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Mac, the following ProgressReport identifies the "deficit peacocks" ~ SoozTHE PROGRESS REPORT
January 26, 2010
by Faiz Shakir, Amanda Terkel, Matt Corley, Benjamin Armbruster, Zaid Jilani, and Alex Seitz-Wald
ECONOMY Deficit PeacocksAs the Obama administration and Congress deal with the economic problems facing the country -- including double-digit unemployment, a housing crisis, credit shortage, and stagnating wages -- one issue that has captured the headlines in recent days is that of the national debt. Publicly held debt currently stands at nearly $7.8 trillion, and the current federal budget deficit is $1.4 trillion. While eventually dealing with the budget deficit to pay down the nation's debt is critical, conservatives have seized on the budget deficit to promote their own selective version of deficit reduction, which emphasizes crippling cuts to basic social services, declares certain sectors off-limits from waste trimming, and rules out raising taxes on those who can afford it. The Center for American Progress' Associate Director for Tax and Budget Policy, Michael Linden, refers to these conservative thinkers as "deficit peacocks" because they "like to preen and call attention to themselves, but are not sincerely interested in taking the difficult but necessary steps toward a balanced budget." As the nation's policymakers debate our economic priorities, it's important to identify the deficit peacocks, debunk their hollow vision of deficit reduction, and realize that there are pragmatic, progressive steps to take towards a balanced budget.
HOW TO SPOT A PEACOCK: In his paper "How to Spot a Deficit Peacock," Linden lays out four ways to identify a deficit peacock who "isn't taking our budget problems seriously." First, a deficit peacock never mentions revenues. Linden points out that if we "tried to balance the budget without raising additional revenue, and without reducing spending on Medicare, for example, then the rest of the budget would have to be slashed by a third." Second, a deficit peacock always offers "easy answers"; Linden notes that easy solutions like eliminating earmarks would reduce the deficit by a paltry 3 percent. Third, deficit peacocks tend to support policies that actually make the long-term deficit problem worse; many of the people suggesting gigantic cuts in social spending also "voted repeatedly over the past eight years to make huge [budget-busting] tax cuts." Last, deficit peacocks think "our budget woes appeared suddenly in January 2009." By the time President Obama took office, the Congressional Budget Office was predicting a budget deficit of $1.2 trillion for the year. As Linden notes, deficit peacocks "deliberately ignore the miserable fiscal legacy" of George W. Bush in criticizing Obama's spending. Linden sums up his paper, writing, "There are people from all parts of the political spectrum who strongly and sincerely believe that our current budget path is unsustainable. ... But there are also many who are only interested in scoring political points. ... All you need to do to tell the former from the latter is apply any of these four handy tests."
THE PEACOCK CAUCUS: Unfortunately, Congress appears to have a veritable Peacock Caucus full of members ready to slash social spending without seriously considering ways to raise revenue. One of the leaders of this caucus is Sen. Judd Gregg (R-NH), who -- along with Sen. Kent Conrad (D-ND), has proposed a commission "charged with crafting ways to reduce the country's long-term deficits." While Gregg has slammed a proposal by the Obama administration to create a commission examining the deficit by executive order as a "fraud among anyone interested in fiscal responsibility," the truth is that Gregg has shown little sincere interest in fiscal responsibility himself. While he promotes himself as a standard bearer on the subject, he has voted to cut taxes on the heirs of multi-millionaires and for Bush's budget-busting trillions of dollars of tax cuts. Meanwhile, Sen. Evan Bayh (D-IN) has called on Obama to announce a spending freeze on discretionary spending during his State of the Union address, a proposal that Obama has embraced. The Wonk Room's Pat Garofalo argues that a spending freeze would have "an anti-stimulative effect while the economy is still struggling through a middling recovery." Bayh has not shown a similar level of concern for fiscal responsibility, voting last year for a $250 billion tax cut for the heirs of wealthy families. Democratic Leadership Council head Harold Ford suggested in an op-ed in the New York Times yesterday that the best way to close the budget deficit would be to extend "the current capital gains and dividend tax rates through 2012; giving permanent tax credits for businesses that invest in research and development; and reducing the top corporate tax rate to 25 percent from 35 percent." Economist Paul Krugman notes that the economic vision Ford outlines "has to set some kind of new standard for cluelessness." The budgetary cost of the corporate tax cut alone would be about $1 trillion over 10 years -- which would enrich the nation's richest corporations but actually worsen the deficit. Rep. Patrick McHenry (R-NC) has said that any budget commission must accept the premise that "raising taxes is not the answer." However, without raising taxes and even exempting interest on the debt and spending for Social Security, Medicare, and the defense budget, "the rest of the budget [would need] to be cut by 51 percent to have a balanced budget by 2014" -- which is economically impossible. As Center for American Progress Action Fund Fellow Matt Yglesias notes, "to make the deficit smaller, you can't also make revenues smaller. The math isn't difficult."
DEFICIT REDUCTION THAT WORKS: In their paper "A Path to Balance: A Strategy for Realigning the Federal Budget," Linden and other CAP experts Michael Ettlinger and Lauren Bazel propose setting goals of reaching a "primary balance" in the budget deficit in 2014 and a fully balanced budget in 2020. Primary balance involves reaching a point where "federal revenues equal program spending." Under the primary balance plan, there will "still be overall deficits under the plan because of the cost of payments on past debt, but we will be paying for all spending on federal government programs by 2014." As the authors note, setting these two goals would avoid both the mistakes of trying to "balance the budget in the next few years" and of putting "off any fiscal improvement until some undefined later date." In order to achieve these goals, the authors ask, "Can the United States afford to continue to spend so much more of its national income than the rest of the world on defense? Are we going to pass health reform that realizes budget savings? Can taxes, beyond what the president has already proposed, be part of the picture?" Indeed, there are important budget savings to be had by taking a tough look at waste in defense, health care, and other sectors as well as the ways we raise revenue. Sen. Russ Feingold (D-WI) has introduced the Control Spending Now Act, which could reduce the deficit over half a trillion dollars over 10 years by reforming the budgetary process and eliminating wasteful spending on corporate welfare, unnecessary items in the defense budget and foreign military assistance. Additionally, health care advocates point out that passing the Senate's health care bill would cut the deficit by $130 billion over 10 years; economists Dean Baker and David Rosnick note that if the "United States had health care costs that were in line with other wealthy countries, then the [budget] projections would show enormous surpluses, not deficits." Meanwhile, some progressives argue for levying a 0.25 percent financial transaction tax -- which Speaker of the House Nancy Pelosi (D-CA) has called an idea with "a great deal of merit" -- that would raise $100 billion a year. The Center for Budget and Policy Properties warns that if "current tax policies -- such as the 2001 and 2003 tax cuts -- are continued, revenues will remain well below the level needed to stabilize the debt-to-GDP ratio." Letting the Bush tax cuts for the wealthy to continue would amount to another $1.2 trillion in lost revenue over the next 10 years. Thus, allowing these upper-income tax cuts to expire would do much to deal with the deficit. While progressives may have healthy disagreement about these ideas, they all reflect a serious attitude towards tackling the deficit that is open to using every tool before us to fix the problem.
http://pr.thinkprogress.org/2010/01/pr20100126
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