Robert Kuttner's attack on the Concord Coalition ("They're Baaack," 1/15/07) misstates important facts and ignores others in dismissing our call for bipartisan cooperation on fiscal policy. The immediate source of Kuttner's scorn was an ad we ran in The New York Times calling on Congress and the President to negotiate a balanced budget plan and begin a bipartisan process for addressing the nation's long-term fiscal challenges. We observed, "a realistic strategy will require reductions in promised benefits, higher revenues, or a combination of both."
Kuttner's view is essentially that there is no need for a bipartisan solution to the budget deficit because the deficit isn't much of a problem, and to the extent that it is a problem the cure is to repeal the Bush tax cuts. His long-term prescription for Social Security and Medicare is a combination of tax increases on the wealthy and universal health insurance. "We don't need more benefit cuts," he declares.
Let's begin with a point of agreement. In the abstract, there is nothing catastrophic about today's budget deficit. As the Bush administration likes to point out, last year's deficit was lower than 18 of the past 25 years measured as a share of the economy.
The problem with this perspective is that it looks in the rear view mirror rather than at what's coming. Today's deficit is a problem because it represents a squandered opportunity to prepare the budget and the economy for the rising cost of entitlement spending. We should not be complacent about today's "sustainable" deficit level when there is no realistic prospect of maintaining that level without substantial changes -- either in spending or taxes.
Our argument does not foreclose Kuttner's solution -- getting rid of the Bush tax cuts. However, it is important to keep things in perspective. Some of the Bush tax cuts have bipartisan support. If the middle class tax cuts and the Alternative Minimum Tax (AMT) relief are preserved, as most Democrats advocate, the revenue gain would be roughly half of what one would get by repealing all of the tax cuts. This amount would help, but it would not be enough to balance the budget.
Then there is political reality. Pursuing a tax increase strategy without securing bipartisan agreement on some spending trade-offs would be politically perilous. President Bush would veto a unilateral attempt to roll back any of his tax cuts. Since Democrats do not have enough votes to override a veto, the whole exercise would be futile -- except for the opportunity it would give Republicans to run ads against "tax and spend" Democrats. The only prospect for including revenue increases as part of a budget strategy is through a bipartisan negotiation with no preconditions.
Kuttner's prescription is even more unrealistic over the long-term. Assuming that all the Bush tax cuts were allowed to expire (not just those for "the rich") and nothing were done to restrain the growing bite of the AMT on the middle class, growing spending pressures from retirement and health care programs would still produce unsustainable deficits (above 10 percent of GDP) by the 2030s.
Covering the gap with tax increases would require taxes at unprecedented levels as a percentage of the economy -- on a sustained basis (about 23 percent of GDP in 2025 and 26 percent in 2035.) Today, revenues are at 18.4 percent of GDP, which is consistent with the post-World War II norm. It may be that the public is willing to see a permanently rising share of the economy going for taxes to pay for the permanently rising costs of Medicare and Social Security. But if so, no one should pretend that repealing "tax cuts for the rich" is all that must be done.
Attempts to minimize the problem will not make it go away. For example, Kuttner says that Social Security's projected shortfall is "about 1 percent of payroll." The first thing to note about this number is that it's wrong. Social Security's 75-year actuarial deficit is 2.02 percent of taxable payroll, not 1 percent. This may seem like a trivial distinction, but 1 percent of taxable payroll in 2006 was about $50 billion and 2 percent was about $100 billion. More importantly, actuarial deficit is a summary figure of near-term surpluses and long-term deficits that obscures the timing and magnitude of Social Security's fiscal burden. Viewed on an annual basis, the shortfalls will exceed 1 percent of payroll by 2021 and top 4 percent by 2034. That is one reason why all credible reform plans, including the one put forth by Peter Diamond of MIT and Peter Orszag, now Director of the Congressional Budget Office, include a mix of benefit reductions and revenue increases.
Kuttner correctly notes that Medicare's future problems are much worse. Revenues raised to cover Social Security's shortfalls will not be available for Medicare or for any other domestic priorities. As the share of federal resources pledged to retirement and health care benefits grows, it will leave shrinking amounts for all other purposes. Thus, beyond fiscal imbalance, today's budget policies threaten to place ever-tighter constraints on the ability of future generations to determine their own priorities or to meet challenges that cannot be foreseen.
The fact is that while the short-term budget deficit is manageable in isolation, and becomes a little more so if some taxes are increased, the long-term budget situation is not. It will take bipartisan agreement to shoulder the political burden of ensuring fiscal sustainability. This will require compromise on both sides. However, such a step is preferable to doing nothing and either leaving future generations hamstrung by an unknowable, but likely very large, fiscal burden -- or clinging to the hope that one's favorite political leaders in the future will be uniquely impervious to political reality in their efforts to impose unilateral reform solutions.
In the end, Kuttner's arguments are oddly similar to what one hears from his counterparts on the right. They too feel that indulging bipartisanship on fiscal problems is a bad idea. While their preferred solutions (i.e., private accounts for Social Security and Medicare along with spending cuts on domestic programs) are very different, they agree with Kuttner that compromise means selling out. It is little wonder that politicians find it so hard to develop tax and spending policies that mesh. No matter which way they turn there is an ideologue waiting to pounce.
Robert Bixby is executive director of the Concord Coalition.
Robert Kuttner responds:
The Concord Coalition response is worth a very careful reading and rebuttal, because it is a study in disingenuousness.
The longterm budget outlook is bleak for one reason. Republicans have taken off the table policy measures that would allow us to have both fiscal soundness and decent social policies. The solution is not high-flown rhetoric calling on us to meet the far right halfway. Rather, it is political struggle to take back the debate and win the set of policies that America needs.
Take these one at a time.
Note also their conclusion. Because the right is ideologically extreme, so are those who resist it. But the Coalition's claim of ideological symmetry is preposterous. For 25 years, the center of gravity in America has been pushed steadily to the right by the excessive political influence of organized business -- the same stalwarts who dominate the Coalition's board. They urge further cuts in social outlay in the name of political realism. But if progressives in Congress keep their political nerve, the Concord Coalition's recipe will be less realistic than mine. Let's hope so.
Robert Kuttner is co-editor of The American Prospect.
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