Today, the President of the United States laid out his vision for restoring fiscal responsibility in a way that does not impede our fledgling recovery or violate the core inter-generational promises made during the American Century. Demos applauds the President's leadership.
First, the positives. The President reaffirmed his commitment to the type of public investment that has made America great, such as education, infrastructure, and encouraging innovations in energy and science. He also recognized that we can no longer justify a defense budget that has contributed to 2 out of every 3 dollars in increased discretionary spending since 2001.
He addressed one of the real drivers of long-term debt -- health care costs -- by targeting the source of cost increases, instead of simply targeting the government or individual payers of these increases, as the Ryan plan does. His courageous approach -- strengthening the Independent Payment Advisory Board and allowing more generics competition and government bargaining--directly challenges the insurance and drug lobby who hold far too much sway in Washington.
The President also offered a strong counter to the worst elements of the conservative budget orthodoxy. He either explicitly or implicitly rejected the most economically damaging proposals, including: continuation of the Bush tax slashing ideology that brought us a job-growth-free decade; an 18 percent GDP spending cap that would guarantee our international decline; and privatization and block granting of Medicare and Medicaid.
Unfortunately, the President has retreated from the urgency of joblessness. He resisted proposals that would send us back into Recession, yes, but where is the plan to put 29 million under- and unemployed Americans back to work? He rejected the right-wing war against the American government, yes, but when will he wage war against economic inequality and middle-class decline, for which government is the most powerful weapon?
With federal tax receipts at the lowest share of the economy in three generations -- and corporate taxes at a record low, any legitimate deficit plan must raise considerable revenue. The President does not appear to have that intention. His plan embraces the same basic bad math of the Bowles-Simpson plan: $3 in spending cuts for every $1 in additional tax revenue. Fortunately, the inclusion of interest payments with spending will provide more balance than the economically unsound Bowles-Simpson approach.
Nevertheless, we must admit that we have a revenue problem, and will in fact need more spending to rebuild a middle-class economy. We simply cannot power a 21st century, high-speed rail economy on a 20th century steam engine tax base.
Let us be clear: the conservative fiscal vision is austerity for the vast majority of Americans and publicly-financed charity for a narrow elite. This cannot stand, and the President made that clear.
Here are some ways that policymakers can improve on the strong foundation the President set today:
• Look Beyond the Bush Tax Cuts. Given our record inequality and urgent national needs, why should we stop at simply reversing the Bush tax cuts on the highest income bracket, a group that is diverse in and of itself? The President should ask that those who benefit most in our society contribute much more to its survival. New, higher tax brackets should be created for millionaires, billionaires and wealthy heirs, along the lines of Rep. Schakowsky's Fairness in Taxation Act.
• "Corporate Citizens" Should Pay Like Citizens. The President reiterated his call to close corporate tax loopholes, but without raising more revenue, echoing the business lobby's false complaint about the statutory rate's effect on economic competitiveness. The truth is, corporations now account for just 9 percent of federal tax revenue (down from 27 percent in 1955) and their taxes are lower relative to our GDP than are the corporate sectors of all other industrialized nations. Corporate tax reform must ask for more from American business.
• Commit to Retirement Security. With employers failing to provide adequate private pensions, Social Security benefits will need to be higher for most future retirees to sustain today's living standards. Young workers may be relieved that their benefits won't be "slashed" in the President's vision, but without major reform of our private retirement system, any decrease is unacceptable (and unnecessary, as higher payroll taxes could fund sustained benefit levels).
In other, less-reported news, the Congressional Progressive Caucus unanimously voted yesterday to release its own alternative budget. The CPC's fiscal plan delivers a bolder, more coherent vision of what's broken in the economy, who broke it, and how to fix it.