Saturday, December 4, 2010

The Way Forward on the Deficit

The President's Deficit Commission passed by an 11 to 7 vote; this is short of the 14 yes votes needed to trigger an 'up or down vote' in the House and Senate. However, I am not really sure what that would have meant....a general 'sense of the Senate' vote? Surely, the Deficit Commission report has not been put into legislative matter now.

I an any event, looking at who voted yes and no is instructive:
  • Chairs of the Committee, both yes.
  • Business leaders, both yes.
  • Alice Rivlin, former CBO head (founding Director) and policy wonk extraordinaire, yes.
  • Sitting U.S. Senators, 5 of 6 yes (Max Baucus, D) voted no
  • Sitting U.S. House members, 5 of 6 no (John Spratt, D) who lost election in Nov. voted yes
  • Organized Labor leader, voted no
The bipartisan range of the Senate members who voted yes is impressive: Coburn is one of the most conservative members, and Durbin a reliable liberal. Both the Chair of the Senate Budget Committee (Conrad) and the ranking member, (Gregg) managed to both agree.

In the House, the bipartisan agreement is also impressive. Paul Ryan, the soon-t0-be chairman of the House budget committee, and who has no problem issuing sweeping proposals, to change, well everything, voted no because he said it did too little on health care, and didn't cut enough. Xavier Becerra, a liberal from California, said it cut too much. Ryan voting no especially dims his reputation as a young gun a bit. He thinks that he is going to get support of something even more radical than this? He should recognize quite a lot about his roadmap here, especially the tax reform (fewer brackets, lower rates, broader base by ending tax expenditures). He is getting plenty of deserved derision.

The theory of the Senate is that members are more insulated from elections (only every 6 years) while the House is always running for re-election (we are less than 23 months from the next one and they haven't even been sworn in yet).

I think that the President's Commission has succeeded in generating lots of elite discussion of the deficit and how it should be addressed, and is a reasonable way forward, certainly as a starting point. I think there is grudging acceptance by most that something must change. The only question is whether we wait for an economic crisis to bring it about, or go ahead and fight it out now.

There is a profoundly delusional aspect of the current tax rate debate: extending all the rates (those above and below $250,000) would add around $4 Trillion to the deficit over the next 10 years. The plan released by the Deficit Commission would reduce it by around $4 Trillion over the next 10. That is quite a swing....

The next big move is that of the President. Will he propose a budget to Congress that contains these hard choices, perhaps forcing continued discussion of these issues? The results of the Commission suggest there could be hope of the White House being able to work with the Senate on these issues. If they build momentum, it may become increasingly hard for the Republican controlled House to ignore things given how much Republicans have traditionally talked about deficits (they have mostly only talked, however).

Especially if we extend the tax rates of the past decade into the future, we have got to move to develop a plan to address the long term deficit in a reasoned manner. Reasoned means that we certainly need some short term stimulus, perhaps the payroll tax holiday suggested by the Deficit Commission is the simplest, most consequential way to act.

Simply continuing the tax rates that have existed through the economic crisis and doing nothing else is akin to flooring it when you finally see clearly the bridge is out ahead. Perhaps an extension makes a large change (esp a tax reform) such as that proposed by the Deficit Commission much more likely to gain traction. It may be that the extension of the current rates makes a big change inevitable, sooner rather than later.

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