Lessons from the budget bake-off
The Washington Post, March 20, 2013
While philosophers have debated the question in broad terms for centuries, I'm happy to report that we can now definitively quantify the difference between a pinko communist dystopia in which the leviathan state crushes the very soul of freedom, and a neanderthal right-wing hellscape in which the poor, frail or otherwise unlucky fight for whatever crumbs John Galt cares to spill.
It's about 4 cents on the national dollar. That is, it's the difference between a federal government that spends about 19 percent of gross domestic product and 23 percent of GDP in the year 2023.
Reaching 18.5 percent to 19 percent of GDP is what Paul Ryan and the more conservative Republican Study Committee target as the level of spending and taxes at which to balance the budget (the committee's plan, issued Monday, would reach balance in four years and then keep roughly those levels thereafter). The Congressional Progressive Caucus's new plan, wrongly written off as softheaded by most of the press, calls for 23 percent of GDP in 2023, with deficits coming in then as small as they were in Ryan's last two "conservative" budgets.
All these blueprints have dubious assumptions that mean they're not perfect guides to their impact. Still, this year's budget bake-off offers a rare chance to compare rival visions. As a result, we learn three big things: (1) how hyped the rhetoric is from each group's foes; (2) how critical the differences are, nonetheless, in terms of the society these budgets would produce; and (3) how we're still missing the bolder plan for renewal America needs.
The most interesting development is on the "left." I know I'm a broken record, but it can never be said often enough that Ronald Reagan ran government at 22 percent of GDP. This means the long-run spending goal of a caucus seen in Washington as impossibly liberal is just a penny on the national dollar higher than that of a conservative hero. Who knew how close the Gipper was to Karl Marx? (Don't forget, the man was a union president earlier in his career...)
A word of advice to the progressive caucus: Lead with that Reagan talking point and you'll open Washington's mind.
To be sure, the progressives also call for massive new infrastructure spending and a public-sector jobs program over the next few years, which would boost spending past 26 percent of GDP before it falls back. But officials in both parties (and anyone who travels abroad) knows our infrastructure needs serious work, and we have a huge jobs gap, and interest rates are at record lows. A pragmatic government trying to kill a few birds with one smart stone would do what progressives urge.
The progressive budget is also the only one honest and gutsy enough to ask the middle class to pay more in taxes as America ages, via a carbon tax that would raise prices at the pump (only a quarter of whose revenue would be rebated to hold low earners harmless). It adds a tiny financial transactions tax that would soon throw off $100 billion a year. It ends the Bush tax cuts for those earning more than $250,000, which President Obama mistakenly failed to do. And its call for new higher marginal rates for earnings above $1 million and $10 million matches what JP Morgan Chase CEO Jamie Dimon said made sense in New York magazine last year.
(More advice to progressives: Call these rates the Dimon Plan).
By mostly paying for the extra 4 percentage points of GDP they want to spend a decade out—$600 billion a year in today's dollars—the progressives would put millions of Americans back to work, make health coverage nearly universal, cut poverty in half, invest in research and development and higher-caliber teachers and more. I've detailed elsewhere how crazy it is for Republicans to pretend we can shrink government below Reagan-era levels given our aging population. The progressive plan isn't perfect, but it's serious.
But now consider this. We actually need to push spending toward 28 percent of GDP—because we need to break the archaic link between employment and health coverage, which means moving those costs off business payrolls and onto government budgets (perhaps via vouchers that help people buy guaranteed coverage in the new Obamacare exchanges).
Is this desire to get employers out of health care (to boost business competitiveness and health security) a radical idea - or simply common sense? What if I add that we should take on Medicare's crazy overspending, compared with that of other wealthy nations, and revisit Social Security's automatic benefit hikes for new cohorts of retirees—ideas that are fiscally prudent and generationally just, yet anathema to progressives? All while cutting (and even phasing out) our job-killing corporate income and payroll taxes, and further dialing up carbon, consumption and financial transaction taxes in their stead?
Rethinking what government does and how it funds itself is the only way to renew America in an age of global competition. Yet such an "ideologically androgynous" package can't find expression in today's budget bake-off given the interest groups and litmus tests of our political parties.
What should we do if the ideas we need are simultaneously to the "left" and the "right" of the current debate? And when Americans don't have the chance to respond to such an agenda because it's not on offer?
In the end, for all the light shed by today's dueling budgets, that may be the biggest open question of all.
