Sunday, February 21, 2010

Matt Miller's self-cancelling 'don't worry about the deficit now' argument

Matt Miller's argument that worries about the Federal deficit are overblown is self-cancelling.

The argument has two prongs. First, per his experience in the Clinton administration in 1993, he suggests that current deficit forecasts are often overblown.  A period of strong growth can change the picture fast. Second, Miller asserts that we more or less know what to do but lack the political courage.

The second point at least is incontrovertible.  Miller sketches out two key planks of likely deficit reduction: breaking Obama's pledge not to raise taxes on people making less than $250k per year and "trimming social security benefits for better-off retirees."  In other words, raise taxes and cut benefits.

But his argument that we should not worry now about the looming need to do just that makes no sense.  Blame Obama if you will for his no-new-taxes-under-$250k pledge. (I do: I have always thought that David Brooks' one valid fundamental criticism of Obama during the campaign was that this pledge would box him in.) Or defend it as a valid attempt to avoid the recurrent pattern of Republicans destroying our finances with tax cuts and Democrats getting killed at the polls for raising them -- as they did in 1994 -- by getting as much juice as possible out of taxing the wealthy.

The fact remains that our current political configuration makes it almost impossible that Congress will do the necessary without cover of a commission. How does Miller think that an electorate roiled by the tea partiers -- and the Republicans -- would react to, say, imposition of a VAT? Or elimination of the mortgage deduction?  Or, as a recent report of a committee organized by the National Research Council and the National Academy of Public Administration suggests, instituting a two-bracket income tax with a bracket over 20% beginning at, say, a $50k income level?

This is not 1993. In that year, the Clinton tax hikes that squeaked through the House without a single Republican vote continued the work of the first President Bush, who arguably sacrificed reelection to deficit reduction (as Clinton arguably sacrificed his Congressional majority). The deficit that year as a percentage of GDP was 3.83%. In 2009, it was 12.93%.

Miller himself suggests that we'll dig deeper before we start to dig out:
Odds are we'll fix the budget once enough of us show our leaders it's safe to do what needs to be done; think Perot getting 20 percent of the vote in 1992. But the price of having to wait for good "followership" instead of real leadership is high.
And with that prospect, we shouldn't be too worried about the deficit now? Come again?

Miller's broad point seems to be that the Democrats should focus on stimulus and job creation first, then pivot to full frontal deficit reduction. But Obama is trying to predicate further stimulative spending now on evidence that the country will tackle debt reduction going forward.

That signal would be easier to send if Obama hadn't made his under-$250k pledge. But that pledge was at least a rational attempt to deal with the perpetual Democratic conundrum of running against a party whose perpetual mantra is "tax cuts today. Tax cuts tomorrow. Tax cuts forever."

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