Of the $2.5 trillion in spending cuts mandated by last week's debt-ceiling deal, $1.5 trillion will be outlined by the "Super Congress," a bipartisan committee of 12 lawmakers from both the House of Representatives and the Senate.
The committee has yet to begin, but when it does, President Barack Obama has promised to offer the "full cooperation" of his administration. Indeed, at a White House press conference on Monday, Obama announced that he would provide his own recommendations to the committee.
Given the fragile economy, progressives are justly worried about the effects of deficit reduction, but there are ways to reduce the debt -- using spending cuts and revenues -- without harming the economy or working people. With that in mind, here are six progressive ideas that Obama should include in his recommendations to the Super Congress.
Let Medicare Part D Negotiate for Drugs
By design, the Medicare prescription-drug benefit (otherwise known as Medicare Part D) doesn't bargain directly with pharmaceutical companies for discounts on drugs. Instead, private insurers negotiate the prices, and Medicare subsidizes the cost. By contrast, Medicaid (an insurance program for lower-income Americans) uses its clout to negotiate drug prices with pharmaceuticals and as a result, obtains an average discount of 34 percent, compared to 14 percent for Medicare Part D.
The Congressional Budget Office estimates that the federal government could save nearly $112 billion over the next ten years if Medicare were allowed to negotiate drug prices at Medicaid rates. Not only does President Obama already support the idea -- he mentioned it in his April speech at George Washington University -- but congressional Democrats are in favor, and some Republicans have voiced openness to the proposal.
Reduce Defense Spending to Cold War Levels
Under the terms of the debt deal, if the Super Congress doesn't come to an agreement, defense spending is automatically cut by up to $600 billion over the next ten years, beginning in 2013. This would come on top of the $350 billion in defense cuts already scheduled under the debt deal.
A large percentage of those "cuts" include lower spending as a result of drawdowns in Iraq and Afghanistan. Reductions in baseline defense spending remain small, especially in light of the fact that the defense budget has grown for 13 consecutive years, from an inflation-adjusted $346.1 billion in 1998 to $644 billion today. At present, adjusted defense spending is greater than the $580 billion the nation spent at the height of the Cold War.
A balanced set of recommendations should include greater defense cuts than those found in the debt deal or the trigger mechanism. Michael Linden, budget director for the Center for American Progress, estimates that Congress would need to cut $100 billion per year for the next ten years to bring defense spending back down to peak Cold War levels.
Reduce Tax Expenditures
In short, tax expenditures are programs that provide tax incentives or credits for particular behaviors, as opposed to direct spending. In 2010, the federal government spent more than $1 trillion on tax expenditures, which includes deductions for mortgage-interest payments, tax exclusions for health insurance benefits, and a large number of subsidies that mostly benefit the well-off.
President Obama has already argued against tax preferences for private-jet owners and oil and gas companies, and it's likely that he'll ask the Super Congress to repeal those in his recommendations. But they account for a tiny share of overall spending. In addition, Obama should also ask the committee to eliminate tax subsidies for agribusiness, deny tax deductions for vacation homes and yachts, eliminate tax subsidies for the coal industry, and limit itemized deductions for top-bracket taxpayers. Some of these proposals are already included in the president's 2012 budget. Together, they would save more than $126 billion through 2016.
Make PAYGO Include Tax Cuts: The original PAYGO was a provision of the 1990 budget deal between congressional Democrats and President George H.W. Bush. As its name suggests, it requires Congress to offset new spending with either new revenues or spending cuts. PAYGO was abandoned by congressional Republicans when they took control of Congress in 2003, reinstated by Democrats in 2007, and repealed again by Republicans at the beginning of this year.
Obama should ask Congress to re-implement PAYGO rules that include tax cuts, in addition to traditional spending, as well as exemptions for emergency spending and stimulus. Liberals might be wary of these kind of provisions, but there is real value in showing the public that the left cares about efficient government.
Implement a Carbon Tax
If the Bush tax cuts expire next year, the federal government should have enough revenue to stabilize its debt over the medium term. Even still, new programs require new revenue, and there are existing taxes -- like the payroll tax -- that harm lower-income people. An emissions tax, which places a tax on the amount of carbon in fossil fuels, would address climate change and provide a large amount of new revenue.
A tax of $15 per ton of carbon, as proposed by Representative Pete Stark, a Democrat from California, in 2009, could raise up to $80 billion in its first year and $600 billion over the next decade. These funds could then go toward paying down the debt, reducing taxes on lower and middle-income Americans, and making investments into clean energy.
Implement a Financial-Transactions Tax
Despite crashing the global economy with speculation and reckless investments, Wall Street has managed to escape any serious punishment from the federal government. A financial transactions tax isn't punishment, but it's close enough. Under the proposal crafted by the Institute for Policy Studies, this would consist of a small tax on trades of derivatives, stocks, currency, and other financial instruments. Such a tax could raise more than $100 billion a year and curb some of the practices that led to the financial collapse. What's more, like the revenue from a carbon tax, the revenue from a financial-transactions tax could go toward funding public investments and making the tax code fairer to lower-income Americans.
