The Budget Debate Is Too Limited

Robert Borosage

The following was originally published by Politico

Now that Mitt Romney has selected Rep. Paul Ryan (R-Wis.), head of the House Budget Committee, as his running mate, he has insured that this campaign will feature arguments about the budget and deficits. Ryan jumped right in last weekend, hammering away at “debt, doubts and despair” that put the country on an “unsustainable path.”

Democrats are delighted since Romney is now firmly entangled with Ryan’s “reverse Robin Hood” budget plan, which calls for bigger tax cuts for the rich and corporations, and pays for them by brutal cuts in Medicare and Medicaid, education, college support, food stamps and other programs for the vulnerable. It does little, however, to reduce deficits over the next decade.

In contrast, President Barack Obama calls for rolling back the top-end Bush tax cuts and so is better able to protect Medicare and Medicaid and limit cuts to the poor.

Yet beneath stark differences in direction are shared assumptions that don’t make much sense. As fierce as the coming debate is likely to be, its terms are still too limited to deal with the challenges we face.

1. Austerity is affliction, not cure

The near-universal assumption – from the tea party to the White House – is that it’s time to tighten our belts. Both Romney and Ryan are particularly vociferous in railing about debt and spending as the source of our travails.

But we’ve just had a trial run of austerity in Great Britain, Spain, Italy and other European countries. The result is clear. Every European country inflicting austerity on economies still struggling to recover from the economic crash has ended with worse debt to gross domestic product ratios. Austerity not only cost jobs, increased misery and crippled growth — it made debt burdens worse.

The crucial step toward reducing deficits is to put people to work and paying taxes rather than looking for work and collecting unemployment benefits. The president raised this with his jobs agenda last fall, but the House Republicans, led by Ryan, blocked most of it, while seeking even deeper cuts in education, food stamps and other programs for the vulnerable.

Austerity not only weakens an economy barely in recovery, it represents a conclusion that the patient is incurable. Turning to austerity serves notice that current levels of mass unemployment are the new normal. We’ll see more and more articles about “structural unemployment” and “improperly trained” workers. If accepted — expect continued decline of the middle class and rising poverty.

We should be seriously debating how to get the economy going in order to get our books in order, not how best to inflict austerity. Yet Ryan reinforces Romney’s embrace of the old-time Republican nostrum – arguing that top end tax cuts, deregulation and domestic spending cuts will “free up” the economy to expand. The Republican National Committee has just released an ad warning against any hint of “stimulus” spending to get the economy going. It remains to be seen whether Obama and Democrats will join this debate.

2. America is not a wastrel

The consensus on austerity comes from our forbidding trillion-dollar annual deficits. For years, what Paul Krugman calls the austerians have fulminated about the coming crash of the dollar and soaring interest rates. America is a deadbeat, deep in debt, its credit rating despoiled. We’re on the road to “fiscal ruin” says the Romney campaign. Ryan is unequaled when it comes to raising terrors about deficits and debt — though his budget does little to reduce them.

But the markets don’t agree. Investors across the world see America as a remarkably safe place to store their money. The U.S. can now borrow 20-year money at interest rates less than the rate of inflation. That is, investors are willing to pay us to borrow from them. We can borrow money that is literally cheaper than free.

There will never be a better opportunity to rebuild America. Our infrastructure is decrepit. Our construction industry is virtually idle. And money is cheap. Any businessman worth his salt would jump at the opportunity to launch a major, multi-year project to rebuild the country. And, at the same time, put people back to work and help get our books in order. Given the costly inefficiencies – and deadly perils – of the current state of our bridges, sewers, roads, airports and more – it hard to see how this would not literally pay for itself.

3. Shared Sacrifice adds to what ails us

Ryan’s budget helps smoke Romney out of the shadows. Their plan showers tax cuts on the rich and corporations; hikes taxes on the middle class, and inflicts deep cuts on the vulnerable, the elderly and the poor. In contrast, Obama, Democrats and many Republican legislators call for shared sacrifice, putting everything on the table.

But when rewards are not shared, shared sacrifice is a cruel joke. Working families have struggled with declining wages for three decades, while the share of national income pocketed by the wealthiest 1 percent has tripled. In 2010, the wealthiest 1 percent pocketed 90 percent of the reward of growth. Surely, if sacrifice is needed, they should be first in line.

In fact, the Romney-Ryan plutocrat plan and shared sacrifice aren’t just unfair; they add to what ails us. Our current levels of extreme inequality aren’t just unconscionable, Nobel Prize winning economist Joseph Stiglitz has shown, they are also economically destructive. When the middle class is sinking, consumer demand is sapped. When workers don’t share in the rewards of rising productivity, their demoralization makes them less reliable and productive.

The uber-wealthy live in gated communities with private guards, send their kids to private schools, vacation on private beaches. Unequal societies thus often starve vital social services – parks, schools, mass transit. Moreover, the wealthy use their power to preserve privileges – tax dodges that let multi-millionaires like Romney pay a 14 percent tax rate or a massive corporation like General Electric pay no taxes at all, multimillion dollar giveaways that enrich plutocrats like the Koch brothers, financial deregulation that lets Wall Street to go wild. These all exact huge costs on our economic vitality.

In getting our books in order, we need to start with top-tier tax hikes, then shut down tax dodges and end obscene corporate giveaways — not simply as a matter of social justice, but as an essential step in revitalizing our economy. Raising the minimum wage, curbing CEO compensation schemes, empowering workers to gain a fair share of the profits and productivity they help to generate are essential to any-long term strategy to get our economy moving and our books back in balance.

4. Everything is on the table — except the important things

The chattering classes all agree that everything should be on the table in the coming budget negotiations. What they mean is that Democrats should agree to cuts in Medicare and Social Security and Republicans should accept some tax hikes. Both should accept cuts in defense and domestic spending. In combination, we can slowly get our books in order.

Romney, Ryan and House Republicans, however, flat-out reject this conventional wisdom. They want more top-tier tax cuts, sustained military spending, with all the deficit reduction coming from domestic spending cuts. An estimated three-fifths of Ryan’s budget cuts come from programs that help the poor, according to the Center for Budget and Policy Priorities. In contrast, the president, in his desire for a “grand bargain,” has declared his willingness to put everything up for discussion.

Beneath the glaring contrast, both sides assume a growing and stable economy over time. Yet neither side addresses the very things that destabilize our economy and drive up our deficits and debt.

For example, the debt burden shot up from 40 percent to 70 percent of GDP when Wall Street’s excesses blew up the economy in 2008, the worst calamity since the Great Depression. So any serious long-term strategy should feature reforms to curb Wall Street. Yet Romney and Ryan both call for repealing even the modest reforms passed to patrol Wall Street’s follies. And neither party, faced with the need to finance the most expensive election in history, is talking about how to bring Wall Street to heel.

Similarly, fighting wars without paying for them – as President George W. Bush did in Iraq and Afghanistan – will destabilize any budget plan.

But taking on this agenda is difficult, particularly with Wall Street the leading funder to both parties in an era of big money politics. It’s far easier to sell the conservative promise of more tax cuts or the conventional call for shared sacrifice.

5. Entitlements are the answer, not the problem

The terrifying Congressional Budget Office projections of massive deficits over the next decades are driven by one thing – soaring health care costs. As Dean Baker, head of the Center for Economic and Policy Research, and others have demonstrated, if the U.S. spent what European nations do on national health care (nations that cover more of their people and have better public health results), we would project surpluses as far as the eye can see.

Romney and Ryan call for putting a lid on the projected costs of Medicare and Medicaid. They also, of course, famously pledge to repeal Obama’s health care reforms. But cutting Medicare and Medicaid – turning the former into a voucher and the latter into a block grant to the states — does nothing to control health care costs; it simply pushes more of them onto those least able to afford them – the elderly and the disabled.

The answer that America will get to, after trying all other alternatives, will come by using our entitlements – “Obamacare,” Medicare, Medicaid and the Veterans Administration system – to drive health care reform. “Obamacare” offers major strides in this regard. Next will likely be the addition of a public option to counter insurance company price fixing, and empowering Medicare and others to negotiate bulk discounts on prescription drugs. Fixing our system won’t be done by driving rising costs to the most vulnerable, but by driving cost reform through our entitlements.

The Choice

Romney and Ryan peddle a remarkably cruel plan with sunny and optimistic rhetoric. Obama and the Democrats offer a far more balanced and common sense alternative. But as stark as that choice is, the terms of this debate are still too limited to address the challenges this country faces. That’s why the labor unions, the AFL-CIO and allies, gathered 35,000 strong last weekend in Philadelphia to release an economic bill of rights — including the right to a job with a living wage, to a quality education, to basic security including health care and retirement security, to a voice at work and the untrammeled right to vote. If we want to revitalize this country’s economy and get our books back in balance, then we’ll have to expand the limits of this debate.

Get updates in your inbox