Have No Fear, CRFB Is Here!
Noted economist Brad DeLong is asking: where are the technocrats of the center? In a recent blog post, he laments the lack of a concrete plan among more centrist technocrats to get the economy going in the near-term while, at the same time leaving it better off in the long-run. He outlined a seven-point plan to accomplish this goal:
Ten-Year PAYGO: a 2/3 supermajority in both houses commitment to ten-year PAYGO starting now, and a pledge by every president and presidential candidate that they will veto all bills that do not meet ten-year PAYGO standards. Everything Congress passes must be projected to reduce the outstanding national debt within ten years.
"Starting now" means starting now: No middle-class tax cut this month or next month without an offset within ten years. Taking current law rather than current policy as our baseline and requiring PAYGO for everything gets our 25-year fiscal gap down to 1.2% of GDP (as opposed to 4.8% of GDP) and gets our 50-year fiscal gap down to 0.8% of GDP (as opposed to 6.9% of GDP). Our long-run deficit problem is overwhelmingly due to things that Congress is about to do, not things that Congress has done.
Carbon tax: a 1.0% of GDP carbon tax is the best policy to provide American businesses with the incentives they need to invent the clean energy technologies of the future. Half of the revenue should be channeled into the Social Security Trust Fund to improve its solvency. Half should be used to help close our remaining operating fiscal gap.
Pick-your-poison: Additional stand-by tax increases and stand-by spending cuts to close the remaining 0.3% of GDP long-run fiscal gap.
Private add-on Social Security accounts, All Americans should be able to add up to 2% of their Social Security wages to a private Social Security account run through the U.S. government's Thrift Savings Program. Private contributions would be matched two-for-one by the federal government out of carbon tax revenue.
Recovery: When every fired local, state, and federal worker takes a private sector job down as well and when the U.S. government can borrow at today's absurdly-low terms, it is criminal stupidity not to pull government spending forward into the present and push taxes back into the future (all within the ten-year PAYGO rule, of course). Since the macroeconomic situation is worse now than it was ever projected to get when the first Recovery Act was passed and since the U.S. government can borrow on better terms now than it could at the time of the first Recovery Act, it is time for a second Recovery Act--fifty percent federal government purchases and aid to the states, fifty percent tax cuts--somewhat larger than the first were.
- Certainty: The principal sources of uncertainty in American economics right now are three things: we don't know how the long-run fiscal gap will be closed (but we think it will be), we don't know how our health-care system will be reformed and transformed (but we know it will be), and we don't know what our policy toward global warming will be in a generation (but we know that we will have one). The best things the government could do to diminish uncertainty would be to: (1) commit immediately to the full implementation of the version of RomneyCare-plus-cuts-in-Medicare-and-taxes-on-gold-plated-health-plans that was this year's PPACA, (2) commit immediately to a long-run climate policy in the form of a carbon tax coupled with research incentives for future energy technologies, and (3) commit immediately to a plan to cover the long-term fiscal gap.
Luckily, DeLong doesn't need to worry about our support. We're here for you!
Ten year PAYGO? Check. We've called for it to be followed and strengthened. Paying for the tax cuts? Check (see here, here, here). Carbon tax? Well, not exactly our specialty, but we are certainly open to the idea as a dual-method of switching toward a clean energy economy and helping to close our fiscal gap (and our president Maya MacGuineas included it in her plan with Bill Galston of Brookings). Other fiscal adjustments? Check. See the simulator or our Let's Get Specific papers on Social Security, Health Care, and Tax Expenditures (with other papers to come). Add-on accounts for Social Security? Check. It's in our Let's Get Specific paper on Social Security. Certainty? Certainly. We've been calling for lawmakers to address our long-term fiscal gap for a long time and have written Let's Get Specific papers on Social Security and Health Care to do so. Also, we have called for policymakers to build on and improve the cost-savings elements of health care reform, rather than repeal them.
But it's not only CRFB that has been getting specific. Congressman Paul Ryan (R-WI) has offered a comprehensive fiscal plan for the long-term, the Esquire Budget Commission has presented a plan to balance the budget by 2020, and Bill Galston of the Brookings Institution and Maya MacGuineas have created a plan to reduce the debt to 60 percent of the economy by 2020. In terms of ideas for how to boost the recovery in the near-term while setting the stage for fiscal reform, Maya MacGuineas has talked about her own ideas.
It's great to hear DeLong joining the ranks of other groups and experts who have proposed specific ways for dealing with our fiscal problems down the road. We eagerly await specific ideas from anyone willing to offer them.