Wednesday, April 22, 2015

What Does The Tea Party Really Want – III

Ken O’Brien

The comparison below from the New York Times helps tell the tale of the alternative budget scenarios. Under President Obama's proposal, tax revenues over the next decade would average 19 percent of GDP a year, compared to 17.5 percent in FY 2014. The president raises $1.55 trillion in additional revenue, much of it from a one-time tax on businesses' foreign income and by capping deductions and exclusions for high earners. While spending—including new investments in universal pre-K education, free community college and expanded infrastructure—would reach 22.1 percent of GDP by 2025, that level would still be less than the Reagan and Obama era highs. The 2025 deficit of 2.7 percent of GDP would be in line with the current 50-year average dating back to 1965. (The People's Budget proposed by Congressional progressives would raise significantly more revenue—21.2 percent of GDP over 10 years—while spending more—22.8 percent—to fund major new infrastructure and jobs initiatives as well as new education programs and expanded Social Security benefits.)

But if President Obama and his more aggressive Democratic allies in Congress are closer to adopting the 20 percent revenue solution, their Republican opponents are going in the opposite direction. Revenues plateau around 18 percent over the next decade. But with over $5 trillion in spending reductions starting almost immediately, federal outlays quickly drop to that same share of the economy by 2025. That isn't just two percentage points lower than the historical average; Uncle Sam's spending as a share of GDP hasn't been as low as 18.5 percent since 2002. That was the year before the Iraq War.

And how do Congressional Republicans manage to "balance the budget" by 2025? Aside from their mystery $2 trillion Paul Krugman rightly mocked, they do it by repealing Obamacare, slashing Medicaid spending by a third, and gutting outlays for poor and working Americans.

Their to-be-determined tax reform and healthcare plans are left for the House and Senate appropriations folks to figure out later. Despite the continued slowdown in the growth of Medicare costs and the substantial cost advantage that the federal government provides over private insurers, House Republicans nevertheless want to proceed with their "premium support" voucher scheme designed to dramatically shift healthcare costs to future seniors.

At the end of the day, setting any target for federal spending and/or revenue as a percentage of the American economy has limited utility or meaning. After all, the Simpson-Bowles commission established by President Obama sought to reduce the deficit to 3 percent a year by pegging outlays at 21 percent of GDP and revenue at 18. (Republicans members of the commission like Paul Ryan voted against the final Simpson-Bowles plan because it called for raising taxes.)  Yet, by the end of FY 2014 those targets had been met and exceeded. The government was spending less, but it was raising less, too.

Ultimately, the real question American should ask first before planning any budget, setting any revenue and spending benchmarks, or reforming the tax code is this: what do we want the government to do? In his book, We Are Better Than This, USC Professor Edward Kleinbard poses that question and provides one answer. If in an era of record-high income inequality, constrained social mobility, and stagnant incomes our objectives are still to enable all Americans to enjoy "life, liberty and the pursuit of happiness" in a "more perfect Union" that promotes the "general Welfare," then "we need more government, not less." Looking at the history of the United States and comparable economies around the world, Kleinbard says there is no real mystery to "the secret sauce": “It turns out that progressive fiscal outcomes do not require particularly progressive tax systems—just big ones, to support substantial government investment and insurance programs.”

If, as the opinion polls cited above indicate, Americans of all stripes support current Federal programs, then what is the answer? What we need is a government more involved in the redistribution of wealth, not less active in that task. And, if Tea-Partiers largely concur in this consensus, what is it that they really want?

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