Penner targeted a public debt-to-GDP ratio of 60 percent
\nby 2020. With the debt-GDP ratio racing out to 100
\npercent by 2022 — and possibly doubling again in the following 20 years when boomer entitlements explode — that means he needed to go at the budget with a
\nscalpel and<\/i> a sledgehammer: putting entitlements on a budget and slashing defense until wars become nearly impossible expenditures. <\/p>\n
Our interview is here:<\/p>\n
Your team first drew up a budget to reach your 2020 target with all spending changes, and no new taxes.
\nSo what would a responsible budget look like in 10 years if
\npoliticians refused to raise the tax burden on Americans?<\/b> <\/p>\n
The
\nanswer is you have to do some very, very dramatic things. We reduced
\nthe growth of Social Security to the level of benefits that could be
\nfinanced by the payroll tax structure and moved the full
\nretirement age by five years. We dramatically reduced replacement rates — benefits
\nto earnings late in life, although we didn’t reduce anybody’s benefits below the
\npurchasing power [inflation index] except for the most affluent. <\/p>\n
On
\nhealth we chose to slow the rate of growth of health costs … Not speaking for the committee I think the only way to do it is to put
\nMedicare and Medicaid on a fixed budget. That would require vouchers
\nbased on income for Medicare that could vary by geography and health.
\nIn any case we’re talking about something very severe. Then with all
\nother speding, we squeezed defense so that they couldn’t invest in new
\nweapon systems but could retain their personnel. You could have minor
\nforeign interventions but nothing on the scale of Iraq and Iran. On
\ninfrastructure and reserach we also clamped down on. These are
\nthe draconian changes on the spending side if you keep taxes
\nwhere they are. <\/p>\n
A lot of Republicans — and some Democrats
\n— are calling for even more tax cuts across the board for
\nextended periods of time. But this budget picture is dismal enough
\nalready. Did you consider what it would look like with even fewer taxes?<\/b> <\/p>\n
The thought of actually cutting the tax burden is really quite implausible. <\/p>\n
Now tell me what a reformed budget would look like if politicians
\ndecided to keep spending stable and make all the reforms on the tax
\nside.<\/b><\/p>\n
At the other end of the spectrum, we said let’s keep our promises to
\nMedicare, Medicaid and Social Security while keeping the 60 percent debt-to-GDP figure. The tax increases are quite extraordinary. <\/p>\n
We had two
\nstrategies for financing the package. We increased all rates
\nproportionally — including capital gains and the AMT — until the top
\n[marginal income tax] rate rose to 50 percent [from 35 percent, where
\nit is today]. We did that for around 2020. At that point we
\nintroduce a VAT [value added tax, or consumption tax], first at one percent and growing to
\n8 percent by 2040. It had to grow fairly rapidly. For Social Security, we had to
\nincrease payroll taxes from 12.4 to almost 15 percent. And then we
\nneeded a surtax on top of all that. All this would take us from a total
\ntax burden including state and local from below OECD average today to
\nwhere by mid century we’d be considerably above average. Spun out to
\n2060 we’d be one of the highest tax burdens in the world right
\nalongside Denmark and Sweden. <\/p>\n
The other approach was to Why deficit reduction this so hard <\/b>I’ve been watching the political scene for 40 years now and it’s You’ve argued that Obama’s budget doesn’t scare us enough about the debt. But he’s running $1.6 A lot of people argue that’s a conflict: that there’s a conflict I would focus assistance on safety net programs like food stamps. The President Obama secured the support of Republican leaders for his bipartisan commission to look at ways to reduce our long term debt, but the GOP insists that any solutions with tax increases will be dead on arrival. So what would a sensible budget reform plan look like if we refused to raise taxes? Or, for […]<\/p>\n","protected":false},"author":1534,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-339302","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/339302","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=339302"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/339302\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=339302"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=339302"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=339302"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nradically reform the tax system, getting rid of all tax expenditures
\n<\/a>[such as tax exclusions for employer health care and pension contributions … see more here<\/a>] like capping the employer health exclusion. It’s really, really
\nremarkable how much money you get back from tax expenditures,
\nespecially from capping the health exclusion. We could actually lower
\nrates over time with that solution to the situation, while keeping the overall
\ntax burden the same.<\/p>\n
\npolitically? Is it the current climate, or is that the things that need
\ncutting are naturally politically intractable?<\/p>\n
\nnever been worse. We could talk for a long time about the reasons for
\nthat. Whatever the cause, at this moment we’re marching hellbent for
\nfiscal crisis. If you want to know what happens in fiscal crisis, look
\nat Ireland and Greece. There comes a point when you have no choice but
\nto reform the budget. Ireland can try to inflate their way out of the
\nproblem. We have one of the shortest maturity of debt in the world, so
\nif we start to inflate, interest rates go way up. <\/p>\n
\ntrillion deficit next year. Surely he doesn’t want to convince people that
\ndeficits are scary just yet, right?<\/b><\/p>\n
\nbetween a short term and a long run. But you can’t deal with the long
\nrun until the recession is closer to being over. You don’t want to hit
\nincomes today, but you can pass a law today that makes the kind of Social Security changes we have in our book, and they would not be
\neffective until 2012 and go into effect extremely gradually. You can do
\nthings with Medicare. I suppose in economic theory there are subtle
\nproblems if people are far-seeing and they see reductions in their
\nbenefits — rational expectation economists would say they’d cut
\nspending immediately. But I don’t happen to think people are so
\nfar-seeing. <\/p>\n
\ninstitutional arrangements at state and local level means they cut back
\nmore than they need to and I can see some assistance there, and I would
\npay for it. I wouldn’t mind short-term stimulus. That said, there’s
\nthis idea for a payroll tax holiday for businesses that employ more
\npeople. I think that will be a lot of wasted money — subsidies for
\npeople they will be employed anyway. In any case, my bottom line is
\nthat I don’t see a conflict between short and long term.
\n
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