Deficit Reduction Plan(s)

April 24, 2011

Let’s Take a Hike

By PAUL KRUGMAN in The New York Times

When I listen to current discussions of the federal budget, the message I hear sounds like this: We’re in crisis! We must take drastic action immediately! And we must keep taxes low, if not actually cut them further!

You have to wonder: If things are that serious, shouldn’t we be raising taxes, not cutting them?

My description of the budget debate is in no way an exaggeration. Consider the Ryan budget proposal, which all the Very Serious People assured us was courageous and important. That proposal begins by warning that “a major debt crisis is inevitable” unless we confront the deficit. It then calls, not for tax increases, but for tax cuts, with taxes on the wealthy falling to their lowest level since 1931.

And because of those large tax cuts, the only way the Ryan proposal can even claim to reduce the deficit is through savage cuts in spending, mainly falling on the poor and vulnerable. (A realistic assessment suggests that the proposal would actually increase the deficit.)

President Obama’s proposal is a lot better. At least it calls for raising taxes on high incomes back to Clinton-era levels. But it preserves the rest of the Bush tax cuts — cuts that were originally sold as a way to dispose of a large budget surplus. And, as a result, it still relies heavily on spending cuts, even as it falls short of actually balancing the budget.

So why isn’t someone offering a proposal reflecting the reality that the Bush tax cuts were a huge mistake, and suggesting that increased revenue play a major role in deficit reduction? Actually, someone is — and I’ll get to that in a moment. First, though, let’s talk about the current state of American taxes.

From the tone of much budget discussion, you might think that we were groaning under crushing, unprecedented levels of taxation. The reality is that effective federal tax rates at every level of income have fallen significantly over the past 30 years, especially at the top. And, over all, U.S. taxes are much lower as a percentage of national income than taxes in most other wealthy nations.

The point is that we aren’t that heavily taxed, either by historical standards or in comparison with other nations. So if you’re truly horrified by the budget deficit, why not propose tax increases as part of the solution?

Wait, there’s more. The core of the Ryan proposal is a plan to privatize and defund Medicare. Yet this would do nothing to reduce the deficit over the next 10 years, which is why all the near-term deficit reduction comes from brutal reductions in aid to the needy and unspecified cuts in discretionary spending. Tax increases, by contrast, can be fast-acting remedies for red ink.

And that’s why the only major budget proposal out there offering a plausible path to balancing the budget is the one that includes significant tax increases: the “People’s Budget” from the Congressional Progressive Caucus, which — unlike the Ryan plan, which was just right-wing orthodoxy with an added dose of magical thinking — is genuinely courageous because it calls for shared sacrifice.

True, it increases revenue partly by imposing substantially higher taxes on the wealthy, which is popular everywhere except inside the Beltway. But it also calls for a rise in the Social Security cap, significantly raising taxes on around 6 percent of workers. And, by rescinding many of the Bush tax cuts, not just those affecting top incomes, it would modestly raise taxes even on middle-income families.

All of this, combined with spending cuts mostly focused on defense, is projected to yield a balanced budget by 2021. And the proposal achieves this without dismantling the legacy of the New Deal, which gave us Social Security, and the Great Society, which gave us Medicare and Medicaid.

But if the progressive proposal has all these virtues, why isn’t it getting anywhere near as much attention as the much less serious Ryan proposal? It’s true that it has no chance of becoming law anytime soon. But that’s equally true of the Ryan proposal.

The answer, I’m sorry to say, is the insincerity of many if not most self-proclaimed deficit hawks. To the extent that they care about the deficit at all, it takes second place to their desire to do precisely what the People’s Budget avoids doing, namely, tear up our current social contract, turning the clock back 80 years under the guise of necessity. They don’t want to be told that such a radical turn to the right is not, in fact, necessary.

But, it isn’t, as the progressive budget proposal shows. We do need to bring the deficit down, although we aren’t facing an immediate crisis. How we go about stemming the tide of red ink is, however, a choice — and by making tax increases part of the solution, we can avoid savaging the poor and undermining the security of the middle class.  

April 17, 2011 ... The New York Times

The New Republican Landscape

Six months after voters sent Republicans in large numbers to Congress and many statehouses, it is possible to see the full landscape of destruction that their policies would cause — much of which has already begun. If it was not clear before, it is obvious now that the party is fully engaged in a project to dismantle the foundations of the New Deal and the Great Society, and to liberate business and the rich from the inconveniences of oversight and taxes.

At first it seemed that only a few freshmen and noisy followers of the Tea Party would support the new extremism. But on Friday, nearly unanimous House Republicans showed just how far their mainstream has been dragged to the right. They approved on strict party lines the most regressive social legislation in many decades, embodied in a blueprint by the budget chairman, Paul Ryan. The vote, from which only four Republicans (and all Democrats) dissented, would have been unimaginable just eight years ago to a Republican Party that added a prescription drug benefit to Medicare.

Mr. Ryan called the vote “our generation’s defining moment,” and indeed, nothing could more clearly define the choice that will face voters next year.

His bill would end the guarantee provided by Medicare and Medicaid to the elderly and the poor, which has been provided by the federal government with society’s clear assent since 1965. The elderly, in particular, would be cut adrift by Mr. Ryan. People now under 55 would be required to pay at least $6,400 more for health care when they qualified for Medicare, according to the Congressional Budget Office. Fully two-thirds of his $4.3 trillion in budget cuts would come from low-income programs.

In addition to making “entitlement” a dirty word, the Ryan bulldozer would go much further in knocking down government programs to achieve its goals. It would cut food stamps by $127 billion, or 20 percent, over the next 10 years, almost certainly increasing hunger among the poor. It would cut Pell grants for all 9.4 million student recipients next year, removing as many as one million of them from the program altogether. It would remove more than 100,000 low-income children from Head Start, and slash job-training programs for the unemployed desperate to learn new skills.

And it would do all that while preserving the Bush tax cuts for the rich, and even expanding them. Regulation of business and the environment would be sharply reduced.

The mania for blindly cutting has also spread to statehouses, many with new Republican governors and legislatures. Several states have cut their unemployment benefits below the standard 26 weeks. Gov. Jan Brewer of Arizona has proposed removing 138,000 people from Medicaid. Many recession-battered states, including some led by Democrats, have been forced to cut other services because Republicans have made it so politically difficult to raise taxes. Education, mental health and juvenile justice funds have been particular targets.

In Wisconsin, Ohio, Indiana, Maine and Florida, Republican governors have used the smokescreen of a poor economy to pursue a long-held conservative goal of destroying public and private unions. This has nothing to do with creating jobs, of course, and it has shocked many blue-collar voters who are suddenly second-guessing their support for Republicans last November. Several states are also adopting Arizona-style anti-immigrant laws.

President Obama, after staying in the shadows too long, is starting to illuminate the serious damage that Republicans are doing. Their vision, he said last week, “is less about reducing the deficit than it is about changing the basic social compact in America.” Other Democrats are also beginning to stand up and reject these ideas, having been cowed for months by the electoral wave. Their newfound confidence will give voters a clearer view of this bare and pessimistic landscape.

April 14, 2011

Who’s Serious Now?

By PAUL KRUGMAN in The New York Times

Paul Ryan, the chairman of the House Budget Committee, sounds upset. And you can see why: President Obama, to the great relief of progressives, has called his bluff.

Last week, Mr. Ryan unveiled his budget proposal, and the initial reaction of much of the punditocracy was best summed up (sarcastically) by the blogger John Cole: “The plan is bold! It is serious! It took courage! It re-frames the debate! The ball is in Obama’s court! Very wonky! It is a game-changer! Did I mention it is serious?”

Then people who actually understand budget numbers went to work, and it became clear that the proposal wasn’t serious at all. In fact, it was a sick joke. The only real things in it were savage cuts in aid to the needy and the uninsured, huge tax cuts for corporations and the rich, and Medicare privatization. All the alleged cost savings were pure fantasy.

On Wednesday, as I said, the president called Mr. Ryan’s bluff: after offering a spirited (and reassuring) defense of social insurance, he declared, “There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires. And I don’t think there’s anything courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.” Actually, the Ryan plan calls for $2.9 trillion in tax cuts, but who’s counting?

And then Mr. Obama laid out a budget plan that really is serious.

The president’s proposal isn’t perfect, by a long shot. My own view is that while the spending controls on Medicare he proposed are exactly the right way to go, he’s probably expecting too much payoff in the near term. And over the longer run, I believe that we’ll need modestly higher taxes on the middle class as well as the rich to pay for the kind of society we want. But the vision was right, and the numbers were far more credible than anything in the Ryan sales pitch.

And the hissy fit — I mean, criticism — the Obama plan provoked from Mr. Ryan was deeply revealing, as the man who proposes using budget deficits as an excuse to cut taxes on the rich accused the president of being “partisan.” Mr. Ryan also accused the president of being “dramatically inaccurate” — this from someone whose plan included a $200 billion error in its calculation of interest costs and appears to have made an even bigger error on Medicaid costs. He didn’t say what the inaccuracies were.

And now for something completely wonkish: Can we talk, briefly, about politicians talking about drugs?

For the contrast between Mr. Ryan last week and Mr. Obama on Wednesday wasn’t just about visions of society. There was also a difference in visions of how the world works. And nowhere was that clearer than in the issue of how Medicare should pay for drugs.

Mr. Obama declared, “We will cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency.” Meanwhile, Mr. Ryan held up the existing Medicare drug benefit — a program run through private insurance companies, under legislation that specifically prohibits Medicare from using its bargaining power — as an example of the efficiencies that could be gained from privatizing the whole system.

Mr. Obama has it right. Medicare Part D has been less expensive than expected, at least so far, but that’s because overall prescription drug spending has fallen short of expectations, largely thanks to a dearth of new drugs and the growing use of generics. The right way to assess Part D is by comparing it with programs where the government is allowed to use its purchasing power. And such comparisons suggest that if there’s any magic in privatization, it’s the magical way it makes drug companies richer and taxpayers poorer. For example, the Department of Veterans Affairs pays about 40 percent less for drugs than the private plans in Part D.

Did I mention that Medicare Advantage, which closely resembles the privatized system that Republicans want to impose on all seniors, currently costs taxpayers 12 percent more per recipient than traditional Medicare?

But back to the president’s speech. His plan isn’t about to become law; neither is Mr. Ryan’s. And given the hysterical Republican reaction, it doesn’t look likely that we’ll see negotiations trying to narrow the difference. That’s a good thing because Mr. Obama’s plan already relies more on spending cuts than it should, and moving it significantly in the G.O.P.’s direction would produce something unworkable and unacceptable.

What happened over the past two weeks, then, was more about staking out positions than about enacting policies. On one side you had a combination of mean-spiritedness and fantasy; on the other you had a reaffirmation of American compassion and community, coupled with fairly realistic numbers. Which would you choose? 

Where's Obama?

April 10, 2011

The President Is Missing

By PAUL KRUGMAN in The New York Times

What have they done with President Obama? What happened to the inspirational figure his supporters thought they elected? Who is this bland, timid guy who doesn’t seem to stand for anything in particular?

I realize that with hostile Republicans controlling the House, there’s not much Mr. Obama can get done in the way of concrete policy. Arguably, all he has left is the bully pulpit. But he isn’t even using that — or, rather, he’s using it to reinforce his enemies’ narrative.

His remarks after last week’s budget deal were a case in point.

Maybe that terrible deal, in which Republicans ended up getting more than their opening bid, was the best he could achieve — although it looks from here as if the president’s idea of how to bargain is to start by negotiating with himself, making pre-emptive concessions, then pursue a second round of negotiation with the G.O.P., leading to further concessions.

And bear in mind that this was just the first of several chances for Republicans to hold the budget hostage and threaten a government shutdown; by caving in so completely on the first round, Mr. Obama set a baseline for even bigger concessions over the next few months.

But let’s give the president the benefit of the doubt, and suppose that $38 billion in spending cuts — and a much larger cut relative to his own budget proposals — was the best deal available. Even so, did Mr. Obama have to celebrate his defeat? Did he have to praise Congress for enacting “the largest annual spending cut in our history,” as if shortsighted budget cuts in the face of high unemployment — cuts that will slow growth and increase unemployment — are actually a good idea?

Among other things, the latest budget deal more than wipes out any positive economic effects of the big prize Mr. Obama supposedly won from last December’s deal, a temporary extension of his 2009 tax cuts for working Americans. And the price of that deal, let’s remember, was a two-year extension of the Bush tax cuts, at an immediate cost of $363 billion, and a potential cost that’s much larger — because it’s now looking increasingly likely that those irresponsible tax cuts will be made permanent.

More broadly, Mr. Obama is conspicuously failing to mount any kind of challenge to the philosophy now dominating Washington discussion — a philosophy that says the poor must accept big cuts in Medicaid and food stamps; the middle class must accept big cuts in Medicare (actually a dismantling of the whole program); and corporations and the rich must accept big cuts in the taxes they have to pay. Shared sacrifice!

I’m not exaggerating. The House budget proposal that was unveiled last week — and was praised as “bold” and “serious” by all of Washington’s Very Serious People — includes savage cuts in Medicaid and other programs that help the neediest, which would among other things deprive 34 million Americans of health insurance. It includes a plan to privatize and defund Medicare that would leave many if not most seniors unable to afford health care. And it includes a plan to sharply cut taxes on corporations and to bring the tax rate on high earners down to its lowest level since 1931.

The nonpartisan Tax Policy Center puts the revenue loss from these tax cuts at $2.9 trillion over the next decade. House Republicans claim that the tax cuts can be made “revenue neutral” by “broadening the tax base” — that is, by closing loopholes and ending exemptions. But you’d need to close a lot of loopholes to close a $3 trillion gap; for example, even completely eliminating one of the biggest exemptions, the mortgage interest deduction, wouldn’t come close. And G.O.P. leaders have not, of course, called for anything that drastic. I haven’t seen them name any significant exemptions they would end.

You might have expected the president’s team not just to reject this proposal, but to see it as a big fat political target. But while the G.O.P. proposal has drawn fire from a number of Democrats — including a harsh condemnation from Senator Max Baucus, a centrist who has often worked with Republicans — the White House response was a statement from the press secretary expressing mild disapproval.

What’s going on here? Despite the ferocious opposition he has faced since the day he took office, Mr. Obama is clearly still clinging to his vision of himself as a figure who can transcend America’s partisan differences. And his political strategists seem to believe that he can win re-election by positioning himself as being conciliatory and reasonable, by always being willing to compromise.

But if you ask me, I’d say that the nation wants — and more important, the nation needs — a president who believes in something, and is willing to take a stand. And that’s not what we’re seeing.