CRFB in the Ripon Forum
CRFB board member Doug Holtz-Eakin and CRFB president Maya MacGuineas both had essays in the most recent edition of the Ripon Forum. While they focused on different subjects (spending and the possibility of a fiscal crisis, respectively), their message was the same: our current course is unsustainable.
Here are some quotes from each essay:
Doug Holtz-Eakin: For Main Street America, the fiscal crisis comes in two unpalatable flavors. Under the “good news” version [extended baseline], the debt will continue to edge northward – perhaps at times slowed by modest and ineffectual “reforms” – and borrowing costs in the United States will remain elevated. Profitable innovation and investment will flow elsewhere in the global economy. As U.S. productivity growth suffers, wage growth stagnates and standards of living stall. With little economic advancement prior to tax, and a very large tax burden from the debt, the next generation will inherit a standard of living inferior to that bequeathed to this one.
Under the “bad news” version [alternative fiscal scenario], international lenders revolt over the outlook for debt and cut off U.S. access to international credit. In an eerie reprise of the recent financial crisis, the credit freeze would drag down business activity and household spending. The resulting deep recession would be exacerbated by the inability of the federal government’s automatic stabilizers – unemployment insurance, lower taxes, etc. – to operate freely. Again, the upshot is that America fails its fundamental responsibility to leave to the next generation freedoms and prosperity greater than those of the past.
Maya MacGuineas: But we do quickly need to develop and credibly commit to a medium-term fiscal consolidation plan that would bring the debt back down to more manageable levels, as well as a longer plan to control entitlement spending and stabilize the debt so that it doesn’t grow faster than the economy.
The types of policies we should be considering include: thoughtful reductions in defense; a temporary freeze in domestic discretionary spending; raising the retirement age; slowing the growth of Social Security benefits on the upper end; scaling back the amount of subsidies in the new health reform package; asking participants to pay more for their own Medicare; introducing vouchers as part of Medicare (which should work better now that we have created health care exchanges); and, eliminating agriculture subsidies.
On the tax side, (oh yes, there will be a tax side—not a single expert has shown a path to a reasonable and stable debt path through spending cuts alone,) we should start by broadening the tax base by eliminating the employer-provided health care exclusion, which is one of major causes of rising health care costs, and ratcheting down the million-dollar home mortgage interest deduction.