Multiple news reports, as well as comments on this morning’s talk shows, are indicating the potential exists for a bipartisan “grand bargain” on a long-term deficit reduction deal. Reuters quotes White House senior economic official Gene Sperling that President Obama is “reaching out to Democrats who understand we have to make serious progress on long-term entitlement reform and Republicans who realize that if we had that type of entitlement reform, they’d be willing to have tax reform that raises revenues to lower the deficit.” For its part, Roll Call reports that a long-term deficit reduction bargain “could blunt the effects of the $85 billion in automatic spending cuts now in place.”
I have no idea how serious any of this is, but it’s certainly sounding live a live possibility. With that in mind, I’ve got a few thoughts on what might constitute a progressive “grand bargain,” one that would not just reduce the long-term, structural deficit, but also move our country forward and allow us to move on to other, pressing issues.
1. Far from slashing non-defense discretionary spending, we need to be drastically increasing our investment in America – both its physical capital and “human capital.” That means restoring full funding to programs which help educate our people (not just kids, but lifetime learning), massively upgrade our transportation and power grids, kick-start the transition to a clean energy economy, invest in cutting-edge research and development, and basically put money into anything that provides a positive ROI (return on investment) to our nation. It’s important to emphasize that although many people confuse “spending” and “investment,” they’re actually quite different, as “investment” results in stronger economic growth and, in many/most cases, more revenue into the system than has gone out for the investments.
2. We need to raise revenues. Badly (note: current tax revenues are the lowest as a share of GDP “in more than 60 years). To do this, we don’t have to raise tax rates (although I would have gotten rid of the Bush tax cuts for anyone who’s not truly “middle class” or below). Instead, we can do it by slashing tax expenditures. As David Brooks writes, “[t]hese tax expenditures are hidden but huge…in 2007, they amounted to $600 billion.” These expenditures include the exclusion for employer-sponsored health care ($171 billion a year), the mortgage interest deduction ($87 billion), and preferential treatment of capital gains ($66 billion). Then there are all the wasteful subsidies, on things like corn-based ethanol and fossil fuels, which add up to tens of billions of dollars per year. It goes on and on, and basically blows a huge hole in the budget, while making the tax code overly complicated, and also wildly unfair. So…simply the tax code, eliminate, or at least pare back, a lot of these tax expenditures – especially for wealthy corporations and individuals. This idea should have appeal to both Democrats and Republicans.
3. A truly progressive “grand bargain” would shift the tax code so that we are making the things we want to have less of (e.g, pollution) more expensive, while making the things we want to have more of (e.g., productive investment) less expensive. On this front, the Washington Post (of all people) nailed it this morning in its editorial calling for a carbon tax. As the Post points out, this would accomplish multiple goals: reducing carbon emissions, reducing the deficit, allowing for cuts in taxes that discourage investment in the US, etc. This one’s a no brainer.
4. There’s no doubt in my mind that we need to reform entitlements, which increasingly are taking over our entire budget (turning us into an “insurance company with an army,” as the quip goes). Clearly, we need to maintain a social safety net, and clearly we need to protect benefits for people who really need them. But we also need a lot more stringent “means testing” on entitlements so that we’re not essentially transferring money from young people (and the future) to well-to-do/rich retired people who really don’t need all that money. While we’re at it, we need to raise the cap on the payroll tax, which exempts wages over $110,000 from the tax. Why someone making $100 million a year should only be subject to the payroll tax on the first $110,000 of their income, while the remaining $99,890,000 is not subject to the payroll tax, makes no sense to me.
Anyway, those are just a few ideas, not a comprehensive plan. That’s nuts. Still, it seems to me that if we did these things, we’d slash and/or completely eliminate the deficit, simplify our tax code, strengthen our nation’s future, protect our environment, and reduce the massive inter-generational inequities in our current system. We also would be able to move on from this debilitating debate/self-generated crises over the deficit, and get back to a focus on creating jobs, building a 21st century economy that’s “built to last,” and dealing with the many other issues – immigration reform, guns, you name it – that have languished over the past few years.
P.S. It should go without saying that we should NOT be doing brain-dead, across-the-board cuts to the tiny slice of the budget known as non-defense discretionary spending. We also should do nothing that would hurt anyone who is truly in need, or that shreds our social safety net (we should be strengthening that for decades to come).
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