other deficit reduction plans out there if the President wanted to use a starting point. The Our Fiscal Future plan from Demos, The Century Fund and EPI is far better in this regard.
Or, the President could opt for the best deficit plan – and the one likeliest to pass – available: doing nothing. He could simply say that he won’t sign anything that will change the tax rates from where they will go under a program of inertia, namely letting the Bush tax cuts expire at the end of 2012. He could say that he won’t sign a long-term doc fix unless it’s fully paid for. He could basically say that he would not sign anything that increases the deficit from the current baseline. That would include tax policy. And the medium-term deficit would melt away.
As I said, I think it’s ridiculous that we’re having this discussion at all, especially right now. It does violence to millions of people to focus on bean-counting rather than their primary concern. And yes, job creation is the best deficit reduction.
But if we’re having this discussion, the worst thing that could happen is that bad baselines are set which will have far-reaching effects for the future debate.