Posted by: Jeff | November 12, 2010

Justified Opposition to the Deficit Reduction Plan

One of Ross Douthat’s recent posts argued that liberals should support the preliminary proposals released by the deficit commission’s co-chairs on the grounds that, while the proposals are three-fourths spending cuts, those spending cuts tend to redistribute wealth downward:

It means-tests Social Security benefits for high earners and raises the cap on taxable income, while also adding a larger benefit for the poorest seniors. Its hypothetical discretionary spending reductions don’t come from anti-poverty programs, for the most part: They come from cutting the defense budget, cutting the federal workforce, cutting farm subsidies, etc. It raises tax revenue by reducing tax credits and deductions that almost all overwhelmingly benefit the affluent. (This would be especially true in the scenario I’d prefer, in which the child tax credit and the earned-income tax credit stick around.) It would cap revenue at 21 percent of G.D.P., which would be higher than any point in recent American history, and well above the average for the last thirty years. And it does all of this, as Chait himself notes, while assuming that Obamacare — the capstone of the liberal welfare state — would remain essentially unchanged.

Okay. There’s a lot here, so let’s run through it:

1) Social Security. All the things Douthat lists on this front are good, and I’m glad they’re in there. But what he doesn’t mention is that the proposals also raise the retirement age by indexing it to life expectancy. And increases in life expectancy over the last few decades have not been evenly distributed across the population. Since 1972, the increase in average life expectancy for Americans has been fueled almost entirely by longer lives for higher earners. For the poor and the working classes, longevity has barely twitched in forty years.

This is an almost perfect encapsulation of American economic injustice: For decades, our increases in national prosperity have gone almost entirely to the upper echelons of our society. Meaning some of the most fundamental benefits of increased wealth — including longer and healthier lives — have gone to the better-off as well. And now, because they are so utterly unaware of their privilege, people like Douthat and the politicians in charge of the deficit commission want to up the retirement age further — making it even harder for the people who need Social Security the most to benefit from it.

2) Tax reform. Again, we have a sin of omission. I’m all for clearing out the underbrush of credits, deductions and loopholes in our tax structure. But the same proposals that do the clearing also reduce the number of tax brackets from five to three, and slash the top marginal tax rate from 35 percent (where it is now) down to 23 percent.

As Paul Krugman noted, there’s simply no objective economic reason to do this. That means it could only have been an ideological decision. If you trust Krugman’s judgment — and whatever you may think of the man’s politics, I hope we can all agree his command of math is impeccable — it sounds like whatever downward redistributive effect to be had would be completely swamped by the upward redistributive effect of the tax code changes Douthat simply avoids acknowledging.

3) The spending cuts. I’m all for cutting defense spending and getting rid of farm subsidies. But cutting the federal workforce? That means people with jobs and families and livelihoods; on what planet does Douthat think that’s going to appeal to liberals? And some of the specific smaller cuts are just wacky and/or cruel: Reducing soldiers’ pay, slashing education and health care for soldiers and their families, slashing NASA’s budget, and making people pay to visit the Smithsonian. Seriously.

On defense spending specifically, I sympathize with Heather Hurlburt’s argument that simply acknowledging the need to cut the military’s budget is a big political step in the right direction. But military spending is a big and diverse bucket. And the reason we spend $800 billion per year on defense — as opposed to China, with the world’s next-largest military, at $60 billion — is what we chose to use our military for. What missions we send it on, and what hardware we have to buy to support those missions. So we could double or even triple the $100 billion the proposals currently cut from annual military expenditures, and we could do it entirely by reducing the military’s global footprint — as opposed to laying the cuts on soldiers and their loved ones.

4) The revenue cap. The question here is very straightforward: Why the hell is this even in the proposal? The commission’s mandate was to bring the deficit under control, not slap an arbitrary ceiling on the size of government. You balance budgets by bringing revenue in line with spending — what percentage of GDP government revenue comes in at has nothing to do with anything. You can balance budgets at 21 percent of GDP, or at 10 percent, or at 50 percent.

The revenue cap is a total non sequitur. Which means, again, it was put in out of ideological preference as opposed to economic necessity.

(I’d also add that, for liberals, saying the 21 percent of GDP cap is higher than revenue has been in recent American history isn’t going to be a winner, either. We don’t exactly consider the last few decades to be a shining example of good and competent governance.)

5) Health care. Yes, there’s a lot for liberals to like here. The proposals basically slap a stamp of approval on health care reform by building off the legislation’s changes to Medicare. They even recommend bringing back the public option!

But there’s still that 21-percent-of-GDP cap on revenue. And the co-chairs also recommend capping the annual growth rate of federal health expenditures to not exceed the annual growth rate of GDP plus one percentage point. And Brad DeLong is already suggesting those two requirements could leave the structure of Obama’s health care reform unable to function fiscally, regardless of whatever else the proposals may do.

The weirder part is how spotty the commission’s health care proposals are in comparison to its deep and detailed Social Security reforms. This gets the priorities exactly backwards, since health care — primarily Medicare — is almost the entirety of our long-term budget problem. Social Security’s finances add basically nothing to the debt, so why tinker with it?

Now, as I said, the health care proposals that are in there largely build off of the reforms Obama and the Democrats just passed. So the proposals could be light on the health care side simply because health care reform already did everything that’s political feasible for the moment. But that still doesn’t answer the question of why target Social Security instead? It’s not like political feasibility seems to have stopped them there. The answer is an a priori ideological commitment to cutting Social Security, rather than any pressing economic or budgetary need to do so.

I imagine you’re starting to sense a theme here.

To conclude on a philosophic point, Douthat also brings up an old chestnut of Jon Chait’s in his post:

One of Chait’s long-running themes is the idea that on size-of-government issues, conservatives are ideologues and liberals are pragmatists: That is, conservatives believe in smaller government as an end unto itself, whereas liberals only believe in bigger government when it’s accomplishing something meaningful for the common good. And one of his secondary themes is that the real “essence” of American conservatism isn’t deficit reduction, but rather “opposition to the downward redistribution of income” — whereas liberals, of course, see downward redistribution as precisely the kind of welfare-enhancing thing that government ought to do.

Douthat then argues that Chait’s theory is belied by growing liberal outrage at the deficit commission’s proposals. If liberals really were only interested in the size of government as a means to the end of human welfare, rather than as an end in itself, they would support (perhaps begrudgingly) these proposals. But Douthat makes this case by passing over in silence aspects of the proposals that massively redistribute wealth upwards.

More importantly, some of the proposals’ biggest moving parts — the revenue cap, the reductions in tax rates and brackets, and the intense scrutiny of Social Security — all represent the triumph of precisely the conservative ideological bullheadedness Chait is complaining about: The determination to slim down government, even when that slimming is manifestly not necessary for economic or budgetary health. Conversely, the proposals contain nothing that represent liberals’ competing commitment; that increases in government size should be supported if they enhance human well-being. As such, the costs of these proposals fall almost entirely on our society’s less fortunate members, while its benefits accrue to the most fortunate.

And that’s why liberals are justifiably up in arms over this.


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