Op-Ed: Deficit Pessimist Sees Hope for a Deal
CNN Money | March 21, 2011
I think we a can find a way to get a large-scale budget agreement that tackles our insane multi-trillion dollar debt in time to avert a fiscal crisis. I am not saying we will definitely get it done. But I do think, even in the current hostile partisan environment, that it's becoming increasingly possible.
And as a long-time pessimist and deficit worrier, this new feeling -- this glimmer-of-hope-feeling -- is a whole new sensation. I kind of like it.
Here is how it could happen.
Cut, cut and cut: First, we have to cut domestic discretionary spending. A lot. More than I ever dreamed. And far more than my comfort zone would have ever allowed.
While the discussion in the House right now is not nearly broad enough to get the job done, it is a serious effort and a necessary first step. Congress must stop assuming that just because something has been in the budget for years, it should never be reconsidered.
We are going to spend more on the elderly and health care (more on this below) and, thus, we will have to spend less on other things. The House freshmen have broadened the nation's mind about how much we can actually cut.
This is not about crafting a plan that tinkers here and there, and cuts out some of the waste. No. We will have to pick a goal that once seemed ridiculous: cut $800 billion from this part of the budget over the next decade. Programs will have to be ended. Government workers will have to find different jobs.
Defense can't be spared: Next, we have to cut defense. A lot. If you want to look for waste, look in the defense budget.
"Defense entitlements," such as extremely generous health and retirement benefits, are eating up the security budget and need to be trimmed. And real decisions have to be made about our role in the world.
Yes, entitlements too: The big money will come from entitlements. Both parties remain too cautious.
In order to preserve important priorities in the budget, we have to let go of the old-fashioned model of universal benefits that provide more for the well off than those who need benefits the most. This is a particularly tough sell for Democrats who believe universality is the key to ongoing support for programs like Social Security and Medicare.
But without structural changes, we won't get the budget under control. And for those who think we can address the entitlement programs by gradually raising taxes to European levels, the voters have spoken: It's not going to happen.
We need revenue: While Scandinavian tax rates are not in our future, revenue has to go up. Here's why: You could make all of the above changes, and we will not be anywhere near to closing the budget gap.
The president's fiscal commission, which saved $4 trillion over a decade, should be seen as the bare minimum of what needs to be done. I can promise you that no policymaker will put forth a credible budget to save that much without new revenues. So we have to get real.
The question is not if taxes will go up; it is how. The answer should be in ways that are smart and good for the economy. Ending tax breaks and switching to a consumption or carbon tax would be the right way to go.
How to make it happen: The politics are hard, but not insurmountable. Each side will need something. The trick is to find "sweeteners" that won't blow up the rest of the deal.
On the left, the public investments agenda needs to be incorporated into these reforms. Public investments have been shortchanged for decades. A multi-billion dollar fund that directed capital investments for economic (not political) reasons into R&D and infrastructure makes sense.
Secondly, we should recognize that the disturbing trends in income inequality are a national problem. While we can't fix the nation's massive fiscal problems by only taxing the rich, millionaire and billionaire surtaxes make sense as one piece of more fundamental tax reforms.
On the right, we need to find more ways to get out of the way of businesses. Reducing corporate tax rates, pulling back on excessive regulations and understanding that business is the centerpiece of the American economy are essential to driving growth.
Secondly, many on the right have a valid concern that revenue increases will be used to fund new government spending and not to bring down the debt. As a fix, the budget deal could be paired with a legal spending cap.
Run, don't walk: Oh, by the way, did I forget to say that we need to pass this deal this year? Well, we do.
Hey, no one ever promised this would be easy, but things are happening. The country cares about these problems and policymakers are taking them seriously. Something tells me, we just might succeed.