What the Great Budget Debate Is Really About

By :: September 15th, 2011

Want to know what the Great Budget Debate of 2011 is really about? Ask Congressional Budget Office director Doug Elmendorf (who was a Tax Policy Center associate before joining CBO). In testimony to Congress’s  fiscal super committee on Tuesday, Doug put the whole thing into a few simple sentences:

"I think really the fundamental question…is…where you want the country to go, what role do you …want the government to play in the economy and society?" [I]f you want a role that has benefit programs for older Americans like the ones we've had in the past, and that operate…the rest of the government like …in the past,then more tax revenue is needed than under current tax rates. On the other hand, if one wants those tax rates, then one has to make very significant changes in spending programs for older Americans" and the rest of government.

Doug is exactly right about these core choices. And that’s why it is so difficult for Congress and President Obama to reach any serious agreement on fiscal policy. At bottom, this argument is not about reducing the deficit by $1.2 trillion or $1.5 trillion to hit some artificial budget target. It is about reconciling fundamentally competing visions of the role of government.

Herb Stein, who was the top economic adviser to President Nixon, used to say that budgeting was simple: Congress’ job was to decide what it wanted to do and then figure out how to pay for it.

Unfortunately, in the four decades since Herb’s observation, Congress and a half-dozen presidents have done a fabulous job of finding stuff to do, but not such a hot job of paying for it (Bill Clinton, with the help of a roaring economy, was the exception).

Now, policymakers finally are struggling to do the work Stein described. And to do so, they must confront Doug’s choice: Do they do less than many voters expect, tax more, or both?

To add to the challenge, they are trying to do it at a time when the nation is deeply divided—and conflicted. Polls suggest most Americans support deficit reduction—but oppose the very spending cuts and tax hikes needed to achieve it. This disconnect is not helped by politicians who continue to promise pain-free deficit reduction.

At the most recent GOP presidential debate, for instance, former House Speaker Newt Gingrich insisted he could address
most fiscal problems by controlling, yes, waste, fraud, and abuse.  “Anybody who knows anything about the federal government knows that there’s such an enormous volume of waste, that if you simply had a serious, all-out effort to modernize the federal government, you would have hundreds of billions of dollars of savings falling off,” Gingrich claimed.

Now, there is plenty of waste in government and we absolutely should curb it. But is it going to fix the deficit problem? Only in Newt’s dreams.

So increasingly, it looks as if we are going to have an election about the fundamental role of government—in creating jobs, helping those in distress, and preserving the nation’s health and safety. This may not be so true if Republicans nominate Mitt Romney. But it certainly will be if the GOP picks Texas Governor Rick Perry and Obama sticks with the powerful defense of government he delivered to Congress earlier this month.  Not since Johnson and Goldwater would these competing visions be so clear. If nothing else, as Goldwater said, voters will have a choice, not an echo.

 

 

 

6Comments

  1. Michael Bindner  ::  10:44 am on September 15th, 2011:

    Elmendorf is trying to sound too profound. The debate is really about paying for the Bush tax cuts aimed at the middle class that Obama promised to preserve and the GOP desire to preserve all of them. If you could get Boehner and Cantor to agree to agree to preserving the 10% tax rate and the $1000 Child Tax Credit and a permanent AMT and Doc Fix, with offsetting spending cuts then the job is done from Obama’s point of view, since he would the gladly veto any other tax extensions aimed at the wealthy. Cantor and Boehner won’t let that happen, so the drama continues.

  2. AMTbuff  ::  5:47 pm on September 15th, 2011:

    Spot on, except for this:

    “So increasingly, it looks as if we are going to have an election about the fundamental role of government”

    I don’t think so. The voters will not be asked to make this decision until the likes of Paul Ryan runs on a platform of massive cutbacks in entitlement spending and his opponent runs on a platform of massive tax increases. I doubt this will EVER happen.

    Instead, a bond market crash will force a rapid decision. The crisis will also crash the economy, leaving spending cuts as the only available option. Afterward maybe the candidates will offer alternatives for our slow climb out of the hole. The feasible options at that point will all be far inferior to the pre-crash plans offered by the opposing party.

    Everyone will lament how the crash could have been avoided, but given the incentives in our political system, I disagree. It’s inevitable.

  3. Vivian Darkbloom  ::  6:58 am on September 17th, 2011:

    Have you got a capo on your brain? The 10 percent tax rate cut off is $17,000 for married persons and $8,500 for singles. Is that the new “middle class”? Obama’s campaign pledge was no new taxes on those married persons with $250,000 or less and that threshold has recently been upped to $ 1 million. And you say “Boehner and Cantor won’t let this happen”?

  4. Gibert  ::  1:15 pm on September 28th, 2011:

    The American politicians against increasing the taxes of the rich are actually assisting the rich in becoming poorer as we speak …. just as the Greek government in refusing to increase taxes has debased their own currency into default mode. Are the wealthy and middle classes richer or poorer when their stock market collapses and banks wont lend to them ?
    The same applies in the USA …..the answer is to increase taxes of those that can pay so that will help keep the value of all their assets from collapsing to Nil. The ramifications are horrendous if the American politicians don’t think outside the square and worry too much about their own political survival. The Congress members themselves should be able to explain the real wealth benefits of increasing income taxes to protect their constituents assets would be a compelling argument surely

  5. Gibert  ::  1:46 pm on September 28th, 2011:

    I should add that increasing taxes on the wealthy is a small price to pay to help to protect their own capital wealth. In contining to resist the proposed tax increases, your politicians are not doing their voters any favours if as a result of world perceptions the USA financial system is weakened by the increasing deficits then financial markets continue to dive by such a magnitude that ALL CAPITAL GAINS over many generations will be wiped out completely in so few months time. If only your politicians and your treasury officials could explain this simple reason why all businesses should pay increased taxation. It would be a WIN WIN for everyone.

    For those of you who fear giving too many benefits to the poor, you should not be concerned as they in true Keynesian spirit will spend that government outlay back into the businesses who worry so much about paying an increased tax. The multiplier effect would benefit your sales and the residual net profit increase will be measured x 10 or more price earnings ratios. At its simplest explanation, if a business pays an extra $1,000,000 in tax and if $500,000 would go to reduce the deficit and 50% or $500,000 is quickly returned in the way of increased sales amount, then, surely your price earning ratios after expenses should return you back the original $1,000,000 in the form of a capital gain. Everybody wins and the stock markets in the USA do not obliterate your total capital during stock market jitters.

  6. Gibert  ::  8:26 pm on September 28th, 2011:

    An important observation I’d like to make is that until recently I would have said that in USA you had a system of having an elected dictator who had enormous power. This belief was shattered completely during the recent haggling by congress regarding increasing your borrowing and interest payment limits if i understood the fuss to be about. I instead saw your President as being financially impotent and having no power whatsoever unless your various congressmen agreed to comply with your Presidents wishes.

    As far as what government role should be, appears to been lost in history as government officialdom took more and more power away from your citizens who let their rightful rights be stripped away from them and now in the hands of a group of dictators in your Congress, but not your President. This has not always been a bad thing in my opinion especially during the G.W BUSH Presidency when thankfully your administration made sure he did not stuff up completely. However, your Congress have destroyed the role of the President when it refused to deal with President Obama’s wish recently making him look like an impotent lost politician. It was not a good look and i believe your Congress made a terrible mistake and did then and now put at risk the asset values of all the wealthy they seek to represent. It was a serious matter which needed to be resolved much earlier when the world was looking at your government for leadership…IT FAILED MISERABLY. Luckily the general public will forget and others did not view it in the way i have described it…but for your god’s sake can we see some responsible Congress leadership on these matters in the future? gillysrooms.blogspot.com from Australia.