The Progressive Plan For Deficit Reduction
Last week, President Obama’s debt commission released its final report, but failed to find the required 14 votes to advance the proposal to Congress. Of the commission’s 18 members, 11 voted for the final report, and only four of those affirmative votes came from members of the incoming 112th Congress. Despite the commission’s failure to craft a plan that could receive enough votes to move forward, many of the commission members cited the proposal as a good starting point for discussions on reducing the country’s deficit and debt. “I believe we’ve crossed an important hurdle here and laid out a plan that will be resurrected because it must be,” said commission member Sen. Kent Conrad (D-ND). However, the deficit commission’s plan is not a feasible path toward reducing the long-term structural deficit, and it included some very misguided policy prescriptions like raising the retirement age for Social Security and cutting huge swaths of the non-defense discretionary budget. In fact, the commission’s plan relies far more heavily on spending cuts than revenue increases, putting vital and popular programs at risk. In a new report, “The First Step: A Progressive Plan for Meaningful Deficit Reduction by 2015,” the Center for American Progress has laid out an alternative vision for deficit reduction that preserves important programs, responsibly raises new revenue, and includes a path towards making important government investments that pave the way toward a 21st century economy.
RESPONSIBLY RAISING REVENUE: Trying to balance the budget entirely through spending cuts, as some conservatives have suggested, would be folly and severely harm important programs. As the CAP report’s authors — Vice-President for Economic Policy Michael Ettlinger, Associate Director of Tax and Budget Policy Michael Linden, and Director of Government Reform Reece Rushing — write, “These are not the sorts of cuts that the country would be able to absorb without real pain and significant adjustments.” To that end, the CAP report lays out revenue-generating plans that hit four deficit-reduction targets: 33 percent of the way to primary balance in 2015 (which means revenue equals outlays, and the only deficit is interest payments on the debt), then 50 percent, 67 percent, and 100 percent. Ultimately, the authors decided that the 50 percent plan — in which one dollar of spending cuts is made for every dollar of increased revenue — is the most reasonable, because “it reduces the size of government below projections but would generally spare spending that supports economic growth and protects the most vulnerable, the tax increases are modest relative to the size of the economy, and the policies are within the realm of political possibility.” These tax increases include: removing the cap on the employer side of the payroll tax, which raises about $76 billion in 2015; imposing a new fee of $5 per barrel on foreign oil imports, to raise about $22 billion; and applying a new surtax of 2 percent to adjusted gross income above $1 million, and an additional 3 percent to adjusted gross income above $10 million, to raise about $29 billion. These increases would raise federal revenue to about 19.8 percent of GDP, which is higher than it was under the Bush administration, but lower than when President Clinton brought the budget into surplus.
MAKING IMPORTANT INVESTMENTS: While much of the government’s attention has been focused upon the deficit and the debt — which in the long-term, of course, are unsustainable — the effects of the Great Recession are still being felt by citizens across the country. With unemployment at 9.8 percent and state and local government slashing spending to meet constitutionally mandated balanced budget requirements, there is no contradiction between short-term efforts to boost the economy and long-term deficit reduction. Last week, members of the Federal Reserve — which is undertaking its own efforts to boost the economy — pushed Congress to adopt a plan that pairs long-term deficit reduction with short-term spending to spur demand. “We need, and I believe there is scope for, an approach to fiscal policy that puts in place a well-timed and credible plan to bring deficits down to sustainable levels over the medium and long terms while also addressing the economy’s short-term needs,” said Fed Vice-Chairman Janet Yellen. At the same time, the country has many areas in critical need of investments, including its crumbling infrastructure and inequitable education system. To that end, the CAP deficit report also lays out ways to improve how the government performs routine tasks, in order to find savings that can further reduce the deficit and free up funding to meet the important needs of the country. These changes include government contracting reforms that could save $40 billion annually, and better use of information technology, which has the potential to save hundreds of billions of dollars.
SMART SPENDING CUTS: The debt commission report’s plan relies on $280 billion in total spending cuts in 2015 (compared to the President’s budget), which, if adopted, would slice into popular and important programs in areas like veterans’ health care, education, science and health research, consumer product, food and drug safety, and law enforcement. The CAP report, instead, lays out about $128 billion in total spending cuts in 2015, including about $60 billion in defense spending cuts, $35 billion in tax expenditures (which are essentially spending programs that are administered through the tax code), and $12 billion in non-defense discretionary cuts. The plan would also cut $3.8 billion from in agricultural subsidies and index all relevant federal programs to the chained Consumer Price Index for all Urban Consumers, which would result in “slower increases to those aspects of the code that are indexed.” A separate CAP report, “Strong and Sustainable: How to Reduce Military Spending While Keeping Our Nation Safe,” identified almost $110 billion in potential defense cuts that would help make Pentagon spending more sustainable, but the $60 billion identified in the deficit report represents a compromise between support for the cuts in that report “and a desire to not count on so much being cut from a single area with a powerful constituency.”