StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



A Real Fiscal Conservative

02 Dec 2009
Posted by Bruce Bartlett

In Washington, the term "fiscal conservative" often gets applied very loosely to people who complain about debt and deficits a lot but never, ever put any real deficit reduction proposals on the table--Evan Bayh, I'm thinking of you. Such people always say we need yet another commission to study the issue, the time isn't right, we need to wait until after the next election or better weather or whatever. So I'm pleased to call attention to a real fiscal conservative--economist Jeff Frankel of Harvard, who has put together a 10-point plan of serious, honest-to-God deficit reduction proposals. Half involve higher revenues and half reduced spending; they include entitlements as well as discretionary programs. I won't steal Jeff's thunder by listing them; follow the link below. I don't necessarily endorse every item on the list, but it's a good place to start. Any member of Congress who wishes to be considered a fiscal conservative should be willing to endorse a plan as detailed as this one and of the same order of magnitude or come up with one of their own.

content.ksg.harvard.edu/blog/jeff_frankels_weblog/2009/12/01/ten-ways-to-move-the-budget-back-toward-a-sustainable-path/

Faux Fiscal Conservatives

I perhaps should have mentioned John Spratt as well.

www.mcclatchydc.com/homepage/story/79937.html


Amazing that this set of

Amazing that this set of policies could be demonized by either side. A shame as well. Nothing here that is at all controversial really, most are prudent and thoughtful. I say that, though, already willing to force the public to face the true cost of our consumption.

Thanks for the link.


Re: Any member of Congress

Re: Any member of Congress who wishes to be considered a fiscal conservative should be willing to endorse a plan as detailed as this one and of the same order of magnitude or come up with one of their own.

Any member of Congress who does so will probably lose the next election and be replaced by someone less fiscally responsible and therefore more popular. And members of Congress know this and therefore won't go out on the limb you suggest unless they have the kind of political cover that the SAFE Commission may be able to provide, just as no member of Congress would have offered up his/her state's/district's military base for closure without the cover of a commission and related legislative process (up or down vote).

I haven't had a chance to write up a thorough case for the SAFE Commission, including addressing the arguments of those who are completely dismissing and even ridiculing the idea. But I hope to do so by next week. In the meantime, let me just say that I have a hard time seeing how the upside potential of a SAFE Commission -- all benefits considered, including but by no means limited to passage of it's recommendation (other benefits include raising awareness and reducing obstructive partisan myths among the public, establishing a useful process or elements thereof to utilize at some later date, and more) -- wouldn't outweigh the costs (both explicit and opportunity costs, both of which would be minuscule relative to the size of the budget, relative to the size of the problem, and relative to the magnitude of potential and very plausible benefits). And I encourage everyone to read what other notable figures are saying about the SAFE Commission or comparable commission at http://brooksstuff.blogspot.com/2009/12/support-for-safe-commission-or.html (I spent only about an hour digging up quotes, so that list of supporters and related commentary is certainly not exhaustive)

With all due respect to those poo-pooing the SAFE Commission, I think you are letting frustration and disappointment with past commissions, combined with justifiable skepticism, distort your assessment of upside potential (magnitudes and probabilities of benefits) vs. downside risk (magnitudes and probabilities of costs). Perhaps there's also an element of a desire to express a cynical "been there, tried that" sort of wisdom. You undoubtedly have superior insight into the workings of Washington than I do, but I don't sense that you are applying a rational framework to this matter.


Congress

I completely understand that any member of Congress putting forward a plan like Frankel's would probably suffer for it at the next election. Fine. I just want people unwilling to do so to stop calling themselves fiscal conservatives, because they aren't.


I think we should focus on

I think we should focus on increasing the chances of movement toward fiscal responsibility rather than ridicule those who seem most inclined toward fiscal responsibility but need the political cover of a commission to initiate/support bold action. Perhaps you find engaging in the latter more satisfying, but it's probably counterproductive. Let's urge Congress to create the SAFE Commission, thus perhaps enabling them to support fiscal responsibility without committing political suicide, and if they are still unwilling to match vague words with specific actions despite that political cover, then calling them out would probably be productive.

Let's not let irritation, pettiness and emotions generally muddy up a rational view of how best to try to move forward, in particular how we view the desirability of establishing the SAFE Commission.


"Political Cover"

I think we need to think about why politicians need "political cover" to make what seem to be obviously reasonable decisions about the federal budget. The problem isn't on Capitol Hill (at least mostly); it's with the American people.

We live in a representative democracy. If our politicians can't make hard choices--or even easy ones--maybe it's because the public doesn't really want to make them. If our budgets are consistently fiscally irresponsible, perhaps it's because voters have wanted it that way. It's been too easy from the time of Reagan to believe in the free lunch, and now we howl any time we're asked to actually pay for the programs or tax cuts we say we want. But thing we care about are things we should be willing to do something about. When was the last time we were asked to actually do something regarding what we said we wanted from our government?

Our politicians can't be expected to make hard decisions unless we're willing to make them as well. The problem, to the extent it rests with our political leaders, is their failure to remind us that we bear that responsibility. The gas tax is one example: if we were serious about reducing our dependence on foreign oil, freeing our Middle East policy, really gaining leverage over Iran, reducing the burden on our troops to protect our supply lines, and creating new jobs, we'd be asking for a gradually increasing gas tax instead of running away from it. Yet to even talk about a tax is seen as political suicide.

Few if any politicians have the courage to ask if we're serious about our policy goals. If we were, we might have to face the fact that we are responsible for achieving them. Yes, I can drive a little less and get a more efficient car. Yes, if an energy bill raises my rates by 5%, then I can conserve 5% so that I don't pay more than I'm paying now. Yes, if I favor universal health care then maybe I don't really need a "Cadillac" plan or am willing to pay a little more in taxes to make it work. And if I'm serious about government spending, I'm willing to give something up in order to return our nation to fiscal responsibility.

In the end, these things are up to us. And it's up to us to provide the "political cover" that our politicians need to make these choices. And it would help if our politicians had the minimal leadership to remind us of that fact.


Thanks - please tell us which ones you don't endorse!

Thanks for this post, Bruce - like the weather, everyone complains about the deficit but no one ever does anything about it. I would love to know which items on Frankel's list you disagree with.


Sorry, I do not find this

Sorry, I do not find this list all that impressive. There is nothing I haven't seen a dozen times before. Yes it is wrapped in the obligatory Bush bashing but can we please get past that? Blaming Bush may make you feel good but it is getting old.

As for the proposals themselves --

1. Auction carbon emission credits -- First determine it is necessary to issue them at all.

2. Raise gas tax -- A regrssive tax that cascades through the economy increasing costs for any and all business activities with the cost being passed on to consumers. The normal city dwellers dream of punishing the suburbs, until they figure out that almost every item they consume moves on a truck that burns gas.

3. Cut Agriculture subsidies -- Good idea, should have been done a long time ago. Anyone familiar with politics knows the difficulties. Nevertheless, the farm lobby becomes weaker with the passage of time and the next farm bill may hold the hope of reform.

4 Cut expensive weapons systems -- Depends on the "expensive weapons system". MWRAP mine resistant vehicles are orders of magnitude more expensive than hummvees; but the occupants tend to live longer. We may be able to live without the F-22 and some of the new generation navel vessels but let's not totally ignore China.

5. End Manned Space Exploration -- Yeah, give up one of the few areas of government endevor that actually tends to unite the nation to save a fraction of a rounding error on the budget. I remember Apollo 11, and 13. The space program pays dividends that cannot be measured in dollars.

6 Let the George Bush Tax cuts for the rich expire -- We need fundamental tax reform, possibly including the VAT tax Bruce favors, that will bring in more revenues across a broader base. We do not need tired class warfare rhetoric which makes it more, not less, difficult for people to take reform proposals seriously.

7. Health care best practices -- we should do this regardless of costs or savings because it tends to promote better healthcare. Nevertheless, the expectation for savings may be overblown. Most of the areas that have tried it on a sustained basis (suburban regions of Pennsylvania) tend to serve better educated patients who follow their doctors directions and understand their role in the process. The results in less affluent areas may not be as impressive.

8. Eliminate tax deduction for health insurance -- Good idea which is becoming slightly more politically feasible. Need to get the unions onboard. Last time I looked, the AFL-CIO was not part of the vast right wing conspiracy.

9. Eliminate mortgage tax deduction -- Yes if phased in over a long enough time to avoid diruption to the realestate market. Given the likely impact on housing prices, this one could put most homeowners underwater on their mortgage if it were implemented with less than a 10 year phase in. Even that might be pushing it. BTW, it would also devesate apartment owners, driving the rental market crazy; but hey, externalities are fun.

10. Social Security reform -- Yes to all these ideas but try to keep in mind the impact on low income heavy manual labor. There is a reason steel workers like early retirement. Try also eliminating the SS earnings penalty to encourage workers to voluntarily stay in the work force, paying income taxes and generally enjoying a more active healthier life style.

Mostly, get over the Bush/Conservative bashing when making economic proposals. It gets in the way of the conversation and raises questions about motivations.


A Real Fiscal Conservative

Should you and yours refrain from the mantra "tax and spend liberal" perhaps I might consider not bring up the facts of the Bush presidency


And where exactly do you find

And where exactly do you find that term in my comments?

BTW, the facts are the fiscal problems of our government did not originate with any single administration. They grew out of a post war culture of leaders promising more than could be delivered and passing the bill to succeeding generations. Nor is the federal government unique in this activity. When the "Treaty of Detroit" was signed in 1954, culminating in the boilerplate auto industy labor contract that predominated for the next 40 years, both the CEO of GM and the president of the UAW conceded the contract was unsustainable and the promised pension/healthcare benefits would eventually bankrupt the company. The private sector planted the seeds of labor management cooperation with that contract. The federal government planted the seeds of bipartisan cooperation with the Great Society programs of the 1960s. Today the nation is reaping the harvest our parents and grandparents sowed. It was warm, fuzzy and felt good while it lasted, but it was never real. Time to pay the piper.


A Non-Regressive Gas Tax

On the gas tax: it need not be regressive. Most proposals recycle at least some of the revenues to people who have no choice but to drive what they drive. That way, everyone still has the incentive to consume less but those without options are no worse off.


"Blaming Bush may make you

"Blaming Bush may make you feel good but it is getting old."

Bush has a one-way ticket to Hooverville. Get used to it.

"We do not need tired class warfare rhetoric..."

I get it the second time you used the same ploy. Anything that is true but you don't like, is "old" and "tired". So much easier to say, "Boring." Sorry, a little more class warfare would do the old US of A a world of good. The Bush tax cuts for the rich need to be reversed; indeed we need to go further and taxes on the rich need to be increased even more.


Estate tax

I'm actually fine with having it go to zero in 2010 and bounce back to old levels in 2011...it will be interesting to observe whether the death rate in the highest wealth categories spikes next Fall...Buffy and Jody will looking at losing a LOT of money if Popsie lives through to January 2011. What a social experiment! I bet there are some folks who read this blog who might have a little worry in the back of their heads...watch out for Thanksgiving dinner next year...hee hee.

On a slightly more serious note, if we propose changes, it will be demonized ("DEATH TAX" "THEY'RE TAXING EVEN DEATH!"...gods above...). I think it's smarter to make it clear to congress that the "temporary" changes will be allowed to expire and that any bill that tries to do anything else will be vetoed on sight. Once the old rates are back in place, then you propose changes that make you look like a hero in an election year ("SAVING FAMILY FARMS!").


Jeff's List

Manned Space travel? Ag Subsidies? Not even Everett Dirksen would agree that cuts here would add to up a material amount.

Frankel has some winners, but pulling the home mortgage deduction? Not only is that suiciide, it is not feasible and even if it were, it would spark a total collpase in property values. Just what this country needs right now.

But Jeff is right in construct ....this has to be attacked on both sides of the ledger ....revenues and outlays. And on the outlay side, there has to be progress. This means hitting domestic discretionary (ten percent?)to appease the right but it also means big cuts to a war-inflated DoD budget and Herculean efforts to control medical entitlements. Until someone is ready to endorse such a plan, they are nothing more than a fiscal chickenhawk.


Wow, I Could Have Written Frankel's Proposals Myself

I'm supposedly a liberal, yet Frankel's proposals are virtually identical to what I believe to be necessary. I guess I'm a conservative after all.


Q&A at town halls

Get out of your easy chairs, turn off ESPN, and go to your elected officials' town hall meetings. If they dare to use the term fiscal conservative, ask this simple question: What is your plan to balance the budget? No bloviating or obfuscating allowed. Make them squirm! We don't nned term limits; we do need accountability without regard to policial party.


real reform

In truth even the measures Jeff that proposes won't be enough to solve the annual 1.4 trillion and growing problem. And that number doesn't include the raid on the Social Security surplus. Modest cost sharing in Medicaid, merging duplicative federal agencies, closing overseas military bases, a 5% surcharge on incomes over a million, cracking down on Medicare and disability fraud, and a national sales tax should also be considered.

But most importantly repeal presidential term limits so we can bring back Bill Clinton!


NASA does a pretty good job

NASA does a pretty good job using the manned exploration budget for "dual use" technologies. For example, the Aries V rocket will have some serious heavy lifting capability that will be a huge benefit whether we launch humans or robots.

If they have the manned exploration budget and it will set back unmanned exploration. I'd be in favor of dumping manned exploration for all robot exploration, but only if they fund it fully.

Then again, I don't really feel the debt is a huge issue in the short term.


The list

Not the best list I've ever seen but not the worst either.

On carbon permits and gas taxes, I guess I'd do one or the other but not both. They are duplicative. BTW, I'm open to carbon permits as a revenue raiser even though I don't buy the AGW argument (at least yet). IMO, a carbon tax or gas tax is easier to do and administer so that's the way I would go.

Nobody is going to argue with cutting "unnecessary" systems, just like cutting "waste and fraud" in Medicare, just a bit hard to find it.

I'm a fan of manned space exploration and it's cost is modest. I'd be inclined to look elsewhere though I understand the argument.

On subsidies, how about we go bigger...stop giving money from one person to another if the recipient's net worth exceeds the average citizen in the country. I'd love to see this principle applied to ag (most would go) but also to SS, Medicare, etc. Why should the government transfer money to people with wealth? It's totally nuts and Medicare and SS are where the money is and will be.

On taxes, I'd love a discussion that stopped focusing on rates (a dumb conversation) and focused instead on burden sharing. Let's have a real debate on what multiple of income on a relative scale should be paid. From an implementation perspective, I favor simplicity (flat of VAT) versus "letting the Bush tax cuts expire"). The current federal income tax system is more "progressive" than at any time in the last 30 years (at least last time I looked at the CBO data) so I'm not sure why raising top marginal rates is the right approach but lets discuss what we want the distribution to look like first.

I'm for eliminating as many tax deductions as possible. Government should not be in the business of using the tax code to incent behavior.

To me, the list in sum, is pretty unbalanced in favor of increasing taxes versus slowing the growth of or decreasing expenditures. Haven't done the math but anything that doesn't seriously go after SS and Medicare can't possibly be a serious expense management proposal.




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