The President has raised the curtain on his deficit reduction plan. Now the issue between the two parties is squarely joined.
On one side, the GOP, pledged to the Ryan plan, the most radical redefinition of government from the right since 1964.
On the other side, the President, offering the sharpest left turn since Teddy Kennedy’s challenge to Jimmy Carter in 1980.
The President’s new brainwave is a stunt that threatens the country’s long-term prosperity and growth. The lapse of the Bush tax cuts plus a new millionaire tax bracket thrusts us back to the high rates of the 1970s. The proposed new five-bracket structure opens new temptations to economically wasteful tax arbitrage.
And remember: all this comes atop the tax increases already embedded in the Affordable Care Act (taxes that, I won’t refrain from pointing out could have been negotiated away back in 2010).
Republicans would have a powerful case against this brutal rollback of the past 30 years – if not for the fact that their alternative is even more repulsive to middle-of-the-road voters: no spending for job creation during the present crisis, immediate cuts to social programs for the poor, the withdrawal of the Medicare guarantee from voters under 55, and another round of tax cuts for upper income Americans.
The budget plan to which congressional Republicans have committed themselves manages to combine maximum obnoxiousness and minimum effectiveness. Even supposing the plan could be passed into law, who imagines that it will ever actually bite? Will today’s 55-year-olds and 45-year-olds and 35-year-olds meekly assent to the withering of their Medicare benefits because Congress voted that way 10 or 20 or 30 years before?
We need a centrist alternative. Let me sketch out a vision of what such an alternative would look like:
1) In the short run, we need the federal government to continue to act in a stimulative way: spending on transportation infrastructure, cutting the payroll tax, and maintaining unemployment benefits.
2) We should not be postponing Medicare benefits for six years or 10. We should be starting now – but not by withdrawing coverage from beneficiaries. Instead, we should be squeezing America’s over-costly health providers. There’s a lot to be said in favor of a gradual shift to a premium support model for Medicare – the Ryan plan, but properly funded. But such a shift is a big and administratively complex project. In the interim, we should be doing as the Reagan administration did when it instituted Diagnosis-Related Group pricing in the 1980s: use the government’s monopsony power to force down prices.
3) Government needs additional revenue, but it should not be raising taxes on work, saving and investment. Instead of the taxes in the ACA and in the new Obama deficit plan, we should be planning carbon taxes and value-added taxes: consumption taxes, not production taxes. WIth the ACA, the spending side of the US government has become substantially more redistributive. It’s dangerous to finance redistributive spending programs with redistributive revenue sources – government loses all incentive to restrain costs. Back of the envelope: a 6% VAT would produce as much revenue as flat-out confiscation of 100% of the earnings of everyone who makes more than $1 million a year.
4) As the US government winds down commitments in Afghanistan (faster please) and Iraq (slower please), it must preserve a defense budget sufficient to respond to future contingencies. National defense, not healthcare, is the first and supreme responsibility of government.