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OECD Warns Against Immediate Deficit Cuts

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Richard Boucher, then-U.S. Assistant Secretary of State for South Asia, in Islamabad, 16 August 2007.
Richard Boucher, then-U.S. Assistant Secretary of State for South Asia, in Islamabad, 16 August 2007.

WASHINGTON -- A new report from an international economic organization makes a strong case that many of the Obama Administration's policies that Republican Party leaders decry as radical and socialist are in fact uncontroversial, fact-based ideas embraced by experts from 34 developed countries.

The latest U.S. economic survey from the Organization for Economic Cooperation and Development (OECD) warns that too much immediate deficit cutting in the United States would stall the recovery, and recommends raising the capital gains tax rate and reducing tax breaks to the rich in order to address the country's dramatic income inequality. The report also calls for increased funding to improve educational outcomes and address long-term unemployment.

"It's based on what works and what doesn't work," said Richard Boucher, a former Bush administration spokesman who now serves as deputy secretary-general of the Paris-based OECD.

"It's the best advice and best analysis from experts from 34 countries," Boucher said. The conclusion represents a consensus view based on "what we've learned studying economies all over the world."

U.S. ambassador to the OECD Karen Kornbluh, with whom Boucher unveiled the report at the National Press Club on Tuesday, said the survey process was the result of apolitical "hard-nosed analysis" that was unconnected from domestic U.S. politics.

And yet, she noted, "the report comments favorably on key policies that President Obama has already proposed, or that the administration is already pursuing."

The overall theme of the report was that the U.S. economic recovery may be gaining momentum, but the country's long-term standing in the world is endangered by income inequality and insufficient education and training.

"We're keeping the pace and others are running faster," said Boucher.

Kornbluh said the report supports an agenda of short-term investment in training workers, "long-term investment in education for the sake of our children's prosperity," and "short- medium- and long-term investment in programs that spur innovation."

The report advocates long-term deficit reduction, but says that "[c]urrent legislation should be amended to avoid a sharp fiscal contraction in 2013, which would derail the recovery."

The report also calls attention to the often overlooked role of tax expenditures -- i.e., tax breaks -- in both reducing government revenue and redirecting money to the rich, rather than the poor.

OECD data shows that while the U.S. lags behind every European country but one when it comes to direct spending on social welfare programs. But when it comes to tax breaks with ostensibly social purposes -- particularly employer-sponsored health benefits and contributions to retirement plans -- the U.S. leads the pack.

Tax expenditures "need to be looked at as carefully as other spending," Boucher said.

"To reduce both income inequality and distortions in resource allocation, tax expenditures that disproportionately benefit high earners should be limited over time," the report says.

The report also identifies "comprehensive education reform" as the key to address the U.S.'s dramatic decline in social mobility between generations, and documents the enormous growth in long-term unemployment rates, which are now close to those of many European countries.

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