Christina Romer Gives Recommendations for State of the Union
Dr. Christina Romer, the former chairwoman of the President's Council of Economic Advisors, published an article in the New York Times this weekend calling for President Obama to use his January 25th State of the Union address as a means to outline a credible plan to lower future budget deficits.
Dr. Romer, who left the administration last August, is calling for the deficit to be given significant focus.
"I am looking for pages and pages of concrete proposals that the administration is ready to fight for. The recommendations of the bipartisan National Commission on Fiscal Responsibility and Reform that the president created are a very good place to start."
Out national debt needs to be highlighted on this prominent occasion, she says, because our current path is unsustainable. She stated:
"The economic need is also pressing. The extreme deficits of the last few years are largely a consequence of the terrible state of the economy and the actions needed to stem the downturn. But even with a strong recovery, under current policy the deficit is projected to be more than 6 percent of gross domestic product in 2020. By 2035, if the twin tsunami of rising health care costs and the retirement of the baby boomers hits with full force, we will be looking at deficits of at least 15 percent of G.D.P."
"Such deficits are not sustainable. At some point — likely well before 2035 — investors would revolt and the United States would be unable to borrow. We would become the Argentina of the 21st century."
We certainly agree, and the problem could come much sooner than Dr. Romer indicates. Last week there were rumblings that US debt might be downgraded from its current AAA status.
She goes on to say that President Obama should focus on a long-term plan to address the structural imbalances that are the underlying cause of our ballooning deficits. She argues that the Republicans' plan to cut $100 billion from the budget this year "would do nothing to address the fundamental drivers of the budget problem, and would weaken the economy when we are only beginning to recover." Instead, she says, the President must advocate for strengthening the cost-reducing measures in the health care reform law and the Independent Payment Advisory Board, as well as slowing the growth of military and Social Security expenditures. We've argued that the focus on slowing the growth rates of federal expenditures is the right focus to have, but also that proposals to begin cutting spending this year could be a good start in refocusing attention on spending growth.
Finally, she points to the need for greater tax revenues. She supports the Fiscal Commission's findings to lower the marginal tax rates and eliminate many of the costly tax expenditures in order to simplify the system while raising tax receipts. The problem is so severe, according to Romer, that this burden will have to fall not just on the rich, but also on the middle class. She also adds that raising taxes on gasoline or even a broad-based carbon tax should be adopted in order to raise revenues and account for externalities of these polluting fuels.
Dr. Romer strikes many of the right chords in her article. She is spot on regarding the need to bring our budget deficit under control. Doing so will take shared sacrifice. She cites many of the Fiscal Commission's recommendations, which we agree are a realistic and credible starting point for this discussion. To see a side-by-side comparison of the deficit plans available, click here.
Along with Dr. Romer, we hope to see the President use his State of the Union address to chart a path forward for bringing our finances back onto a sustainable track.