THE BLOG
06/27/2010 05:12 am ET | Updated May 25, 2011

A Deficit in Their Thinking

Deficit hawks have been in full flutter mode. Pete Peterson and his friends have gotten together in recent days for one of their periodic teeth-gnashing, rending-of-clothes bacchanalias, and President Obama's deficit commission is having its first meeting today.

While progressives have done some good things in response to all this deficit hawk fervor -- like repeatedly pointing out that if we cut deficits too fast, the economy will tank, and reminding people that some of the biggest deficit hawks (such as Greenspan and Rubin) are people who ignored the housing bubble or even benefited from it. I think it is incumbent on us, though, to have a sharper, less defensive message overall on the deficit. It is not politically tenable for us to ignore or downplay the big deficit numbers that are projected. We need a proactive deficit strategy of our own to push back on the conservative deficit hawks. Such a strategy should be built on two major messages, both of which are good economic policy as well as good politics:

1. The best way to make major progress on the deficit is to rebuild a broadly prosperous economy. Since the advent of the modern economy after the Great Depression, our best periods in terms of the federal budget numbers were the 1950s, and the 1960s before the Vietnam War overtook the strong budget numbers produced by that decade's strong economy, and the latter half of the 1990s. What all those eras had in common was a prosperous, growing economy that improved the middle class' economic position as well as wealthy Americans. In each era, poverty rates were relatively low and so was unemployment, the middle class was expanding and wages were going up, businesses were prospering even as taxes on corporations and the wealthy were relatively high. When the economy is strong, more workers are paying taxes, more companies have corporate profits generating taxes, and there is less need for welfare spending.

All the current gloom and doom talk about intractable deficits ignores one rather large fact- the federal government had a $230 hundred billion dollar surplus just 10 years ago, and those surpluses were projected to stay high for years to come. How did that happen? Well, the 1993 budget cut some programs in the budget, and raised some taxes, mostly on the wealthy. The 1995 budget cut a little more spending. All of that helped some. But mostly we created the federal budget surplus because of the sustained economic expansion of the Clinton years. Priority #1- both for the deficit and in general- should be producing jobs, getting wages and home prices going up sooner rather than later, and getting the economy growing for everyone.

2. There are many different ways to cut the deficit without slashing Social Security, Medicare benefits, and programs to help the poor. Most of the people claiming to be deficit hawks don't actually care all that much about the deficit: if they did, they'd vote for more policies to cut the deficit like the public option in health care, an end to agri-business subsidies, and cuts in bloated defense appropriations. What these self-proclaimed "hawks" are obsessed with is cutting benefits for middle-class and poor people in Social Security, Medicare, and other important domestic programs.

There are many, many ways to cut federal deficits, and progressives should be listing them every time the subject comes up:

• The tax code is laden with loophole after loophole for big business interests.

• Subsidies for wealthy agribusiness interests are a very big part of the Farm bill.

• The insurance and pharmaceutical industries got off very easy in health care reform. If you add a public option, federal rate regulation, and the ability to negotiate drug rates into the health reform bill, you could save hundreds of billions of dollars over the next few years in health care costs.

• The defense budget is the most bloated and wasteful part of the federal budget and has been since at least the 1980s (and that's even without mentioning these endless wars we find ourselves in). We should be going through it with the finest of fine tooth combs.

• A financial transactions tax (taxing Wall Street traders every time they make a trade) would be healthy for the economy because it would discourage reckless gambling on Wall Street, but could also raise $125 billion a year in new revenue.

If you did all those things at the right levels, you could probably balance the budget within the next seven or eight years, and still have some money left over to pay for desperately needed jobs and infrastructure programs. But if all else fails, more progressive taxation is always an option. In one of those prosperous decades I was talking about, the 1950s, the tax rate was 90% on millionaires, and even after JFK cut taxes it was still around 70%. Those were very good years for the American economy. When Bill Clinton raised taxes on the wealthy in his 1993 budget, we had another great run of economic prosperity. The evidence is very clear that raising taxes on the superwealthy does not hurt the economy.

If the deficit "hawks" were serious about cutting the deficit, there are plenty of places they can look besides screwing the poor and middle class. I'm all for getting serious about deficit reduction, but let's do it the right way: getting the economy humming, cutting the truly wasteful things in the budget, and taxing those who can most afford to pay.

Cross-posted at OpenLeft.com

You can read all of my work on financial reform, health care and other topics at my home blog, OpenLeft.com.