President Commits to Tax Reform, “Long Discussion” About Spending
Yesterday on Dylan Ratigan’s show, he asked Austan Goolsbee a question I submitted via Twitter. It’s something I’ve been asking here as well: how are you going to perpetuate the stimulative effect of this bill, when you have deficit hysteria breaking out in Washington and a new Tea Party caucus bound and determined to cut spending next year? Goolsbee’s answer made it seem like he never considered the question:
Well, that’s an interesting issue. I think the President has said that in the medium run and long run, we’ve got to confront the fiscal imbalances that have faced the country, and that we’ve known about for 10, 20, 30 years. So I don’t think he’s afraid to think through and confront the medium-run fiscal challenge. I think it would be a big mistake if we pass the tax deal, and that we were to immediately try to reverse it, but I don’t think the President would go along with that.
Goolsbee knows the President better than I do, but for what it’s worth, here’s the aforementioned Mr. Obama on NPR today:
OBAMA: Well, we’re going to have a long discussion next year about spending. I put together a fiscal commission — over the resistance, I should note, of a number of Republicans who originally had supported it.
I think that Bowles-Simpson did a good job of sparking a conversation about how we need to move forward to deal with our medium- and long-term deficits. There have been other commissions that have been put forward over the last several weeks.
And I’m going to have to put a budget up that shows how I think we make some — a serious dent in our debt and our deficit. I think every economist — and by the way, the commissions who looked at this as well, realize that because we’ve got a recovery that is still not as strong as we’d like it to be.
The vast majority of economists, as well as both the chairman of the Bowles-Simpson commission, as well as other commissions, have suggested that because the recovery is just taking off and is still not producing as many jobs as it needs to, that it actually makes sense for us not do anything that contracts the economy right now because the single most important thing we can do for deficit reduction is actually expand economic growth.
That 1 percent of additional economic growth brings in a whole lot of revenue even with no changes in the tax code.
INSKEEP: That’s what they’re saying the payroll tax will do — is 1 percent.
OBAMA: And so the payroll tax provision that is included in this package is going to help spark economic growth that will help. Now, it doesn’t solve our medium- and long-term problems, so we’re going to still have to make some very tough decisions — and these, too, are going to be unpopular.
And I promise, I’m going to get criticism from Democrats and Republicans throughout the year in terms of the choices that I am going to be forcing Congress to take a square look at. Because, look, the fact of the matter is that for a decade now, we have had the tendency to think that we can keep on having all the services we want and we keep them — can keep cutting taxes as much as we want and that somehow things are going to magically balance out.
The American people understand that’s not the case, and so we’re going to have to be responsible about thinking: What are the programs we don’t need, that don’t contribute to growth, don’t contribute to competitiveness, don’t make sure our kids are — aren’t contributing to making sure that our kids are learning and able to compete in this 21st century economy, and which things are vital investments that we have to make?
And that conversation is going to be one that can’t just happen in Washington; it’s going to happen all across the country. And I’m looking forward to leading that conversation.
The President thinks he can confine this to a conversation. But notice the part that I highlighted – he’s saying that parts of his next budget – for fiscal year 2012 – will have to show steps to “a serious dent in our debt and our deficit.” Keep in mind that the FY2011 budget – passed by a House with large Democratic majorities – already reduced the President’s baseline budget by $46 billion dollars. That will be the absolute least of what will be wiped out in the next year or two, with a Republican House and a Senate with a Budget Committee chair itching for austerity. And of course, that’s without even mentioning the debt limit.
Today, the New York Times reports that the President wants to put tax reform at the top of the agenda. In theory, broadening the base and eliminating tax earmarks is a good idea. In practice, this will flatten the rates, in all likelihood, and pit the voiceless poor with a very powerful and influential ruling class. I don’t like the odds. On net, the President wants to raise revenues in this deal, and that’s both possible and preferable. But you’re going to necessarily pick winners and losers if you go through with this, and I know who the Republican House sees as whom. Dave Camp, incoming House Ways and Means Committee chair, wants
tax reform, but a very specific kind.
It’s positive, I suppose, that the President skipped the meeting yesterday with the catfood commission, but he certainly wasted no time talking it up with NPR. The vultures are circling for austerity, and they’re not necessarily on the same time schedule to accommodate 2011-2012 stimulus. I don’t see how anyone gets out of this box with the full stimulative effect intact.
UPDATE: Here is specifically what Kent Conrad said after meeting with the Catfood Commission and White House officials yesterday:
“At today’s meeting, I joined other Commission members in urging the Obama Administration to move quickly to engage in serious and sustained bipartisan talks on a long-term deficit reduction package. We must have the Administration and the bipartisan leadership in the House and Senate involved in these discussions.
“The Commission’s plan presents a good starting point for negotiations. In the coming year, we need to reach conclusion on a specific bipartisan package that can actually be enacted to bring our debt under control. We can’t afford to put this off any further. Our nation’s long-term economic security is at stake. The coming vote on another debt limit increase is likely to be a critical catalyst for jump-starting these bipartisan discussions.”
Definitely sounds like he wants to wait.