TOPICS > Economy

Deficit Plan Revives Debate on Spending Priorities

November 11, 2010 at 6:24 PM EDT
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Jeffrey Brown gets three perspectives on the bipartisan fiscal commission's recommendations to cut spending and change tax policy to combat the federal deficit.

JEFFREY BROWN: And now: another story about dollars, this one about dollars and deficits, as the leaders of a bipartisan commission appointed by the president offer a far-reaching and controversial plan.

The proposal by the debt commission’s chairmen, Alan Simpson and Erskine Bowles, sent out shockwaves that reached all the way to President Obama at the G20 meeting in South Korea. Without addressing the particulars, he said he’s ready to make — quote — “tough decisions.” And he urged those who campaigned on deficit-cutting to get specific.

U.S. PRESIDENT BARACK OBAMA: Unfortunately, a lot of the talk didn’t match up with reality. If we are concerned about debt and deficits, then we’re going to have to take actions that are difficult, and we’re going to have to tell the truth to the American people.

JEFFREY BROWN: That truth, as Democrat Bowles and Republican Simpson see it, involves $4 trillion in deficit reductions over a decade, starting in 2012.

Among their dramatic proposals: cutting hundreds of billions a year from the Pentagon and domestic spending programs, while reducing the federal work force by 10 percent; raising the federal gasoline tax by 15 cents; and ending popular tax breaks, including the deduction for home mortgage interest. In addition, the plan calls for major reform of the individual and corporate tax system aimed at closing loopholes, while lowering rates.

The chairmen would also cut Medicare spending and raise, over time, the retirement age for full Social Security to 69, while reducing benefits for affluent seniors.

For some, it was too much too fast. House Speaker Nancy Pelosi quickly denounced the overall plan as — quote — “simply unacceptable.” And some on the commission, like Congresswoman Jan Schakowsky, an Illinois Democrat, rejected it as well.

REP. JAN SCHAKOWSKY (D-Illi.): Now, I agree that we have to something to — that the debt and the deficit are unsustainable, but this is not the way to do it.

JEFFREY BROWN: But another commission Democrat, North Dakota Senator Kent Conrad, counseled caution this morning on ABC.

SEN. KENT CONRAD (D-N.D.), North Dakota: Instead of shooting this down, propose an alternative, but one that does as good a job as this one does in getting us back on a sound fiscal course.

JEFFREY BROWN: Republican leaders largely withheld comment, but some conservative groups blasted the tax-increase provisions. The proposal is not the full commission’s report. That is due by December 1.

So, the debate is on. And we have our own now, with Maya MacGuineas, president of the Committee for a Responsible Federal Budget at the New America Foundation. Damon Silvers is director of policy and special counsel at the AFL-CIO. And Grover Norquist is the president of the advocacy group Americans for Tax Reform. Welcome to all of you.

Maya MacGuineas, I will let you go first. We are going to hear that you’re surrounded on two sides with different critiques. Why do you think this is a good idea overall?

MAYA MACGUINEAS, president, Committee For a Responsible Federal Budget President: Well, I mean, I think if there’s one thing that we should be able to agree on, it’s that the deficit and the debt present a real threat to this economy in the medium and long term.

And this is the first time in — in years, really, that there’s been a realistic plan that’s been put out there of the kinds of policies that are going to be required to address this threat. And my hope is that having this realistic blueprint out there changes the terms of the debate.

No longer are we going to focus on things like we can cut out earmarks, and that will change the problem, or we can grow our way out of it. And, instead, we understand the parameters are large, we understand all parts of the budget are going to be involved, and we change the terms of the debate to a more realistic one. And I think that’s very helpful.

JEFFREY BROWN: All right. Damon Silvers, the president — Richard Trumka, the president of your organization, immediately said, “The chairmen of the deficit commission just told working Americans to drop dead.” Pretty harsh.

Where is the damage that you see?

DAMON SILVERS, AFL-CIO: Well, the damage starts with the fact that this is not a realistic plan. It’s not a starting point.

The — as Maya said — what Maya didn’t say was that, immediately, we have a short-term jobs problem. This — this proposal would make it worse. And it would start by making it worse in what would be perhaps the most unfair possible way, which is by cutting Social Security benefits starting in 2012, not to affluent people, as your reporter said, but to people making more than $37,000 a year.

Secondly, it’s not courageous. It ducks all the hard questions, and it starts by ducking the hardest, by ducking the most important of all, you would think, for anyone interested in deficit reduction, which is ending the Bush tax cuts for the wealthy that will cost a trillion dollars over the next 10 years.

JEFFREY BROWN: All right, Grover Norquist, and you focused immediately on the taxes-vs.-spending equation.

GROVER NORQUIST, president, Americans For Tax Reform: Well, they add a trillion dollars in higher taxes over the next decade, and — which is not a good idea. The economy’s already overburdened with spending and taxes.

But this whole commission was set up by Obama so that, for a full year, when people said to him, why are you spending so much, why are you bankrupting the country, he could turn and say, well, we have got a commission that’s going to do something about that, conveniently, after the election. So, stop asking me about all the spending.

JEFFREY BROWN: So, you’re thinking — you don’t accept it as a serious effort, that…

GROVER NORQUIST: It was never intended to be a serious effort. It was always to allow Democrat congressmen and senators, when they were asked, how come you voted to put an extra trillion dollars in taxes and spending on energy policy, another two trillion dollars on health care spending and taxes, they could turn around and say, oh, I’m against deficit spending. I’m for this imaginary commission that’s going to report after the election.

JEFFREY BROWN: OK, but here we are. I mean, is it a serious problem? Here we are now. So they have put something out there. When you look at it, are there compromises that one can make on the spending and the tax side?

GROVER NORQUIST: Well, we’re overspending. The problem is not the deficit, which is the difference between overspending and the overtaxing, but, rather, the overspending is the problem.

All we have to do is not continue the $100-billion-a-year increase that Obama and the Democrats put into domestic discretionary spending. Just the domestic discretionary, they jumped up a trillion dollars over the next decade.

Stop that, you have just taken a trillion dollars dead weight loss off the American economy. And this commission doesn’t even do that.

JEFFREY BROWN: All right, but you’re saying that’s not enough, just to deal on the spending side?

MAYA MACGUINEAS: Well, no, I’m saying, actually, the commission does much more than that. I mean, they have a lot of savings in both mandatory and discretionary spending.

They go after fundamental tax reform, which would raise revenues, but also make the tax code much better, which would be good for the economy. And they basically spread the cost of this plan across the entire budget.

The problem has grown so large because we waited so long. We delayed, when we should have gotten ahead of this problem, that, really, all parts of the budget are going to have to be affected. But they can be done so gradually. And it’s important to do that. And the commission also recognizes that. As the economy is still recovering, you phase these things in gradually.

They wouldn’t even start immediately, as they shouldn’t. The Social Security changes are phased to — by 2050 and 2075. This is not an aggressive change. So, there are times for people to adjust. And these are changes that have to be done to get the debt to a sustainable level.

JEFFREY BROWN: Well, you started, Damon Silvers, talking about the entitlement programs, Social Security in particular.

What about on the spending side? Are there cuts here that you can abide by, abide with?

DAMON SILVERS: The fundamental concept of this proposal is mistaken and will aggravate, make worse, our jobs crisis, and it will make it impossible…

JEFFREY BROWN: You mean because of the timing?

DAMON SILVERS: Because of the timing and because — A, because of the timing, and, B, because it places caps, long-term caps, on federal spending in areas that are going to cripple our competitive capacity in the future, particularly around infrastructure.

We have a $2 trillion 20th century infrastructure deficit. We are rapidly falling behind our major global competitors in 21st century infrastructure. The way this — the way this proposal would approach federal spending in the future, it would make it impossible, right, to fund that infrastructure gap.

There is nothing in this document that tells us how we’re going to build our future as a country. And that — that, combined with the attack on the economic security of middle-class Americans through — through the attack on Medicare, the attack on Social Security, those two things combined make this an extraordinarily dangerous and short-sighted approach that has nothing to do with the problems our country faces in the future.

JEFFREY BROWN: All right, let me let you have a quick response on that side.

MAYA MACGUINEAS: I mean, I just have to say that the scare tactics on all these sides, this is not an attack on Social Security and not an attack on Medicare. It’s trying to bring — to manage the growth, so that they don’t…

DAMON SILVERS: You’re going to cut people’s income in 15 months.

DAMON SILVERS: In 15 months, you’re going to cut people’s income. Do you deny that that’s so?

JEFFREY BROWN: Hold on. Hold on. Hold on, please.

MAYA MACGUINEAS: Sorry. Let me just — so that they don’t squeeze out other parts of the budget. And, also, there’s a very strong focus throughout the commission’s plan on saying, you want to make changes that are conducive to economic growth on both the tax and spending side. That means shifting away from a lot of the less effective parts of the budget, into the parts that are investment-focused.

And those are the kinds of things that will grow the economy over time.

JEFFREY BROWN: All right, I want to come back.

You focused on the spending time. Now come back to taxes. Are there any areas — they have taken a lot of — taken a big look here. Are there any areas where you could see tax increases or changes in loopholes, et cetera, that might help that you could accept towards closing the deficit and the debt?

GROVER NORQUIST: Well, they’re talking about raising a trillion dollars in taxes. That’s not going to happen — 235 members of the House of Representatives incoming have signed a pledge never to raise taxes.

JEFFREY BROWN: Right, but is there any part of that — I’m asking you, is there any part of that?

GROVER NORQUIST: Sure. They talk about taking the top corporate rate, which is 35 percent, down towards 25 percent. The European average is 25 percent. We have priced ourselves out of the world market. We’re surprised we can’t compete, because our corporate rate is at 35 percent, and the average in Europe — not the lowest, the average in Europe — is 25 percent.

Our top personal rates are getting at 35 percent. The rest of the world has lower rates, particularly the Eastern European countries that have flat-rate income taxes. We need to have lower rates. We don’t need the tax increases they’re talking about, but lower marginal tax rates would be very helpful.

JEFFREY BROWN: Well, but — but you — but they’re — they’re offering that. I don’t — offering may not be the right word, but they’re putting that up, those lower rates, against some increases, a 15 cent gas tax we mentioned, or getting rid of some tax loopholes or — or tax breaks, rather.

GROVER NORQUIST: If the U.S. economy is going to grow at 2 percent a year for the next decade, and, instead, you had pro-growth policies of lower tax rates that gave you a 3 percent growth rate, just growing at 1 percent more a year, brings the federal government $5 trillion in — I’m sorry — it’s $2.5 trillion, $2.5 trillion — $2.5 trillion in, additional, by having 1 percent more growth. I would rather get the money from growth than from higher taxes.

JEFFREY BROWN: Is the next point just all or nothing, or is there a kind of debate and compromise here, from your perspective?

DAMON SILVERS: Well, first, let me say this. I’m in an extraordinary position of saying that I completely agree with what Grover just said.

JEFFREY BROWN: OK. Well, we have made history here.

DAMON SILVERS: Right, that growth is critical to solving our medium-term deficit problem. Grover and I certainly…

GROVER NORQUIST: And long term.

DAMON SILVERS: And long-term. We certainly disagree about how to get there, but I completely agree with you, what he just said about growth. If there’s one message that I have today on this matter is that this is not a starting point. This document represents a fundamental wrong direction.

And, so, in response to your question, Jeff, where do we go from here, we start someplace that begins with focusing on two things. One is ensuring that we reverse the long-term trend of our tax structure toward favoring the wealthiest Americans, which this document doesn’t do. In fact, it exacerbates it.

And, secondly, all right, that we focus on an approach to short- and medium-term policy that sets the foundation for growth through rebuilding our nation’s infrastructure and our nation’s competitiveness. This document doesn’t do that. It is not a starting point. We need to start someplace else.

JEFFREY BROWN: All right, and I’m going to give you the last word.

MAYA MACGUINEAS: So, if I listen to what both of the other guests are saying, they’re sort of — you know, you’re saying here’s a way to spend more money, and here’s a way to cut more taxes.

And the bottom line is, it’s a lot more fun to add to the deficit than it is to actually close it. But we have been doing that for years. And one of the things that’s going to stand in the way of growth is stranglehold from government debt.

And so what we have to do is get on top of that by a sensible, balanced plan that keeps growth issues in mind on both the tax and spending side. But we can’t keep running these budget deficits indefinitely, or that is going to strangle off the growth. And so I think we have to talk about compromise. That’s where I hope the discussion turns.

JEFFREY BROWN: All right. We will see what the commission comes out. It’s December 1.

Maya MacGuineas, Damon Silvers, and Grover Norquist, thank you all very much.