Wednesday, January 16, 2013

Progressive consensus and debt ceiling scenarios

Jared Bernstein has a post that crystallizes an emerging consensus on the left regarding our current budget battles:
  • Medium-term deficit reduction (10-year horizon, per Simpson-Bowles etc.) is 2/3 done
  • The last third requires hard bargaining but isn't brain surgery. Cf. Obama in Monday's presser:
    The consensus is we need about $4 trillion to stabilize our debt and our deficit, which means we need about $1.5 trillion more. The package that I offered to Speaker Boehner before we -- before the new year would achieve that. We were actually fairly close in terms of arriving at that number.

    So -- so if the goal is to make sure that we are being responsible about our debt and our deficit, if that’s the conversation we’re having, I’m happy to have that conversation. And by closing some additional loopholes through tax reform -- which Speaker Boehner has acknowledged can raise money in a sensible way -- and by doing some additional cuts, including making sure that we are reducing our health care spending, which is the main driver of our deficits, we can arrive at a package to get this thing done.
  •  The key to our fiscal future is healthcare cost control. The best course on that front is watchful waiting to see how ACA reforms shake out (coupled, I would add on the basis of Obama's 2013 budget and December negotiations with Boehner, with moderate, incremental trims to provider payments and benefits to the wealthy).
Here's Bernstein's sum-up:

So the right move now is not to undermine our social insurance programs that are increasingly critical for the well being of economically vulnerable retrirees.  It’s to plot a path that stops us from digging the debt hole any deeper—to stabilize the debt as a share of GDP and watch what happens to health costs.  If the recent slowdown sticks, as some experts believe it will, we’ll have considerably more budget oxygen than current forecasts suggest.  If not, it’s back to the health care reform drawing board.
And Jonathan Cohn, in late November:
the long-term goal of fiscal policy should be to stabilize the debt-to-GDP ratio—in other words, to make sure federal debt isn’t rising out of proportion to the wealth that the nation is generating. As a recent report from the Center on Budget and Policy Priorities pointed out, it’s possible to achieve that goal for the next decade or so without dramatic cuts to entitlements. Stabilizing the debt-to-GDP ratio after the next decade would indeed require additional revenue or spending cuts, but, at this point, why not wait and see whether the Obamacare reforms do the job? It’s entirely possible they might. If they don’t, we can make further adjustments in the future, whether those involve agreeing to higher taxes, lower spending, or bigger deficits
From this perspective, Republicans are threatening to blow the economy up for nothing. Budget negotiations at this point should be business as usual.  Budget hysteria, as Bernstein calls it, is simply a tool for Republican political gain -- notwithstanding that it's driven in large part at this point by true believers pushed forward by the Tea Party.
If Obama can squeeze another $600 billion in revenue over ten years without Republicans sabotaging the economy, he will have fulfilled, piecemeal, his longstanding fiscal blueprint. That blueprint is itself only a first stage: long-term, the U.S. needs more revenue and a better tax system, e.g., on that taxes energy consumption. But he will have turned the battleship, broken the antitax fever of the Reagan-Bush era.

A second alternative is that we stop right here, in stalemate: no further revenue and no further cuts, sequester more or less shut off. That wouldn't be a disaster either.

A worse scenario is an Obama slide under pressure: a deadline deal with another trillion in cuts (over ten years) and some token revenue -- say $200 billion. This is what past experience has imprinted on my expectations.

And in the worst case, Obama doesn't blink and the GOP takes the country into default. Viewed from that vantage, coming up a bit short on revenue doesn't seem such a disaster. That's why I at least half expect Obama to revert to type:
we’re going to keep on having this debate [over appropriate tax rates]. We’re going to keep on having this battle. But in the meantime I’m not here to play games with the American people or the health of our economy. My job is to do whatever I can to get this economy moving. My job is to do whatever I can to spur job creation. My job is to look out for middle-class families who are struggling right now to get by and Americans who are out of work through no fault of their own.

A long political fight that carried over into next year might have been good politics, but it would be a bad deal for the economy and it would be a bad deal for the American people.
That's Obama in December 2010, explaining why he extended the Bush tax cuts for two years in exchange for further stimulus. 

Of course, he's also said now, repeatedly, that he intends to break the precedent he helped set of negotiating with the full faith and credit of the U.S. held hostage.  He can't break that vow not to negotiate over the debt ceiling -- ostensibly.  But that may be why he acceded to re-setting the sequester trigger at the approximate moment the debt ceiling is hit.  He has cover to work out a less-than-optimal deal, perhaps after a short-term debt ceiling hike.

1 comment:

  1. The only way he should accept a short-term debt ceiling hike is if it's the last ever. Eliminate it entirely--or more specifically, go back to the Gephardt rule, where it was raised automatically when the funds were appropriated.

    On tax revenue, I wonder if he has a worse hand than we think. Even if he manages to force Republicans to accept more revenue to help lower the deficit, it's going to come in the context of full tax reform, which they'll never accept without lower income and corporate rates. And of course Obama concurs, to a point.

    So to get $600 billion in new revenue from loopholes and subsidies, you're probably going to have to target at least TRIPLE that, so the rest can pair with the lower rates to be revenue neutral.

    And I'm not sure that's even enough.
    The CAP plan identified $1.9 trillion in revenue, but that included eliminating the AMT, PEP, and Pease and the carried interest and s corp loopholes--but NOT lowering income tax rates.

    Do you know if someone has crunched the numbers to make it work?