Wall Street Banker Peter Peterson and the Deficit Ostriches

Pete Peterson

By Dean Baker, appeared originally at TruthOut

Last spring, Wall Street investment banker Peter Peterson hosted a lavish, daylong conference devoted to the budget deficit. One of the highlights was an appearance by President Clinton. Clinton boasted of how he had wanted to cut Social Security back in the mid-90s but Congressional leaders from both parties wouldn’t let him.

The cut he had wanted would have reduced the annual cost of living adjustment by 1 percentage point annually. This would have left seniors in their 70s, 80s and 90s with Social Security benefits today that are about 15 percent lower than their current level. How great would that have been?

Peterson is back with Round II this week, another lavish affair devoted to the deficit. President Clinton will again be playing a starring role, although it is not clear whether he will still be boasting about his wish to cut Social Security benefits.

What is clear is that Peterson is using his vast fortune to push an agenda that has little to do with deficit reduction, and everything to do with cutting Social Security, Medicare, and other programs that are vital to ordinary working people.

This fact is apparent from the list of attendees. This is supposed to be a group seriously committed to deficit reduction, yet one of the highlights will be a talk by Rep. Paul Ryan, the Republican chairman of the Budget Committee.

Mr. Ryan is best known for a budget proposal that calls for $3 trillion in individual and corporate tax cuts over the next decade. These cuts are supposed to be offset by the elimination of tax deductions, except Ryan does not identify a single tax deduction that he wants to eliminate.

All he identified is $3 trillion in tax cuts, most of them going to the wealthy, that he wants to eliminate. In Peterson’s world, giving up $3 trillion in revenue is deficit reduction.

The remarkable part of this story is that there are people who are talking about the budget deficit in a serious way. They are proposing solutions that enjoy the support of the American people and they are right in front of Peterson’s nose, but he is doing his best to ignore them.

While Ryan will be touting his plan for adding another $3 trillion to the debt with more tax cuts for the wealthy, and increasing the cost of Medicare to the American people by $34 trillion, at least one of the groups at the conference will be presenting a budget plan that is much more in accordance with the views of the American people.

The Economic Policy Institute (EPI) will be presenting a plan at the conference that Peterson’s group has scored as achieving sustainable budget targets in ways that are broadly consistently with polling data. (Two other groups presenting at the conference, the Center for American Progress and the Roosevelt Institute Campus Network are likely to present plans sharing many of the same themes, but their proposals are not yet public.


A Spending Cut by Any Other Name

By Heather McGhee originally published at The American Prospect

Congress returns from a two-week recess today. But for legislators who spent the time championing the House Republicans’ extreme agenda to slash federal spending, the break was more like detention. Town hall meetings across the country erupted into bedlam as members came face-to-face with the actual beneficiaries of public spending on health care, retirement, college, food supports, and more.

In Orlando, Rep. Daniel Webster was shouted down by furious constituents. “Florida has had this policy for the last 12 years,” said one town-hall attendee, referring to the state’s low taxes and meager public benefits. “We don’t have money to take care of the poor, and unemployment is at 11 percent!”

Everyone in Washington wants big spending cuts, particularly as a concession for raising the debt limit. But few people outside Washington want spending on them to be cut. So what is a conservative Congress member to do? Enter the new Capitol Hill bipartisan policy darling, the innocuous-sounding “global spending cap.” Last Tuesday, Sen. Joe Manchin, a Democrat from West Virginia, became the latest lawmaker to sign on to the most prominent spending-cap proposal, the Corker-McCaskill Commitment to American Prosperity Act.

The CAP Act, unlike the detailed House GOP budget, could play well in a town hall. It mentions no specific programs. A cap doesn’t even sound like a cut — it sounds like more of the same. But[h1] in reality, it’s just a massive budget cut by another name. The bill would simply place an automatic cap on the amount Congress can spend. It’s not as draconian a cap as the Hatch Balanced Budget Amendment, which all 47 Senate Republicans signed on to in March because it would send spending back to pre-Great Society levels and require a supermajority to raise any additional revenue. Against that economic inanity, the Corker-McCaskill cap might seem reasonable (as spending-only fixes for a primarily revenue problem go). Corker-McCaskill would limit total government spending — including on Medicare and Social Security — to a fixed percentage of gross domestic product. Last year, spending was at 23.8 percent of GDP; starting in 2013, the CAP Act would curb spending to 22.25 percent, lowering it until it reached a permanent limit of 20.6 percent in 2023.

If spending exceeds the cap, automatic cuts to the fastest-growing categories of spending would kick in (though Congress can override the rule with a two-thirds majority vote). Why 20.6 percent? Well, that was the historical average over the past 30 years. But beyond the question of why the last three decades, during which we’ve witnessed a historic decline of the middle- and working-class, should be our economic benchmark, there are some very real reasons to reject this new bipartisan solution.

First things first: It’s not a measure to reduce the deficit. Absurdly, it would limit public expenditures to an arbitrary number even if the federal coffers were flush with cash. It also ignores revenues, which are at a record low due to a combination of the recession, widespread corporate tax-dodging, and low rates with wide loopholes. For these reasons, one can’t seriously claim that it is a prudent fiscal measure.

Worse yet, it’s a depression maker. A policy device that automatically cuts government spending when GDP falls — when our economy is weaker — is a nifty gadget for turning recessions into depressions. This isn’t a hypothetical consequence, either: In 1937, Franklin Roosevelt cut back spending, and the country slid back into the Great Depression. In 2010, the United Kingdom cut spending and zeroed-out its GDP growth. Had Congress been unable to inject new money into the economy in 2008, when the recession caused private businesses and households to cut back, we would have reached 11 percent unemployment, according to the Congressional Budget Office. Corker and McCaskill might point to the act’s two-thirds vote override provision, which could be used in an emergency. But don’t count on Congress to act with unanimity in an emergency; neither the Recovery Act nor the Troubled Asset Relief Program — essential pieces of legislation that saved the economy from total collapse — garnered that many votes.

The cap would also mean major cuts to the entitlement programs that three out of every four Americans want left alone. Here’s some context for that 20.6 figure: Under Ronald Reagan, spending on health care and senior citizens was more than a third lower as a share of GDP, and total spending still averaged only 22 percent of GDP. According to the Center on Budget and Policy Priorities, the proposed cap would lead to cuts of $1.3 trillion from Social Security, $856 billion from Medicare, and $547 billion from Medicaid over the first eight years of its operation. Recall how Republicans’ midterm campaign ads about the Affordable Care Act’s $400 billion Medicare cuts turned seniors against the party of Medicare? Now Republicans are luring Democrats into endorsing a cap that would cut entitlements even further (and into justifying tax breaks, not expanded health care).

Legislators may assume that the average voter won’t grasp how capping spending at our historical average will actually diminish health and retirement benefits. If you’re used to thinking about debt in terms of a monthly credit-card bill, capping the credit limit seems reasonable. But if your bills keep growing — because, for example, you start supporting aging relatives — capping it will mean you and your family will just have to go without. Sen. Manchin, from a state where one out of every six residents is a senior citizen, tried to have it both ways, endorsing the entitlement-cutting cap while paying lip service to “keep[ing] … our promises to seniors by protecting Social Security and Medicare.” But make no mistake, a vote for a global spending cap is a vote to cut Social Security and Medicare, and soon.

Manchin can contradict himself with such ease because a GDP spending cap makes the components of the federal budget even more invisible than they are now. But in reality, every percent of GDP in spending makes up some slice of the American quality of life. Veterans’ benefits and services are nearly a percentage point of GDP today at $125 billion, and that share will only grow with the long-term costs of treating Iraq and Afghanistan vets. Education is just under half a percentage point.

The most dangerous part of a permanent cap on spending, however, is that it locks in today’s meager levels of public investment. It would permanently preclude us from making the commitments we should be making to “win the future,” such as to universal child care (which would cost another half a percent) or universal public college tuition, an additional third of a percent. The U.S. currently spends only about 16 percent of GDP on social benefits such as health care, education, housing, and retirement, with private spending picking up the slack. France and Germany, on the other hand, spend over 25 percent of their GDP on these social programs.

As middle- and working-class families lose jobs, wealth, and income, conservatives are trying to argue that our government not only can’t afford to help today but couldn’t even if it raised more revenue in the future. It’s brilliant politics to try to write America’s uniquely ungenerous welfare state into permanent law without having a transparent conversation about it, because as the town halls are revealing, citizens are dissatisfied. For the first time in generations, a critical mass of Americans is aware that the middle class is endangered and that the economic status quo isn’t going to guarantee their children a shot at the American dream. Fifty-five percent think the next generation will be worse off.

The good news is that our country is rich enough to afford the existence of a future middle class; we have a record number of billionaires and near record corporate profits. The problem is that this unprecedented private wealth is being hoarded, and we’re collecting only about 1 percent of GDP in corporate taxes. If our politics functioned well, we could be on the verge of an uprising, a real social movement for public answers to the private questions that keep working families up at night. Democrats, the erstwhile party of the working class, would reject a plan that essentially makes permanent the conservative economic vision. But the CAP Act keeps gaining Democratic co-sponsors who don’t seem to realize that the proposed legislation doesn’t limit deficits; it limits their power to make Americans’ lives better, for this generation and the next.