'Our Fiscal Security' Gets Specific

You might have missed it last week if you were preparing to chow down on some turkey, but Our Fiscal Security (OFS)--a joint project of the Economic Policy Institute, Demos, and the Century Foundation--became another in a long list of groups/experts to put out a specific proposal for our long-term fiscal situation.

This plan, like a few others, starts off by suggesting additional efforts to stimulate the economy. However, they don't stop with a one or two year stimulus. They would continue to make public investments in things like education, infrastructure, and R&D over the course of the ten-year outlook to the tune of $200-$300 billion per year. The result is higher discretionary spending relative to the President's Budget.

We should point out that this is the third plan, after Rep. Jan Schakowsky's plan and the Debt Reduction Task Force's plan, to offer short-term stimulus in the context of a deficit reduction proposal.

Here's what they'd do in each area of the budget:

  • Social Security: Eliminate payroll tax cap on employer's side and raise it to 90th percentile for employee's side.
  • Health Care: They endorse many of the reforms in the Affordable Care Act and suggest building upon them. Also, they propose a public option for the new health insurance exchanges.
  • Defense: They suggest cuts of the size of the Sustainable Defense Task Force, about $960 billion over ten years. However, they only use the SDTF report as an illustrative option.
  • Taxes: Numerous revenue-raisers. Highlights are a carbon tax/cap-and-trade system, taxing capital gains as ordinary income, a millionaire's surtax, and a financial transactions tax.

We applaud OFS for getting specific. They acknowledge that we have a debt problem that demands action from lawmakers.

However, the plan does not go far enough. The ten-year savings amount to only about $500 billion. But the $500 billion in savings is on top of a baseline that would have ten-year deficits in the $8 or $9 trillion neighborhood. In fact, by 2020, debt is only about two percentage points of GDP lower at 83 percent (versus 85 percent), compared to the President's Budget, with a deficit of about four percent. And the trajectory of debt still points up in 2020, albeit less so than under current policy. The plan stabilizes debt at 90 percent of GDP over the long-term. The debt goals in the plan are likely not aggressive enough to reassure credit markets that we're serious about significant deficit reduction, and risk creating a significant drag on economic growth.

The plan also largely depends on raising additional revenue to bring down future deficits, which would be a hard sell for bipartisan cooperation. For all the concerns about growth--a focus with which we completely agree--this proposal risks harming growth through such high tax and debt levels as a share of the economy.

Another plan, another addition to the debate. It's great to see the flurry of activity that has gone on this past month.