I didn't quite believe my eyes this morning when I read an op-ed piece by Martin Feldstein in The Wall Street Journal. Obama caused the growing debt levels, he says. For you nonbelievers, here's the quote: "Much of the projected doubling of the national debt between now and 2020 reflects the spending and tax proposals in the president's fiscal plan this year."
Professor Feldstein, former Reagan economist and head of the National Bureau of Economic Research, is known for his sleight of hand. But this one is a beauty. How does he pin this on Obama? He basically calls the Bush tax cuts the Obama tax cuts. "The $5.1 trillion gross cost of the Obama proposals reflects the cost of making the Bush tax cuts permanent for individuals with less than $250,000..."
Does Feldstein really support a tax increase in this economy by rescinding the Bush tax cuts? He doesn't bother to take that on.
But he has more up his sleeve. He doesn't mention war spending at all. He doesn't mention the tax-plunging consequences of the recession, which Obama inherited from Bush. He doesn't note that the Obama stimulus package helped stop a recession and will probably result in a much lower deficit in 2011 and 2012, as Alan Blinder and Mark Zandi's model shows (Zandi was an adviser to John McCain).
The more honest Center on Budget and Policy Priorities has it basically right. The growing debt levels out to 2020 are due to the recession, war spending, and the Bush tax cuts.
The thrust of the Feldstein piece was a fairly warm endorsement of the proposals put forward by the co-chairmen of the Obama fiscal commission, Erskine Bowles and Alan Simpson. Glenn Hubbard wrote a still warmer endorsement in The New York Times earlier in the week. Both are members of the conservative team of Harvard economists -- students and faculty -- who now dominate the department. Their friendly endorsements suggest how ideologically right-wing the proposals basically are.
Feldstein does say the proposals don't cut social programs enough -- or soon enough. But both Feldstein and Hubbard like the proposal to sharply cut marginal tax rates. Hubbard, formerly George Bush's chief economist, never saw a tax cut he didn't like. He of course ignores the intrusive fact that the Bush tax cuts he oversaw resulted in a mediocre economic expansion, with falling wages and fairly tepid capital investment. Martin Feldstein has long been the clever godfather of the Harvard group, where Hubbard got his Ph.D. He must be smiling at the sharp cuts in marginal tax rates -- from 25 percent to 23 percent for top earners, some 15 percent in the middle and 8 percent at the bottom.
Alice Rivlin, a member of the Obama commission, and Pete Domenici, have also come up with a plan to cut marginal rates. You'd think there was some serious economic evidence to support the case. Feldstein, of course, warned vociferously that the Clinton tax hike on upper income Americans would be a disaster for the economy back in 1993. Austan Goolsebee, the politically moderate economist, now Obama's chief economist and formerly at the University of Chicago, showed how wrong Feldstein was. So did the booming economy that followed.
No matter. On we go. Helped by little response from the press. Bowles-Simpson and Rivlin-Domenici claim we will grow more rapidly by cutting tax rates. They claim the cuts will not reduce tax revenues because they also propose to close tax loopholes and "broaden the base." Of course, closing loopholes is one of the perennially unfulfilled political promises of all time. If anything happens, we will get tax cuts and retain loopholes.
Rivlin-Domenici at least propose a VAT, a sales tax, to make up for some of the tax cuts. Some point out that in Europe, progressive income taxes account for far less tax revenue than they do here. Their high VAT does much of the heavy lifting. But Europe spends that money on highly egalitarian social programs, including free -- or nearly so -- health care, higher education, childcare, and adequate retirement programs.
Feldstein insists we must get the debt-to-GDP ratio down to 40 percent, and mischievously says the Bowles-Simpson proposal doesn't do it fast enough. I say "mischievously" because he must know that pulling still further right is good politics when it is time to compromise. But he must quietly love the 21 percent cap on government spending as a percent of GDP proposed by Bowles-Simpson.
With this limit, we have the excuse to cut social programs, notably Social Security, Medicare and Medicaid. More than two thirds of the budget balancing is accomplished through spending cuts, less than one third by new revenue raising. The limit is an outrage. It is the average over the last forty years -- before there were soaring health care costs, two new wars, and the retirement of the baby boomers. And there is utterly no evidence that a 21 percent economy will growth faster than a 22 or 23 percent economy.
There are some good ideas in these plans, such as cutting military spending and tax expenditures, like the home mortgage interest deduction. But some of it is charade. Peter Orszag, the former Obama budget chief, made a case for the Social Security cuts of the Bowles-Simpson plan because they are "progressive." They raise benefits to the poor and cut them for the better off. This is blowing smoke. The very low end of Social Security recipients will be put up all the way to 125 percent of what is already a very low poverty line. Meanwhile, recipients merely earning in the high $30,000 a year bracket will have to give up benefits. Those in the middle, around $43,000 a year, will see benefit cuts of 15 to 20 percent over the years. This is progressive reform?
These plans are basically government bashing, especially the Bowles-Simpson trial balloon. Yet the media simply doesn't see the ideological take. As usual, they bend over backwards to give credibility to these ideas. The best example was a column by moderate conservative Ross Douthat in The New York Times, claiming the Democrats were now the Party of No for not supporting the good side of the Bowles-Simpson proposals.
These are not balanced proposals. If they were, Hubbard and Feldstein would never have been as supportive as they are. They'd be railing at the Obama commission. Of course, the final recommendations are still to come.
Cross-posted from New Deal 2.0.