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Developing a Progressive Approach to the National Deficit

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“If we remain on our current course … deficits and debts will grow at unprecedented levels that jeopardize the ability of the federal government to do its job and meet critical national needs,” said Robert Greenstein, director of the Center on Budget and Policy Priorities at a conference hosted by Greenstein’s organization and the Center for American Progress last Wednesday. The conference participants sought ways to control the long-term national deficit.

John Podesta, president and CEO of CAP, said it was important to “come together as progressives to try to forge a shared approach to the national debt problem.” He thought that doing so would allow progressives to present a strong, unified plan for correcting the deficit in a way that aligns with progressive values.

According to Charlie Cook, editor and publisher of the Cook Political Report, coming together is “as serious as a heart attack.” Cook pointed out that anger and fear over the current handling of the economic crisis has tempered the political advantage Democrats enjoyed throughout the last several elections. Conservatives and moderates do not see the Wall Street bailouts and stimulus package as a “success of government to prevent a second Great Depression.” Instead, the policies are seen as an “encroachment of government.” Cook warned that Democrats need to be aware that the tide may turn against them in the next election, so approaches to the deficit need to be strong, thoughtful, and swift.

The panel discussions examined the consequences of the current fiscal trajectory. Panelists explained that policymakers have known about the expanding long-term national deficit for decades. Alan Blinder, economics and public affairs professor at Princeton University and former vice chairman of the Board of Governors of the Federal Reserve System, said that “in 1980 [policymakers] knew about the year 2010 but that was really far away.” Blinder warned that if we keep procrastinating on the national deficit problem, the economy and/or our political system could crack.

Laura Tyson, business professor at UC Berkeley and former director of the National Economic Counsel, warned that taking action on the deficit too soon could interfere with efforts to end the recession. But she did support correcting inefficient “dis-saving” practices such as irresponsible housing loans that the “rest of the world was perfectly happy to finance.” She believed that from 2002 to 2008 the Unites States neglected to save because other countries made borrowing money easy. Tyson worried that the United States would stop growing economically if we don’t get spending practices under control.

The problem is that from a political perspective there is never a good time to begin controlling the deficit. Paul Krugman, Nobel Laureate and New York Times columnist, said that “the economics of [controlling the deficit are] not particularly difficult.” The “economics” involve cutting spending in programs such as the military, health care, Medicare, and Social Security, and raising additional revenue. But doing so is a political risk for any policymaker.

Robert Reischauer, president of the Urban Institute and former director of the Congressional Budget Office, pointed out that the number of people covered under Medicare and Social Security is increasing—people are living longer than in the past and the baby boomer generation is getting older. If the structure of these programs does not change, the deficit will continue to expand. However, “the longer we wait [to implement deficit-cutting policies], the larger the cohort of people … getting benefits will be,” which will make the move more difficult.

Senator Mark Warner (D-VA) dealt with the political challenges of balancing a budget when he was governor of Virginia from 2002 to 2006. Warner faced huge structural deficits when he got to office, and said the key to dealing with the budget was to “[sell] the problem, not the solution.”

Warner explained that to fix the national deficit, the government would need to convince people that the long-term deficit is a problem. And spending cuts do this. The move that got people’s attention in Virginia was closing the DMV one day per week. “We [did] something that had actual effects on people’s lives,” he said. Warner was unpopular at first, but his willingness to work across the aisle and with the private sector to make the state more efficient resulted in political gains for Democrats and moderate Republicans that supported his budget plan. To balance the budget without the major political backlash Cook predicted, progressives have “got to show that we can ratchet back some of the spending.”

The panelists also dove into the recent health care debate. “There’s no path to budget balance that doesn’t go through health care,” said David Cutler, professor of applied economics at Harvard University. He said that the industry should embrace information technology so officials can monitor health practices and determine the most efficient health care methods. Also, doctors are currently compensated based on how many units of care they deliver, but more units do not always lead to better outcomes. So Cutler thought that doctors’ compensation should be based on the effectiveness of their care. A combination of more health IT and better compensation could help bring down health spending.

The final panel was devoted to discussing options for increasing revenues. William Gale, co-director of the Urban-Brookings Tax Policy Center, though in favor of raising taxes, said that tax and spending debates should happen simultaneously so that “the American public [can] understand better what they are getting for their tax dollars.” Raising taxes has often been politically challenging because it has never been linked to spending on programs that people care about such as education and energy. Gale also said the tax system needs to be simplified so that the burden on different types of income taxes is even.

Lily Batchelder, professor at New York University School of Law, said the government should create tax incentives for socially beneficial behaviors, but do so in a way that does not hurt low- and middle-income families. Refundable tax credits that phase out as income rises are the most effective way to do this. The process redistributes money to those that need it by giving a net payment to the taxpayer. Batchelder said that refundable tax credits could be used toward programs such as retirement savings, higher education, and life insurance.

Podesta summarized the panelists’ remarks by laying out areas of consensus. Everyone agreed that there is a long-term structural problem that should be tackled when the recession is over—the United States needs to stabilize the debt as a percentage of gross domestic product. Most importantly, panelists agreed that progressives ought to plan ahead for solutions to this problem. “[We need to] build toward some decision making that could take place as we come out of the deep recession because a response that is based on the unpredictable and the unexpected event often hurts the people who I think we, [as progressives], care about the most—the people most vulnerable.”

For more on this event please see its events page.

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